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Creative Leisure News
2677 Ashley Ct.
Tremont, IL 61568
Phone: 309-925-5593
Fax: 309-925-9068
Email: mike@clnonline.com
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Date:
April 2, 2001 TABLE OF CONTENTSCOMMENTARY: FLAT SALES, FOR HOW LONG?If your business is disappointing these days, you're not alone. I'm hearing lots of gloomy reports from vendors, some of whom are laying off employees.Meanwhile, reports from retailers aren't so good, either. One source, who deals extensively with independents said, "I haven't heard anything good in a month." Chains report their same-store sales this week, but I see no signs that the numbers will be strong. In a previous issue I said the major question for the early part of 2001 would be testing the old industry maxim that tough economic times actually help our industry. So far, it doesn't seem to be true, although it's early. The stock market may be going to hell and some well known companies may be making headlines with layoffs, but housing starts, unemployment, and even consumer confidence figures are still good. In other words, the jury is still out.
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1ST QTR. STOCKS: SOME SURPRISESIndustry related retail stocks performed better than many might have expected. Our CLN Index rose 4.4% while the Dow dropped 8.4% since December 28, 2000.Hancock was the big winner, more than doubling to $7.55/share. Ames performed surprisingly well, rising 45.4%, because it ended 2000 at $1.44. Michaels and A.C. Moore showed double-digit gains, while the two losers were the chains with the most stores, Wal-Mart and Jo-Ann's. The numbers: Hancock, +119.6% ... Ames, +45.4% ... Michaels, +13.0% ... A.C. Moore, +11.4% ... Rag Shops, +4.0% ... Wal-Mart, -4.9% ... Jo-Ann's, -33.0% ... CLN Index, +4.4% ... DJI, -8.4%.
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EXEC CHANGES AT MICHAELS, JO-ANN'SMICHAELS. John Martin resigned as President/COO. The company has begun a search for a replacement. In the meantime, CEO Michael Rouleau assumes Martin's duties, which he had performed until Martin was hired in June, 1999.The Michaels board of directors also extended Rouleau's contract for an additional three years, through January 2006. JO-ANN's. Named Dave Bolen as Exec. VP of Merchandising and hired Michael Edwards as Exec. VP of Operations. "With these appointments," said Chair/CEO Alan Rosskamm, "we round out the leadership team that will concentrate on improving the productivity of our existing store base and inventory management processes in order to restore profitability. "David and Michael bring a fresh perspective to their positions," Rosskamm added, "which is essential with the challenges in front of us." Bolen, 49, joined Jo-Ann's in 1997 as Sr. VP/General Manager of the Jo-Ann etc superstores and was promoted to Exec. VP of all stores in December, 1998. Bolen has served as the interim merchandising exec for the past six months. Bolen had been Exec. VP of Operations for Michaels and before that, COO/Exec. VP and Director for Leewards. Edwards, 40, had been Exec. VP/Merchandising and Chief Marketing Officer for West Marine, a boating supply store chain, and Sr. VP of Merchandising and Operations for CompUSA. He has also held management positions with Target and May Co. He is currently Chair of iGo Corp., a B-2-B electronic commerce solutions firm.
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AMES: BAD NEWS, PT. IFor the fiscal year which ended February 3rd, there was a net loss of $241 million ($8.19/share). The previous year had seen a net income of $17.1 million ($0.62/share). The fiscal 2000 numbers include non-recurring charges (internal restructuring and closing 32 stores) of $151 million ($5.15/share).Excluding those charges, earnings from operations were $900,000 ($0.03/share). The mean estimate of analysts surveyed by Thomson Financial/First Call was for earnings of $1.06/share, excluding the charges, Dow Jones News reported. Net sales for the year, which had 53 weeks, rose 5.3% to $4.0 billion, but same-store sales fell 2.1%. For the fourth quarter, there was a net loss of $152 million ($5.18/share). This includes those non-recurring charges of $151 million. A year ago there was a net income of $96 million ($3.23/share) for the quarter. The quarter's net sales rose 4.2%, but same-store sales fell 3.0%. Chair/CEO Joseph Ettore said the year was "challenging. We were adversely affected by poor weather in both spring and summer," he explained, adding that weather and higher fuel bills significantly decreased the spending habits of Ames' customers. Ettore said he expects this "difficult economic environment" to continue throughout 2001. Ames' inventories are 13% lower than a year ago; capital spending was cut by nearly $100 million; and there were significant employee cuts in the field and at headquarters. Marketing and ad budgets were cut, too. Ettore says these actions will lower SG&A expenses by $100 million this year. Last month Ames secured a new, $800-million financing agreement with GE Capital. The three-year facility is $150 million more than its previous facility with Bank of America.
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AMES: BAD NEWS, PT. IIAfter Ames' higher than expected losses, Standard & Poor's and Moody's cut the ratings on Ames senior notes. Moody's believes the liquidation of the Bradlees chain will hurt sales in the first quarter, but the elimination of the chain should help sales later in the year.When a company's credit rating has been cut, traditionally the company has to pay higher interest rates for future credit. Investors have punished the stock price, which has now slipped below $3/share. The 52-week high was set last April 13th at $30.25/share. Ladenburg Thalmann downgraded the stock to Long-Term Hold. In March, Ames opened three stores in Chicago; one in Columbus, OH; and one in North Brunswick, NJ, raising the store count to 452. Only five new stores are planned for this year. SPECIAL REPORT: CREATIVITYAs I reported in my last issue, my column in the March issue of CNA about industry practices stifling creativity seemed to set off an avalanche of calls and emails from vendors, designers, and retailers. My comments in the last issue of CLN set off yet another wave.The purpose of this report is not to bash anyone or any segment of the industry. However, creativity has always been a key to the industry's success. Yet according to the HIA's latest study, the industry has been flat and the number of U.S. households in which crafting has taken place in the past year has declined. There may be numerous causes of the mediocre sales, but the industry's failure to better foster creativity is certainly one of them. So let this report be the start of something positive. Let's get the problems out in the open; then let's figure out what to do -- together -- to solve them. I want your comments, feedback, and suggestions, anonymous or otherwise. Call 309-925-5593 or email me. Here is a summary of the major points made by the writers and callers, followed by a sampling of their comments. 1. Some vendors are taking designers's ideas and making them their own. 2. Some vendors are ripping off other vendors. 3. Some buyers will take one vendor's prototype and give it to another vendor or importer to make a cheaper knock-off. 4. Buyers' hesitancy to take a chance on new products discourages vendors from developing them. 5. Buyers' constant emphasis on lower prices, ad allowances, buybacks, and other goodies leaves the vendors with such small margins that they can't afford to develop new products. 6. Operations problems can cause new-product tests to be faulty. 7. POS technology gives buyers excuses to drop a new product before it has time to find its audience. 8. One-sided "partnerships" discourage vendors from trying to work with retailers.
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CREATIVITY: RIPPING OFF DESIGNERS"I started designing needlepoint about 16 years ago for my mother who owns a quilt and needlepoint shop here in North Platte, Nebraska, I have had nothing but heartache and problems."I've had people requesting portfolios and either never returning them or discovering my designs were copied. I also design rug hooking kits, but I am left to wonder how I can get my work out and not be taken advantage of. "I, like you, am not sure where this will leave the industry." -- Vicki B. Schoenwald, Hide N' Seek Design Studio/Jo's Stitchery & Quilt Shop, 408 N. Chestnut, North Platte, NE 69101; 308-532-3225; stitches@inebraska.com
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CREATIVITY: VENDORS KNOCKING OFF VENDORS1. At a recent trade show, a vendor found his new product in a competitor's booth. The competitor had taken the item and slapped his own label on top of the original label!2. Sometimes the copying is unwitting: A vendor went to the Orient and made arrangements to have prototypes made from his 24 sketches. Then he returned, chose 12, and had them produced. Months later he unveiled them at a trade show, and about ten booths down the aisle, another exhibitor was showing his other, rejected 12 designs. The second exhibitor had gone to the Orient and told a manufacturer the kind of product he was looking for. The manufacturer took out the dozen items that had been rejected by the first vendor and said, "Well, how about these?" 3. "These whining vendors are getting exactly what they deserve, the way they rip each other off. There hasn't been anything innovative in three years or so. Their idea of creativity is changing the racks and the labels." -- Art Materials Retailer (4 stores) 4. "Product rip-offs are quite prevalent in Hong Kong. A major buyer will go to one showroom and take a sample and give it to another showroom to match. I think more suppliers should protect their work, even in the Orient." -- European Retailer
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CREATIVITY: HESITANT BUYERS(Note: Many small companies feel they are ignored by the media and retailers, as evidenced by the following email.)"We are a small company in terms of our competition, but we make great, innovative products. We just have lousy distribution. There are other great small companies besides us. Why are we deemed unimportant, put by the wayside and basically stepped over? "Let's think back to what supposedly makes our country great: competition, capitalism, not monopolies and price setting. I cannot tell you how aggravated and frustrated I am right now about the craft industry cliques'. "Each year we strive to find really new ideas to make so we can present state-of-the-art products that haven't been thought of before or products that will make our time-consumed lives easier. "I am distraught and thoroughly disgusted by this industry. If it weren't for the Pollyanna in me, I would give up. And I know there are companies who are giving up, woodworkers who are giving up, companies being put up for sale. Why? "I'm not saying I should be sitting on top of the world because I work so hard, but our company makes excellent products, our customer service is great, our bills are paid, and we are dedicated. Does that count for something?" -- Small Art Materials Manufacturer
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CREATIVITY: LACK OF RESOURCES(Note: This is from Cindy Groom Harry, CEO of Craft Marketing Connections, a product development/marketing firm with extensive experience in the craft and gift markets.)"My concern is for the larger manufacturers in both markets who are under such pressure (be it from investors or internal management) to produce with continually decreasing raw costs and with increasing speed, that they don't have the budget or the time to produce a unique, well-marketed product. "A good job includes conducting adequate consumer research and fostering relationships with artists/designers who have unique ideas, knowing the consumer, and having a vision for future trends. A good job also includes creating a development team with the resources and time to create a unique product that has line extension potential. "As you've identified, the lack of time and the budget constraints encourage knock-offs -- Let the other guy figure it out....' Consequently, both the gift and craft markets are flooded with me-too's that discourage the consumer. "In the gift market this has caused a serious recession. Is our industry headed for a more serious recession because we don't place a high enough value on uniqueness, and our bored consumers just head to the Internet instead?" -- Cindy Groom-Harry (Note: Cindy can be reached at 712-278-2340.)
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CREATIVITY: BUYERS AND RIPOFFS1. "I got a kick out of your comment in this week's news regarding buyers taking one vendor's product to another vendor. I had a big problem with that at one chain, and for that reason I don't even call on them anymore."I tried for years to get them to buy two very saleable products, and all I got was promises. In one instance, I showed them where they had seven different publications on the counter featuring one of our products and told them I could not believe they would not buy at least one of our products to support all of the publications. "Virtually every designer in this industry was featuring this product but, low and behold, when the chain put the item in, it was a knock-off from our competitor. "After this happened again on a different product and I was knocked off by the same vendor, I gave up. "I guess my vindication will come when we have a hot item with the other chains, and this knock-off buyer doesn't know about it and gets fired!" -- Medium-sized Needlework Manufacturer 2. Another manufacturer, who has a factory in China, called with this story: He showed a prototype to a buyer who was very interested. After he left, the guyer gave the prototype to an agent, asking for a cheaper copy. The unwitting agent took the prototype to the original manufacturer's plant in China! 3. "I think small factories have more to fear from their large customers than from their competitors. In many cases their perceived customer is their biggest competitor. At least with a non-retailing competitor, they still have the ability to try and sell to an existing customer base. When they give a sample to a customer they are attempting to sell, and that customer ships all of those samples to the Orient to knock off, they are locked out for good." -- Manufacturer's Rep
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CREATIVITY: PRICE SQUEEZING"We have stopped taking or offering consumer promotions and educational programs to a particular chain. Why? Because their merchandising staff, especially at the divisional level, is so focused on lower prices, lower prices, lower prices that we are forced to cut our selling prices to the point that there's nothing left to offer them in terms of marketing funds."We have items that we make $.10 profit on and they make $.75 profit. And they talk about partnership? "One chain in particular is already giving the consumer a better value than she expects. Some of their retail prices are almost silly. The problem is, other retailers then lower their prices to "match" them. Then the chain thinks it's losing its lower price advantage and then they call the supplier and ask for ANOTHER price reduction." -- Major Craft Manufacturer (Comment: This doesn't leave much money for new product development.)
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CREATIVITY: FAULTY PRODUCT TESTS"I spent a fortune (for me, at least) on a big new line; one buyer loved it, but said it should be tested first. I later visited the stores to see how the line was selling -- and in half the stores the product never got out of the back room!"The test was deemed a failure and of course I had to pay for the products to be shipped back to me. When I received the boxes, it was apparent some of them had never been opened. "It wasn't the buyer's fault. I guess the store managers were just too overworked and my product fell through the cracks. "But I tell you, that was the last time I spent money on something really new." -- Mid-sized Craft Manufacturer
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CREATIVITY: LETTING PRODUCTS FIND AN AUDIENCEIn the past, new lines were allowed time to find an audience because retailers didn't realize how slowly they were selling. Not any longer, thanks to POS systems. And as technology has given buyers more immediate data, chains are giving buyers more pressure to produce -- now.Carol Duval, star of her own series on the Home & Garden cable network, says the same thing is happening in television. The tv ratings systems are now so sophisticated networks cancel series more quickly than ever. Many series, like many products, may deserve a quick death, but many others might have become the next Cheers or fabric painting.
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CREATIVITY: UNEQUAL "PARTNERSHIPS"Many vendors are less inclined to develop creative products or promotions because they resent the way they're treated by buyers. The buyers and their bosses may talk of partnerships, but many vendors don't see it that way.1. "Some buyers create no feeling of loyalty and are always saying, Well, there are other suppliers out there who would love to have our business.' "What a great way to treat long time vendors. "We stood by them during their tough times; then, when all that is done, they come to the HIA show and threaten companies who are asking for 3-4 % price increases because their employees would like a tiny raise, freight and utility costs are soaring, and health care costs are ballooning. Sometimes we say, If the tables ever turn . . . .'" -- Large Craft Manufacturer 2. The following is a memo sent by a buyer to prospective vendors, one of whom emailed it to CLN: "There has been several questions as to who is responsible for the cost of getting the samples to the 2002 product review. Allow me to resolve the confusion: It is your responsibility to ensure that your samples are paid for to and from the 2002 product review. Along with ensuring they arrive here on time and are in one piece. "If you feel you can not afford to pay for the shipping of your samples, please let us know as there are many other manufactures who would like a chance to participate." (Comment: Of course prospective vendors should pay the postage, but the tone of the memo certainly doesn't sound like the start of a long, equal friendship.)
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RANDOM NOTES, RANDOM THOUGHTSOK, people have had a chance to vent about product and design knock-offs. Now, what do we do about it?What you've read above is really just a sampling of the comments I've heard. We probably don't need any more tales of woe to know that, for various reasons, there aren't as many truly creative products reaching the consumer as there should be, if we want the industry to grow. What I need from you now is suggestions on how to improve the situation. I'll present my thoughts -- and any you'd care to mention -- in my next issue. Call 309-925-5593 or email me.
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MISCELLANEOUS NEWSACQUISITION. Yaley Enterprises has acquired Deep Flex Co. and will be relocating the company to Yaley's facilities in Redding, California. Deep Flex will become a division of Yaley and will be led by Ed LaFley.SHOWS. As part of its 25th anniversary celebration, ACCI is compiling its "Top 25" lists of of pioneers, products, and trends that have impacted our industry in the past quarter century. Submit your "Top 25 List nominations to Alicia Sheerin, c/o I.Q. Promotions, 406 E. Hinckley Ave., Ridley Park, PA 19078; fax 610-521-5406; email iqpro@aol.com TEST. Home Depot is in the midst of an interesting test, the Wall Street Journal reported. In an effort to increase sales in existing stores, the chain is testing Service Performance Improvement, a program designed to eliminate aisles overflowing with unstocked merchandise and to focus on sales. Essentially, employees in the 48 test stores are not allowed to stock merchandise from 8 am to 8 pm. The policy is expected to be implemented in 1,000+ stores early next year. TV. The 12th series of America Sews with Sue Hausmann uplinks this Sunday. Call your local PBS station and ask that it carry the series. PEOPLE. Popular industry veteran Duane Parker is National Sales Manager of the Floral & Craft Division of FPC ... Charles Smith takes over as CEO of CPE. Jeff Berline stays on as CEO ... Best wishes to Gordon Case, President/CEO of Bemiss-Jason, who is retiring ... Cilene Martins-Castro was promoted to Assistant Product Manager for DMC ... Faber-Castell USA promoted Bill Nicholson to Sales/Marketing Director; re-hired Scott Vinson as Industrial Engineering Manager; and hired Lisa Zolnowski as a Graphic Designer, Rob Ryan as Sr. Accountant, and Jeff Lockshine as Show/Event Coordinator. PR. Natural Science Industries's Bedazzler continues to attract phenomenal media exposure. In the last two months Rosie O'Donell has showcased the product four times and Jay Leno has featured it twice. The New York Times Magazine published an interview with Monica Lewinsky who said she likes to "bedazzle" in her spare time. Even Howard Stern got in on the action, making a quip on the Bedazzler and trailer parks. COURTS. A suit by the American Booksellers Assn. against Barnes & Noble and Borders begins next week in federal court. The ABA claims the chains use their clout to illegally demand major discounts from publishers, thereby hurting independents' ability to compete. SALES. Innovations, the new craft arm of Natural Science Industries, has hired the following rep groups: Stabile & Associates (New England/Mid-Atlantic); The Wyckoff Group (West Coast/Northwest); The O'Brien-Sexton Group (Midwest); and The Southern Group (Southeast). SHOWS. Floral Show 2001 is June 6-9 in Las Vegas. Exhibitors call 562-806-3388; buyers call 866-806-3388 ... The Super Floral Show is June 14-16 in Tampa. Call 480/998-3992; e-mail meetmore@aol.com; or surf to superfloralshow.com. DEMOS. Jo-Ann's offered free demos at three times on Saturday, March 24th. KIDS. Among many special events planned for ACCI's silver anniversary is a panel discussion on kids, toys, and crafts, moderated by Peter Russo, President of New Approach, a product development firm. Panelists include representatives from FAO Schwarz, Zany Brainy, and Family Toy. For show info, call 888-360-2224 or surf to accicrafts.org. CONSUMER SHOWS. Embellishment is July 12-14 in Portland, with classes beginning July 11. Call 713/781-6864; e-mail info@embellishment-show.com; or surf to embellishment-show.com ... Crochet Renaissance 2001 is September 21-25 in Indianapolis. It will also be the host of Knit Out, Crochet Too, September 23rd, as part of the Craft Yarn Council of America's annual Knit Out that will be held throughout the country. Call 219/589-4000; e-mail John_Boggs@whitebirches.com; or surf to CrochetRenaissance.com. ROLODEX. J. T. Trading Corp., 3 Simm Lane, Newtown, CT 06470. Call 203-270-7744; fax 203-270-8847. KNITTING. The Knitting Guild of America conferences are June 27-July 1 in Riverside CA; July 25-29 in Manchester, NH; and November 14-18 in Winston-Salem, NC. Call 800-274-6034.
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INTERNET & E-COMMERCE NEWSWEBSITE. The Society of Decorative Painters has a new site at decorativepainters.org.SALE. Joann.com Is offering "thousands of products" at 50-75% off at the site's Clearance Center. OOPS. Ames has stopped online sales at its website.
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THE CREATIVE NETWORK: JOB OPENINGSTo see a sampling of the current job openings and to contact The Creative Network, click on the "Jobs" button in the left hand column.
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THE CLN RETAIL INDEXA. C. Moore (ACMR). Last*: 9.12 ... Change**: +0.12Ames (AMES). Last*: 2.09 ... Change**: -1.72 Hancock Fabrics (HKF). Last*: 7.55 ... Change**: +0.75 Jo-Ann Stores (JAS.A) [a]. Last*: 4.40 ... Change**: +0.50 Michaels (MIKE). Last*: 29.94 ... Change**: +1.13 Rag Shops (RAGS). Last*: 2.34 ... Change**: +0.06 Wal-Mart (WMT). Last*: 50.50 ... Change**: +3.57 CLN Retail Index. Last*: 105.94 ... Change**: +4.3% Dow Jones Index. Last*: 10,876.850 ... Change**: +0.5% *Mar. 30 ** from Mar. 16 [a] voting share Note: Prices are exclusive of dividends
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REMINDERS1. Paid subscribers are invited to have their website evaluated by Lynn Carlisle of Carlisle Communications. She'll check the site and provide a confidential assessment and suggestions for improvement. Just email me or Lynn.2. If you want a hard-copy of this issue, and click on "Printer Friendly version". 3. If your company is a paid subscriber, employees in the main office are welcome to register, free. Tell them to go to the site and click on "Current Subscribers click here to register." 4. If you want to recommend CLN to a friend, use the "Tell Your Friends" box on the home page. 5. Creative Leisure News is published on the first and third Mondays of each month. Your next issue will be Monday, April 16th. 6. Have any rumors you need checked? Company news or comments on industry issues? Call Mike Hartnett, in confidence, at 309-925-5593; fax 309-925-9068; or email mike@clnonline.com.
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