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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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August 20, 2001 TABLE OF CONTENTSCOMMENTARY: ARTICLE TOPICS, NEW PRODUCTSThis issue includes a summary of what happened to dot.coms in our industry and why. Why did I pick this issue to report it? Simple. Because a subscriber asked me to. Do you have any subjects you'd like me to report on? If so, call me at 309-925-5593 or email me. I don't guarantee I'll write about it in the very next issue (that depends on how much news there is), but I will write about it soon.Also, I am in a quandary about reporting on new products. I usually don't print them, except for trade show issues, because if I put a numerous photos in an online issue, it would take forever for you to download it. They wouldn't come through on the fax version, either. So I've decided on a compromise. If you have a new product that is prominently displayed on your website, let me know. I'll include a very brief description and a link to your web page that displays the product; that way if readers want to look at it, they can go to your site. Email your info or mail it to 2677 Ashley Ct., Tremont, IL 61568.
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NEW OWNERSHIP PLAN FOR ZANY BRAINYRight Start, a specialty retailer of juvenile products for infants and young children, agreed to acquire the assets of Zany Brainy for $11.7 million in cash, 1.1 million common shares, and the assumption of about $85 million of ZB's debt. The deal is expected to close early next month.In recent years ZB had become an important potential customer for kids' craft vendors. Right Start, founded in 1985 as a mail order company, has opened 65 retail stores in 24 states since 1993 and, before the ZB announcement, had planned to open another 25 this year. There is also an e-commerce site at RightStart.com. The stock is traded on NASDAQ under the symbol, RTST. The stock closed Friday at $3.46. The 52-week range is $0.88-$3.79. The last quarterly report showed Right Start had a loss of $1.4 million on sales of $12.7 million. The day after the ZB announcement, Right Start arranged a $115 million credit line with Wells Fargo's retail finance division to help pay for the acquisition. It also agreed to sell 48% of the company to Waterton Management for $20 million. This is a completely different deal than had been announced earlier and reported in CLN, in which Waterton agreed to buy ZB's assets. The new deal is better for ZB's creditors, officials said, but no word yet if ZB's pre-petition creditors will receive more than 15-20 cents on the dollar, as was proposed in the original sale to Waterton, or if ZB's product mix will change. Approximately three times the size of Right Start, ZB filed for bankruptcy in mid-May, with liabilities of $131 million and assets of $201 million. Cash flow problems erupted after ZB had purchased its competitor, Noodle Kidoodle, and failed in its e-commerce efforts. It currently operates 187 stores.
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SCRAPBOOKING, I: WHY IT WILL STAY STRONG1. Americans take up to 9 billion photos a year. Those photos have to go somewhere.2. Countless numbers become addicts and go far beyond creating one family album. 3. Cropping get-togethers are the quilting bee of the new millenium. Some consumers will keep scrapping just for the social benefits. 4. Because of acid-free materials, the projects become timeless family heirlooms. 5. Because the results are family heirlooms, it's much easier for consumers to justify spending larger amounts of money. 6. Interest in genealogy shows no sign of decreasing. After consumers have gathered their family history, they'll want to do something with it. 7. History says, the more choices consumers have and the more innovations from vendors, the better the sales. New-exhibitor lists from HIA and ACCI show most of our innovations are in scrapbooking. 8. Scrapbooks can easily use a lot of product. That helps sustain strong sales. 9. Scrapbooks are extraordinarily adaptable; they can be as easy or as complex as necessary. Kids, teens, moms, and grandmothers can each do their own. 10. It's a wonderful, easy way to teach children about their ancestors and bond family members closer together. 11. Margins remain relatively high for many products, allowing retailers to make a reasonable profit. 12. Specialty shops have sprung up throughout the country, offering enthusiastic personal service and teaching that is sorely lacking for many other categories. The wealth of small memory vendors, who don't have the resources to sell to the chains, keep the independents supplied with wonderful products consumers won't find anywhere else.
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SCRAPBOOKING, II: WHY IT MIGHT DECLINE1. If the industry decides, "This can't last; better get out while we can", innovation will stop.2. The pie may be divided up into too many small pieces -- too many stores and too many vendors -- for the market to support them all. 3. Some of the new specialty stores are run by missionaries, enthusiasts who are content to share their love of scrapbooking with the world, but don't pay enough attention to the business of retailing. If these missionaries don't become at least part merchants, they'll fail. 4. A horrendous downturn in the economy. 5. Price wars cut margins to the point where it's not worth it to work hard selling supplies or creating new products.
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JULY: INDUSTRY DOLDRUMS CONTINUEBoth our chain and independent store sources report sales are pretty flat, and the July sales figures bear that out. July is traditionally slow in our industry and this year was no exception.In general, discount retailers fared much better than higher-end stores, as consumers continued to watch their purchases. The back-to-school season, often seen as a harbinger of Christmas sales, is off to a slow start, reported Wal-Mart. That's supported by the American Express survey, reported in our last issue, that consumers are planning to spend about 4% less this year on back-to-school purchases. The lackluster sales are dimming retailers' optimism for the holiday season. Both Business Week and CLN sources say retailers are being very cautious about import orders, preferring to sell out at higher margins and miss some sales because of empty shelves, rather than to be stuck with seasonal merchandise after Christmas. In fact, domestic vendors report orders are conservative, too. Michaels' same-store sales increased 4% and overall sales 16% to $159.4 million. For the quarter, same-store sales were up only 1% while total sales rose 12% to $486.1 million. Michaels will release its second quarter results Aug. 29, and will host a conference call at 4 pm CDT. To participate, call 973-628-6885. To listen over the Internet, visit videonewswire.com. A replay will be available until September 7 at www.thefirstnews.com or by phone at 973-341-3080, PIN# 2647139. Jo-Ann's sales rose 9.7% to $99.7 million in July and same-store sales rose 9.9%. The quarter's sales figures were 10.4% and 9.7% respectively. Officials attributed part of these big increases to the ongoing "SKU Reduction Initiative" which helps sales but hurts margins. We'll learn tomorrow about margins when the company releases its earnings report and discusses the results. You can listen to the discussion over the Internet at 10 am EDT at joann.com or streetevents.com. (At joann.com, click on "About Jo-Ann," then "Investor Relations" under the heading "Our Company," then click on "Conference Call".) Ames' July sales fell 8.9% and same-store sales dropped 7.7%, the latest bad news for the troubled company. (See related article, "Troubles Worsen For Ames " below.) Most other discounters fared better. Wal-Mart's same-store sales rose 6%, while Target's rose 4.6% and Kmart's rose 3.4%. These doldrums are not unique to our industry. In describing July sales, CBS Market Watch wrote, "Nothing shocking really, as evidenced by the flags of caution retailers have been waving during what has turned out to be one of the worst retailing years in a decade."
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HANCOCK: BASICALLY FLATSales for the quarter ended July 29 rose just under 1% to $86.8 million; net earnings were $590,000 ($.03/diluted share) compared with $582,000 ($.03/diluted share). Same-store sales rose 2.4%.CEO Larry Kirk said gross margins were slightly lower and expenses marginally higher than a year ago, and Hancock will continue its strategy to bolster its home dec, quilting, and special occasion wear (bridal, party, and prom) departments. "In short we are enhancing our offerings in higher growth product groups within our core business." During the quarter, Hancock opened seven stores, closed 10, and plans to open at least 15 more stores this year. The current store count is 436 stores in 42 states. A replay of a conferece call held in conjunction with the release of the quarterly figures is available on the company's web site (www.hancockfabrics.com; click on "Investor Relations," then "Conference Call") through this Wednesday and via phone by dialing 800-615-3210 and using passcode 5451150.
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TROUBLES WORSEN FOR AMESAmes announced Thursday that it will close 47 stores. Liquidation has already has begun and they should close by the end of October -- affecting about 2,000 employees in 10 markets. The closings, by state: Ohio, 15 ... Pennsylvania, 12 ... Indiana, 6 ... Virginia, 4 ... Illinois, 3 ... New York, 3 ... One each in Massachusetts, Maryland, North Carolina, and West Virginia."We've continued to see a softening economy in the last several months and don't anticipate much improvement in the short term," said Chair/CEO Joseph Ettore. Meanwhile, CLN has received calls from concerned vendors who haven't been paid lately and say the company isn't returning phone calls. The stock reached almost $50 in mid-1999 and closed Friday at 71 cents. Annual earnings/share dropped from $1.59 in 1998 to 62 cents in 2000. (Note: NASDAQ's rules are such that if a stock falls below $1, and stays there for a month, the company is warned and given three months to pull the stock price above $1. So Ames is in no immediate danger of being de-listed.) Ames was founded in 1958 by brothers Milton and Irving Gilman who opened the first store in the Ames Worsted Textile Company mall in Southbridge, MA. The original goal was to bring discount stores to smaller towns in the Northeast. The company grew and eventually went bankrupt after buying the Zayre department store chain. Joseph Ettore was hired and led the company out of bankruptcy and was named the "Turnaround Executive of the 90's" by Discount Store News. Last year Ames purchased 155 Hills Department Stores and 10 former Caldor stores, increasing the company's store count by about 50%. But problems began almost immediately. The current store count is 452 stores in 19 states and the District of Columbia.
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WAL-MART: STRONG SALES, BUT....For the quarter ended July 31, net income was up only 1.3% to $1.62 billion, although sales rose 14.5% to $52.8 billiion. President/CEO Lee Scott said, "Although we were unable to convert all of our revenue growth to earnings growth, I am confident we will leverage our top line growth in future periods."The earnings were in line with Wall Street estimates. Same-store sales for the Wal-Mart Stores division were 5.7%. Analysts said margins were down because consumers aren't spending, and need great pricing to buy even everyday basics. However, Robertson Stephens and Bear Stearns reiterated coverage of Wal-Mart at Buy. Wal-Mart, one of many retailers cashing consumers' tax rebate checks at no charge, said customers were spending 25%-30% of the amount in the store.
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NEW KNIT/CROCHET PATTERNS ON THE HORIZONASN is in the process of developing a line of knit and crochet fashion patterns for women size 12 or larger -- an overlooked market. Sixty percent of U.S. women are in this category. The new line will be more contemporary than classic, and will range from size 12 to 4x.The new line will include evening wear, holiday garments, coats, jackets, and "...really fun sweaters, with the lively feel of Michael Simon and Storybook Knits designs," says Rita Weiss, Exec. VP of ASN. "Designing for the plus size figure is not easy," Rita adds, "which is probably why there is so little available to them. As a woman puts on weight, her shoulders don't enlarge proportionally, nor do her arms grow longer. Knitters and crocheters come in all shapes and sizes, and dress size should not determine whether or not someone can make only afghans and baby clothes, instead of wonderful wearables. "Since larger sizes require a lot more yarn," Rita adds, "this should make the yarn manufacturers [and retailers] very happy."
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WHAT HAPPENED TO E-COMMERCE?It was two years ago that one of the most talked-about trends in industry history began to engulf us like a tidal wave. Craft Shop, Craft Click, Idea Forest, and Craftopia were the biggest players, spending millions and hiring some of the industry's biggest names. But there were countless others in development or emerging online.Then the tide receded faster than anyone thought it would. Wall Street's dot.com frenzy collapsed just as industry sites were going online and seeking additional funding. Investors pulled the plug on Craft Shop about two months after it went online. Craft Click bought a number of existing sites, paid for them with stock options, then fell apart. Idea Forest had to give up its own site and run the Jo-Ann's site, laying off dozens of workers, including the major industry personalities. Craftopia was sold to the Home Shopping Network which incorporated the site into its own. Other sites died before they could raise the millions founders thought were necessary to operate. The sites that became operational attracted millions of surfers, but in general were able to convert less than 1% into buyers. Here are some lessons learned -- the hard way: A. You can't spend your way to success in this industry. B. Millions of crafters love the Internet, but not enough of them -- yet -- will order online to support an expensive site. C. Online prices can be excellent, but shipping costs tend to make purchases no more economical than brick-and-mortar prices. D. To get the order price high enough to justify/leverage the shipping costs, consumers needed to buy all the products necessary for a project, but the majority already owned some of the items. E. If given the choice, most crafters prefer touching and buying our products in a store rather than online. F. Computers are not yet fast enough for impatient surfers to wade through huge sites with lots of bells and whistles to find the items they want to buy. So who's left and how are they surviving? A. Michaels.com and other chain-store sites, whose primary purpose was to drive traffic into the stores, rather than sell millions of products. B. Small sites that keep their costs low and are supported by another business, usually a successful retail store. The sites, often devoted to a specific category such as memory, stamping, or quilting, often follow the following strategy: a) Have the site built by someone local and inexpensive; b) Sell online only what's in the store; c) have store clerks help with picking, packing, and shipping. Some examples: Erica's: ericas.com ... Crafts Galore: craftsgalore.com ... More Than Memories: more-than-memories.com ... Art Cove: artcove.com. You can access numerous needlework examples at needleworkshowcase.com.
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RANDOM NOTES, RANDOM THOUGHTS1. In a recent issue of her newsletter, Trend Talk, Kathy Lamancusa cited some startling statistics about the Hispanic population in the U.S. -- Hispanics will soon be the largest single ethnic group in the country and already outnumber the entire population of Canada.That brings to mind the effort of a publisher in our industry a few years ago. She published instruction books in Spanish, and they fell flat because no major retailer would carry them -- except Wal-Mart. Most chains were structured so if the book went into one store, it had to go into all of them. Wal-Mart had the technology to stock the right books in the right stores. Clearly, the right titles in Spanish should sell well in the Southwest and in some major cities, but would flop in Peoria. The Hispanic market could be a great opportunity for publishers, independent retailers in the right locales, and chains who have systems sophisticated enough to stock selected products in the right stores. (Note: Check Kathy's website at lamancusa.com. For more information on Hispanic demographics, go to hispanic-market.com. 2. One problem that crops up from time to time: A major buyer makes verbal promises and plans with a vendor. The vendor begins gearing up for a substantial purchase order, sometimes ordering special racks. The buyer leaves and the new buyer, unaware of the previous discussions or has ideas of his/her own, drastically reduces the order. The Moral: don't gear up until the purchase order is in hand, but that's much easier said than done for many companies. 3. Fascinating article in a recent Wall Street Journal about retailers beginning to use software to determine when -- and how much -- to mark down inventory, especially seasonal goods. The article highlighted a pilot project between ShopKo and Spotlight Solutions, a new software company which was a test of its software, Markdown Optimizer. A variety of products, about 300, were included in the test. Results: the gross profit margin percentage improved 24% and ShopKo thinks it sold 13% more of each product at the regular price. Visit Spotlight's website at http://spotlightsolutions.com; to read the Journal article, go here.
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MISCELLANEOUS NEWSPEOPLE. Industry veteran Jane Anne Davis, formerly of Plaid, has been named VP, Craft Sales for Duncan Enterprises. She will be responsible for coordinating Duncan's manufacturer reps, in-house sales, and sales support efforts to craft and mass customers. She will continue to work out of her Atlanta location. Mark Peters has become VP, Business Development to pursue growth opportunities outside the craft channel ... Beryl Raff has been named to fill a vacancy on the Jo-Ann's board of directors. Raff is Sr. VP/GMM for the retail jewelry division of J.C. Penney ... ... American Traditional Stencils (ATS) named Jeanne Sprague as Director of Sales and Barbara E. Swanson as Creative Director ... Carlyle Industries, parent company of Blumenthal Lansing and Westwater Industries, named Chuck Sabosik as President/COO of Westwater. He succeeds Ivan Cohen, who resigned.SCRAPBOOKS, I. The next Memories Expo will be held in Denver, September 28-29, with 40 classes and special trade-only hours before the hordes of consumers arrive. Call 740-452-4541; fax 740-452-2552; email memories@offinger.com or visit memoriesexpo.com. SCRAPBOOKS, II. Memories Community, the organization for consumer enthusiasts, named three regional directors; Melissa Evans in the Southwest, Claudia Harrison in the South, and Lori Ducharme in the East. Directors are still needed in the Northeast, Southeast, Midwest, Northwest, and West, says Exec. Director Sandra Joseph. (For info, use addresses in "Scrapbooks, I" above.) Comment: The consumer group, Society of Decorative Painters, has been instrumental in the growth and sustenance of decorative painting. The Memories Community can do similar things for scrapbooking -- if vendors and retailers support it. SIGN OF THE TIMES. Crafts Galore is adding another 6,000 sq. ft. to its Centralia, WA store, primarily for scrapbooking and stamping. CLARIFICATION. In our last issue, we reported Forster was doing business as usual, despite the Chapter 11 bankruptcy of its parent, Diamond. That's a different company than Diamond Art & Craft Distributors in Dallas. Diamond Art is not in bankruptcy. CREDIT. A.C. Moore closed on a $50 million revolving credit agreement, which replaces the current $25 million agreement. The new credit line will be used primarily to finance its growth plans, officials said. ROLODEX. Westwater Industries relocated its corporate office to One Palmer Terrace, Carlstadt, NJ 07072. Call 201-935-6220; fax 201-933-8169. STOCK. USB Piper Jaffray upgraded Michaels to Strong Buy ... Morgan Keegan initiated coverage of Hancock at Outperform. LEGAL. Wal-Mart's legal problems are growing. A former employee filed suit claiming the discounter forced clerks to work off the clock, denied rest breaks, and committed other unfair work practices, Reuters reported. The suit seeks class action status for about 20,000 current and former hourly employees of 83 New York Wal-Mart and Sam's Club stores. Wal-Mart denied the charges ... The government filed suit against the discounter for violating the Americans with Disabilities Act when it declined to hire a job applicant in a wheel-chair ... We recently reported on six employees who had brought a sexual harassment suit, which, if allowed to become a class-action suit, would be one of the largest in history. BOARDS. The Wal-Mart board of directors elected three new members -- Dawn Lepore, vice chair/CIO of The Charles Schwab Corp.; Jim Breyer, the managing partner of Accel Partners, a venture capital firm; and Thomas Coughlin, President/CEO Wal-Mart Stores and Supercenters U.S.A. The board chair is Rob Walton, Sam's brother. AWARDS. HIA has issued a call for nominations for the various awards presented at the annual banquet during the HIA show in Anaheim in January. The Meritorious Award is for service to HIA; the Lifetime Membership Award is for a person, now retired or gone from the industry, who made valuable contributions to the industry; and the President's Award is for contributions to the industry through product innovation, and merchandising and marketing ideas that have moved crafts forward. The Awards Committee can also honor deserving industry members with a special recognition award for their personal contributions to society. Call 201-794-1133 for a nominating form. Forms must be submitted by September 5th. JOB. Leading industry manufacturer in the Southeast looking for a sales vp to manage mfr. rep groups throughout the country. For more info, call Paul Bailey at the search firm, Austin McGregor International. 217-235-1051. TAXES. Now that the tax cuts have been enacted, the government is saying the budget surplus won't be nearly as large as once anticipated. That greatly decreases the chances of the promised second round of tax cuts, which would have been geared towards business. CONDOLENCES. Our very deepest sympathy to the family of Connie Platt of Crop-In-Style, who was killed in an auto accident. Connie was 34; surviving are her husband, Curt, and two children, Hunter, age 6 and Skylar, age 4. A friend said, "Evidently, they needed a ray of sunshine and a bundle of energy up in heaven." Cards can be sent to Crop-In-Style, 9657 Mason Ave., Chatsworth, CA 91311. Donations can be sent to The Amanda Foundation (a non-profit animal rescue organization), 351 N. Foothill Rd., Beverly Hills, CA 90210.
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EMAIL: OUR MINIMUM WAGE EMPLOYEESA subscriber sent this note about a thought-provoking new book:"I just finished reading Barbara Ehrenreich's Nickel and Dimed: On (Not) Getting By In America. Ms. Ehrenreich, a N.Y. Times best selling author, went undercover to find out what it's like to work in the low-wage end of America. She basically left her home and life for about six months and took minimum wage, or close to it jobs, to see if anyone can actually survive on these wages. She worked as a waitress in Key West, a maid in Maine, and a Wal-Mart employee in Minneapolis. "Frankly, it was a depressing, saddening read -- and scary as well. "I am writing to you about the book because Ms. Ehrenreich basically worked the low wage jobs of many in our industry. This book gives you that other end of the spectrum, the hourly worker. "It was well worth reading and of course presents problems that are seemingly unsolvable. Most employers who read this book will be aghast, but if you ask any of them if they'd be willing to raise their prices 50% or more to pay employees better, we can pretty much guess what their response would be."
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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*: 16.40 ... Change**: -1.35Ames (AMES). Last*: 0.71 ... Change**: -0.45 Hancock Fabrics (HKF). Last*: 7.49 ... Change**: -2.56 Jo-Ann Stores (JAS.A) [a]. Last*: 4.63 ... Change**: +0.24 Michaels (MIKE). Last*: 39.14 ... Change**: -0.41 Rag Shops (RAGS). Last*: 2.15 ... Change**: -0.46 Wal-Mart (WMT). Last*: 50.80 ... Change**: -4.59 CLN Retail Index. Last*: 100.501 ... Change**: -7.3% Dow Jones Index. Last*: 10,240.70 ... Change**: -2.6% *August 17 ** from August 3 [a] voting share Note: Prices are exclusive of dividends
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ARE YOUR CHECK-OUT LINES GETTING LONG?You're heard of road rage? "Air rage" by airline passengers? Now there's "trolley rage" by retail shoppers in Johannesburg, Reuters reports. (Trolley being the British term for shopping cart.)Apparently shoppers are so frustrated by long check-out lines that they're resorting to violence over misunderstandings and people breaking into lines. One female shopper had her nose broken by another woman when she tried to put her groceries on the check-out counter before the first woman was finished, reported the Johannesburg Star.
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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 mike@clnonline.com or ljc@carlislecommunications.com.2. If you want a hard-copy of this issue, click on "Printer Friendly version". 3. If your company is a paid subscriber, everyone in the main office is welcome to register, free. 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, September 3rd -- Happy Labor Day!
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