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Creative Leisure News
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Date:
September 3, 2001 TABLE OF CONTENTSCOMMENTARY: THE SIZE OF OUR INDUSTRYIf the new HIA size of industry study, now online at hobby.org, makes you scratch your head at the numbers, keep in mind the following: instead of trying to pry confidential sales figures from HIA members, the research company went directly to consumers and asked them to keep a diary of what they spent and where.The numbers are substantially larger than any other study revealed, because the definition of "crafts and hobbies" was substantially expanded. That's why you can't compare the studies and conclude sales are up or down. For example, if someone on the consumer panel bought a can of Minwax at Home Depot to re-finish a desk, that would be included in the new study, but not the old. Oh, and the $8 billion figure for the "Needlecrafts" category? That category includes sewing, quilting, and the usual needlework categories. I was very dubious of the study until I interviewed Paul Mackey of Prim-Dritz, the Chair of the HIA market research committee. The interview will appear in next month's issue of CNA. I still question such a broad definition, but I'm far less dubious than I had been when I read the HIA press release. Even if you, too, are skeptical, the study can still help you with your banker or a prospective buyer of your business.
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MICHAELS: SALES, MARGINS, PROFITS UPFor the second quarter ended August 4, net income was $4.7 million ($ 0.14/diluted share) compared to a net income of $4.6 million ($0.13) a year ago. Excluding the after-tax effect of one-time charges associated with refinancing its 1996 bonds, net income was $5.5 million ($0.17). Analysts had expected the per-share figure to be 13 cents.Higher gross margins were a key factor in the improvement; customer traffic was flat, officials said, but gross margins rose to 32.8% of sales. The wood, framing, and yarn departments had been re-set, and they, along with decorative accents, were the top performers. During a conference call, Michael's execs said they had bought 10% fewer seasonal goods this year, but expect improved systems will negate any decline in sales, and the result will be fewer post-season markdowns. A new 700,000 sq.-ft. distribution center should open in Pennsylvania in about a year. It will handle about 53% more SKU's than the warehouses currently in use. The employee turnover rate is improving. The rate at the store manager level has dropped from 38% a few years ago to 20% now, and it's expected to decline to 15% next year. Consequently, employee training is not considered as critical as it once was. Michaels continues to train vendors in how to deal with the company. As a result, execs expect 50% of its vendor transactions to be conducted online via an Internet EDI network. During the quarter Michaels opened 13 stores, relocated 3, and opened 5 Aaron Brothers stores. A replay of the conference call is available until this Friday at thefirstnews.com, or by phone at 973-341-3080. Use PIN# 2647139. August sales figures will be released this Thursday along with a conference call at 7 am CDT. To participate, call 973-628- 6885. Immediately before and after the quarterly report, numerous stock brokers either reiterated or started coverage of Michaels' stock with Buy or Strong Buy recommendations. Some of them are SunTrust Robinson Humphrey, Hoak Breedlove, Wedbush Morgan, USB Piper Jaffray, Southwest Securities, CL King & Associates, and AG Edwards.
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JO-ANN'S: SALES, LOSSES INCREASEFor the second fiscal quarter and 26 weeks ended August 4, Jo-Ann's had a net loss of $16.1 million ($0.88/diluted share); a year ago the net loss was $10 million (or $0.55). Second quarter sales increased 10.4% to $330.2 million and same-store sales rose 9.7%.Sales, but losses, too, increased in part because of the company's SKU Reduction Initiative to sell off discontinued merchandise. Clearance sales began in May and contributed approximately $17 million in sales during the second quarter, officials said, but were recorded at a zero gross margin and lowered the overall gross margins by 2.3%. Other news: The transition of 300+ stores to the California distribution center is complete ... Corporate payroll has been cut 8% ... The clearance program, which ends in the third quarter, is now about 40% complete ... New etc stores may be a bit smaller than earlier versions. Comments from Chair/CEO Alan Rosskamm: "Overall, our performance in the second quarter was better than our internal expectations." ... "Even excluding clearance sales, our sales growth for the quarter was very healthy." ... "We expect to generate meaningful top-line sales improvement in the second half of this year." ... "Our sales performance this quarter demonstrates that when our stores are properly stocked and we execute sound operational disciplines, our customer base is there for us." Management expects a net loss in the third quarter, but the fourth to show better earnings than a year ago. The end result should be earnings of $0.65-$0.70/share, before any non-recurring charges associated with additional store closings, for the second half of the year. During the quarter, the company opened four Jo-Ann etc stores, relocated one traditional store, and closed seven traditional stores. The store count is 923 traditional stores and 65 Jo-Ann etc stores in 49 states.
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RAG SHOPS HIRES PRESIDENTAfter a very long search, Rag Shops hired Jeffrey Gerstel as President/COO. Gerstel, 37, had been Exec. VP/COO for The Parts Plus Group, Inc., which markets automotive products via wholesale distribution and through its 48 stores. Before Parts Plus, Mr. Gerstel served as Exec. VP of Family Bargain Corp. a chain of off-price retail apparel and housewares stores, which subsequently changed its name to Factory 2-U Stores.Stanley Berenzweig will remain as an active Chair/CEO. Rag Shops operates 66 stores in NJ, FL, NY, PA, and CN. The website is ragshop.com and the NASDAQ stock symbol is RAGS. The stock has traded between $1.94 and $3.00 in the past year.
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THE AMES BANKRUPTCY, PT. IOn August 20th, Ames filed for voluntary reorganization under Chapter 11 bankruptcy protection, listing assets of $1.9 billion and debts of $1.56 billion.There are two completed agreements for DIP (Debtor in Possession) credit agreements totaling $755 million, one with GE Capital for $700 million and one with Kimco Funding LLC for $55 million. Both agreements have since been approved by the court. Trading of Ames stock was halted with the price at 69 cents. Chair/CEO Joseph Ettore: "After considering all available options, and in light of today's difficult economic climate, we have concluded that reorganization is the best course for Ames. With the burden of our debt leverage and certain unprofitable leases removed, Ames will be better positioned to realize the strong potential of our solid base of over 400 stores."
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THE AMES BANKRUPTCY, PT. II1. A few days after the bankruptcy announcement, Ames reported a consolidated net loss of $26.4 million ($0.90/share) for the second quarter ended August 4. That compares to a loss of $22.1 million ($0.75/share) a year ago. Three analysts polled by Thomson Financial/First Call on average had expected the loss to be only 21 cents/share, Reuters reported. For the first six months of fiscal 2001, the losses have reached $54.2 million ($1.84/share) compared to loss of $51.2 million ($1.74/share) a year ago.2. Eric Beder, an analyst at Ladenburg Thalmann, told Dow Jones News that the likelihood that Ames will survive is 60%. He thinks Ames will close another 70-75 stores. 3. History repeats itself. In 1988 Ames bought the Zayre department store chain. The added debt drove the company into bankruptcy. Joseph Ettore led the company out of bankruptcy, then bought the Hills chain. The added debt drove the company into bankruptcy. 4. Tomorrow is the deadline for Ames to file a list of its assets and liabilities with the bankruptcy court. 5. Lately if craft vendors were asked which chain was the hardest/worst to deal with, Ames would win in a landslide. Apparently it's not just craft/sewing vendors who feel that way. On his website with a newsletter, The Bloom Report, for the toy industry, Philip Bloom wrote, "... you can't believe the amount of calls and emails we have received about Ames attitude'". Phil's very informative site is thebloomreport.com. Because of this "attitude", will Ames receive the goodwill and support from vendors it will need during this trying time? We'll see. 6. One vendor called after the bankruptcy announcement, chuckling. A couple of years ago Ames placed and received a $12,000 order for seasonal merchandise. It was sent on time and according to specs. The bill was paid. After the season an Ames exec said he wanted to return the entire shipment, and the vendor should pay the freight. "Didn't it sell? the vendor asked. Uh, it wasn't that. "We never got it out of our warehouse." The vendor refused to take back the merchandise. Ames threatened never to do business with the vendor again. The vendor held his ground and sure enough, Ames never ordered again. So when Ames eventually filed for bankruptcy, the ex-vendor wasn't owed a dime.
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MORE THOUGHTS ON SCRAPBOOKINGI attended a meeting at Promotions Unlimited last week where I was able to talk to a number of Ben Franklin retailers and execs at Promotions and Herr's (recently acquired by Promotions). A major topic of conversation was scrapbooking.Genealogy is not a major motivating force for consumers to create scrapbooks. A much stronger motivation is the birth of a baby. Many hospitals give new mothers a "goody bag" with items to take home with them and their newborns. I wonder if retailers could put together a little introductory memory kit to put in the goody bag. In a meeting of approximately 30 Ben Franklin retailers, each with 1-4 stores, every one said scrapbooking was the strongest category in their store. Herr's offers a far stronger/deeper memory department than I had realized. They set up a 90-sq.-ft. department for Gordon Bult's stores in New Hampshire. Gordon is very pleased with the sales. Herr's General Manager, Dave Sax, is committed to Herr's being a major player in scrapbooking.
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SIZE OF INDUSTRY STUDY ONLINEThe long-awaited, controversial 2000 Hobby Industry Association Nationwide Craft & Hobby Consumer Usage and Purchases Study is now available online.The study says consumers purchased $23 billion of an expanded definition of "crafts and hobby" products in 2000. There were four major categories: General Crafts, 41% ($9 billion); Needlecrafts, 34% ($8 billion); Painting & Finishing, 16% ($4 billion); and Florals, 9% ($2 billion). The Executive Summary is available at hobby.org. HIA members can access the Study itself by using their HIA username and password. Note: You will need Adobe Acrobat Reader software to download the study, but that's available, free, at www.adobe.com. HIA members can obtain a hard copy by sending a $10 check (payable in U.S. funds, drawn on a US bank) to HIA, Attn: Research Copy, PO Box 348, Elmwood Park, New Jersey 07407. To order via credit card, call 201-794-1133. Quarterly updates and CD-Roms are also available to members and, for a higher price, to non-members. For details, call 201-794-1133 or email sbrandt@hobby.org.
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MORE ON THE ZANY ACQUISITIONIn our last issue we reported that Zany Brainy, the bankrupt "edutainment" chain that sells a variety of kids crafts, was being acquired by Right Start, which sells products for infants and children via 68 retail stores, mail order, and an e-commerce site. The stock is traded under the symbol RTST. Here's what's happened since:1. Right Start received anti-trust clearance from the Federal Trade Committion for the acquisition. The deal is expected to be completed this week. 2. Right Start received notification from NASDAQ that the chain failed to comply with various NASDAQ regulations and was subject to delisting. The company has appealed. 3. According to Playthings magazine, look for 12-15 ZB stores to close and Right Start shops to be built in 130 ZB stores. ZB will also have an online presence again this year, in time for the Christmas season. 4. ZB execs still aren't saying if the acquisition will increase the amount of money the non-secured, pre-bankruptcy creditors will receive. At the time of the bankruptcy filing, officials estimated those creditors would receive 15-20 cents on the dollar. 5. CNA's editor Karen Ancona interviewed ZB's CEO, Tom Velios, who said ZB is as interested as ever in appropriate craft products. The interview will appear in the September issue of CNA, but is available now at .krause.com/crafts/cn.
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RANDOM NOTES, RANDOM THOUGHTSBarbara Horton emailed a note making me aware of a website, "Top 100 Crochet Sites" at top100sites.f2s.com/index.html. Actually, there are 187 sites on the list -- virtually all offering free patterns. It's hard to believe all of them are innocent of copyright infringement. Trust me, the amount of copyright violations on the Internet is astonishing. The worst is in cross stitch and crochet, but it is spreading throughout the industry. Some publishers seem to think the fight is hopeless, so they don't do anything. If they don't do anything, it WILL be hopeless.
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MISCELLANEOUS NEWSCONDOLENCES, I. The industry suffered another serious loss last week when Sally Cowles Strauss of Activa Products succumbed to cancer. Frank and Sally are institutions in the industry and Sally's charm, grace, and smile will be greatly missed. Memorials can be made to Massachusetts General Hospital, Cancer Research Center, Attn: Development Office, 100 Charles River Plaza, Ste. 600, Boston, MA 02114-9731. The funeral will be this Wednesday in Statesville, NC, and there will be a memorial service Sept. 15 at 1 pm at St. Mark's Episcopal Church in Westford, MA.SALES. Hancock Fabrics, usually the first industry retailer to report monthly sales, saw a solid 5.0% increase in same-store sales for the four-week period ended August 26. Other retailers will begin reporting their August sales this week. BACK TO SCHOOL. Wal-Mart has reversed its earlier statements about a slow back-to-school season and now says sales are better than expected. The full story will be revealed next month when retailers report their August sales. MEDIA. The ratings should increase for the craft shows on the Hallmark channel, now that the network is part of DIRECT TV's Total Choice package. This change expands the potential audience to 40 million households. PAINTING. Plaid is supplying One Stroke Certified Demonstrators for demos in hundreds of Wal-Marts this month. The program began Saturday and continues for the next two. They'll demonstrate the FolkArt One Stroke technique and Plaid's Paint for Plastic. Visitors to plaidonline.com can see a list of the participating Wal-Marts and can even type in the zip code of a nearby Wal-Mart, in the Plaid store locator, and a map to the store will appear. MEMORY. Designer and syndicated newspaper columnist Mary Engelbreit encouraged readers in a recent column to make a scrapbook for Grandparent's Day. Also mentioned were Maryengelbreit.com and an impressive scrapbook site, Gracefulbee.com. PEOPLE. Popular industry veteran Heinz Wilmink, formerly of DEKA, has joined the sales force of Jacquard Products and will cover the the mid Atlantic states of PA, NJ, DC, DE, and VA. Jacquard is produced by Rupert, Gibbon and Spider. For more info, call Heinz at 215- 493-1327 or the company at 800-442-0455 ... Dennis Gillund is the new ad rep for Krause Publications' Craft division. INDEPENDENTS. The Sierra Pacific Crafts group continues to expand. The latest member is Mark Dowling, with a Ben Franklin franchise in Burlington, VT. ONLINE. Tiffany Windsor Media has launched InspiredatHome.com, an online magazine featuring "creative home d‚cor and crafting projects, tips, information and hints, gifts, recipes, book and product reviews, shopping, and a sprinkling of fun, inspiring, touching, motivational and sometimes humorous stories from around the world" by sisters Tiffany Windsor, Heidi Borchers, and Candace Liccione. New product releases, event information, project submittals and advertising inquiries welcome. Email tiffany@tiffanywindsor.com, or fax 626/403-0793. A tv pilot will be filmed in October. STOCK. Wedbush Morgan initiated coverage of A.C.Moore at Buy. ACCI. Final attendance at the July show revealed a 7% decline over last year. That's pretty much in line with attendance at most of our industry shows this year. Non-industry trade shows have suffered, too; we were told the Rosemont Convention officials said most of the shows held there this year showed a decline -- and reports from the recent hardware show were very poor. Shows continue to be a place for learning, however. Almost 4,700 tickets were sold for the ACCI workshops and 1,000+ for the business sessions. The focus groups will be continued next year. MEDIA. CEO/Publisher Tony Hershman reports that his new magazine, Craft, Home & Style tripled its circulation in August, surpassing the company's projections, but gives no specific numbers. For more information call Steve Wiggins at 515-462-6799. FIGHTS. Sam Wyly, now the vice-chair of Michaels, garnered enormous publicity in his failed effort to take control of the board of Computer Associates, the third-largest software company in the U.S. The stockholders voted down his slate of candidates for the board, despite Sam spending $5-$10 million for ads in the Wall Street Journal and New York Times. The battle was the subject of major articles from Business Week, the Chicago Tribune, CNN, and others. To learn more about Sam, surf to samwyly.com. (Comment: Wouldn't the money have been better spent giving raises to Michaels' employees?) LAWSUIT. A U.S. district judge granted Binney & Smith's request for a court order prohibiting Rose Art Industries from allegedly violating the trademarks on Crayola's crayon boxes, reported The Morning Call, an Internet business news service. Binney & Smith had to post a $1 million bond to reimburse Rose Art for its losses if Rose Art wins on appeal. WEB. Faber-Castell USA launched its site at faber-castellusa.com. The new site highlights the company's brands such as Creativity for Kids and Coloring & Drawing. SALES. Industry veteran Ed Van Hoy is now an independent sales rep in California and is looking for more lines. Call 661-254-4644; email edvanhoy@prodigy.net. QUOTATION. "Don't forget that this economy was built by people who had no access to technology. They created it with talent and tenacity, not a T1 line." KNITTING. We have Warm Up America! and Caps for Kids, programs where volunteers knit afghans, caps, and other items for poor people, but the oldest program is Christmas-At-Sea. Last year 3,000 volunteers made more than 12,000 items -- scarves, sweaters, and caps -- for merchant mariners who will be at sea over Christmas, Parade Magazine reported. For many, the items were the only presents they received. The program was started more than a century ago, during the Spanish-American war. For info, write to Seamen's Church Institute, Dept. P, 241 Water St., New York, NY 10038. CONDOLENCES, II. Our best wishes to industry veteran and CNA writer Jan Evans on the death of her mother, Bernadine Mollet. A memorial has been established at the Fairview Heights, Illinois library where she volunteered for 20 years. It's a collection of craft, needlework, and sewing publications. The library will accept monetary donations, magazine subscriptions, or books with spines (hard or soft cover). Send your donation to Fairview Heights Library, Attn: Debbie Owen, Librarian, For the Bernadine Mollet Creative Collection, 11017 Bunkum Rd., Fairview Heights, IL 62208.
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EMAIL: CONSUMERS ARE THE ULTIMATE JUDGEIn our last issue, we published a note from a subscriber about a new book, Nickel and Dimed: On (Not) Getting By In America, which details the plight of minimum-wage workers in the U.S. The following is a sad-but-true response:Just wanted to comment on the excerpt about working for minimum wage. I hope to read the book -- it sounds fascinating. And I greatly sympathize with those who are killing themselves working at these wages and trying to make ends meet. If the employer is not treating them with respect, ethically, and in a dignified manner, then that is a terrible situation. Just for the record: as a company, we help when we can in a variety of ways (i.e., we have a no-interest, no-questions-asked policy on company loans up to $500 per employee. They pay it back at whatever timetable they choose.) But it is not the business owner who would object to raising the price of his/her products (at least not this one). The final judge of the product value and what it should cost is the extremely efficient and cost-conscious American consumer. Try selling a product in the store that is made with U.S. labor at minimum wage and what happens? The consumers don't buy it. That is why 80% or more of all toys come from China. The same goes for clothing, electronics, etc. Would the consumer pay twice as much for a pair of socks to cover a higher minimum wage? No way. They know what the cost should be and they won't pay a dime more. U.S. manufacturers are under increasing pressure to cut costs. That is ultimately driven by the consumer, not the owner. If you ask the American public, many will say they support higher wages. But if you ask them to support it with a purchase vs. talking, they will shop for the lower priced product from China nearly every time. Talk is cheap. So the next time someone advocates paying more to those that toil at the low end of the wage structure in America, ask them where they shop and would they be willing to pay twice the money for a TV, a pair of socks, or a toy. Ask them to look at the tags on these items in their houses and tell you what country those items come from. It's so easy to blame the business owner. -- Steve Graham, Toner Plastics
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EMAIL: COPYRIGHT VIOLATIONS(Note: CLN has published numerous articles and letters regarding consumers illegally loading copyrighted materials onto the Internet for the world to download. This note, however, offers some startling statistics and a teaching tool.)"I belong to an independent research group who has recently taken a close look at many of the infringing sites and groups, and we have gathered hard data on one such site: 49,500+ pages of infringed materials attached to some 32,000+ messages on one Yahoo group. "There are at least 20-25 groups on Yahoo at any given time. There are Yahoo clubs, MSN groups and individual sites. We now have stitchers offering CD's of downloaded protected material for sale and one who provides an ftp program so that infringers can download from her dedicated server. "Our group has tried to interest the publishers/designers in engaging in protecting their and their designers' rights with regard to this material. Sadly, some of the more damaged publishers seem not to have much interest in pursuing the matter. "We have prepared an educational CD for publishers/designers which you can access at: www.skinnersisters.com/copyright. "I can guarantee that once Leisure Arts debuts a book, the entire book will be uploaded within days. This deprives the publisher, the distributor and the retailer of sales and the designer of royalties. "I and other designers have been following this problem for over a year now and hope it will become the concern of all publishers and designers. It is our industry's "dirty big secret" and cannot add to the health of an industry all ready struggling with cyclic downturn. -- Linn Skinner, Skinner Sisters, www.skinnersisters.com
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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*: 14.64 ... Change**: -1.76Ames (AMES). Last*: 0.69 ... Change**: -0.02 Hancock Fabrics (HKF). Last*: 8.44 ... Change**: +0.95 Jo-Ann Stores (JAS.A) [a]. Last*: 4.80 ... Change**: +0.17 Michaels (MIKE). Last*: 42.02 ... Change**: +2.88 Rag Shops (RAGS). Last*: 2.25 ... Change**: +0.10 Wal-Mart (WMT). Last*: 48.05 ... Change**: -2.75 CLN Retail Index. Last*: 100.501 ... Change**: -0.4% Dow Jones Index. Last*: 9,949.70 ... Change**: -2.8% *August 31 ** from August 17 [a] voting share Note: Prices are exclusive of dividends
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THOUGHTS ON ADVERTISINGFrom a flyer distributed at a Promotions Unlimited meeting: "Why is it? A man wakes up after sleeping under an advertised blanket on an advertised mattress and pulls off advertised pajamas. He bathes in an advertised shower, shaves with an advertised razor, brushes his teeth with advertised toothpaste, and washes with advertised soap. Then he puts on advertised clothes, drinks a cup of advertised coffee, drives to work in an advertised car -- then refuses to advertise, saying it doesn't pay."And later, if his business is poor, he advertises his store for sale."
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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 17th.
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