Date: April 19, 2004
Vol. VIII, No. 8

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TABLE OF CONTENTS

COMMENTARY: ALL SORTS OF COMPETITION

If I had to label this issue, it would be "competition." Sometimes unrelated events occur in the same time frame, and next thing you know, you have, in effect, a special issue. I didn't plan it this way, but consider:

Now we have competition from Avon, who is selling scrapbook supplies ... A report on retailers leading the fight to stop Wal-Mart in California, claiming unfair competition ... An industry-related independent retailer is suing Donald Trump, claiming unfair competition ... "Vinny Da Vendor" weighs in on the competition between storeowners, e-tailers, and home retailers ... and Bob Ferguson writes about the competition between Chinese and U.S. vendors.

Business-Wise. What do Condoleezza Rice, gay marriages, and the craft industry have in common?

Legal Q. & A. A ceramic shop, You're Fired, in suburban Chicago is in a legal hassle with Donald Trump who is attempting to sell T-shirts and other products with the phrase, "You're Fired," from his tv series. Unfair competition? Our lawyer weighs in on the argument.

"Vinny Da Vendor". Retailing on the Internet. Unfair competition for storeowners? The issue may not be as simple as it appears.

Tech Topics. Are we paying a personal price for being so connected to each other? Do we ever stop working?

(Note: If you visit one of the columns mentioned above and it appears to be an "old" column, click the "Refresh" or "Reload" button on your browser.)

CLN's newest feature allows you to vote on national and industry issues. If you haven't already done so, vote for President. (Thus far, Bush is leading.) And our new questions: The year is almost one-third over. How have your sales been? (Remember you only vote once and all votes are completely confidential.) To vote, or to see the current results, click HERE.

Results from the second quarter indicate the retailer is reversing its recent decline. Income for the second quarter was up substantially to $344,000 ($0.07/diluted share) from $91,000 ($0.02). For the first two quarters, income was $588,000 ($0.12), compared to $602,000 ($0.13) a year ago.

Sales for the quarter were up 5.2% to $32.3 million for the quarter and up 3.3% to $66.1 million for the first two quarters. Same-store sales were up 0.3% for the quarter and down 0.2% for the first six months.

Bad weather in November and December and disappointing ad results hurt sales, but a new ad program instituted in December helped the turnaround, as did better sales and gross profits. Gross profit as a percentage of sales rose 1.2% for the quarter, thanks to an increase in vendor participation programs, a decrease in the estimated provision for inventory shrinkage, and fewer promotional markdowns. Freight costs were up, but there was a decrease in the initial merchandise cost.

Higher selling, general, and administrative expenses were due to additional payroll and payroll related expense (to staff larger stores). There was also increased advertising and insurance costs and increased professional fees.

The company also said there were no developments to report regarding its retaining the investment banking firm, SunTrust Robinson Humphrey, to "review possible strategic alternatives to maximize shareholder value, including selling the company."

President Jeff Gerstel said, "... we have begun to see progress. Our positive same-store sales this quarter reversed the trend from the two previous quarters, and our gross margin improved by 1.2% .... These performance results reflect management's efforts to improve our advertising and store experience while controlling margin, especially through initial merchandise cost and lower promotional markdowns. We continue to focus on increasing sales, improving margin and controlling our costs."

The store count is 69. Through the remainder of the fiscal year which ends Aug. 28, the company expects to open one store, relocate two, and close two.

By a hefty margin, voters in Inglewood, CA rejected a referendum that would have allowed Wal-Mart to build a supercenter without submitting to zoning, traffic, and environmental reviews. The vote was 61% to 39%.

The Inglewood city council had already turned down Wal-Mart's request, but the discounter spent more than $1 million to get the referendum on the ballot and campaign for it, the Associated Press reported.

Independent retailers helped lead the fight against the ballot initiative, saying it would hurt the community in the long run. Proponents claimed the supercenter would create jobs.

"This was a major victory," said Jerome Horton, a state assemblyman, told Reuters. "This was a test site for Wal-Mart. This would have set a national precedent and developers all over the nation were watching to see whether or not a developer could exempt themselves from complying with local laws. This was a much bigger issue than just jobs."

No matter how big or successful your company is, apparently there's always something to worry about. In a speech before the Little Rock (AR) Chamber of Commerce earlier this month, Wal-Mart CEO Lee Scott listed what he saw as immediate problems for the discounter, as reported by ArkansasBusiness.com:

1. Gas prices. Many Wal-Mart customers can't afford an extra $10/week for gas. High prices just give them less money to spend in stores.

2. Politics. The negative campaign ads are giving consumers a falsely negative image of the economy. Unemployment and jobs going overseas aren't as bad as they appear, Scott thinks.

3. Health care. Scott wants Washington to do something about spiraling health care costs. Wal-Mart already spends $2+ billion annually on its health insurance.

4. Public Relations. The company needs to do a better job convincing consumers of the value of a Wal-Mart store in their community – jobs created, tax revenue, etc.

(Comment: Interesting that Scott did not cite competition, from Target or anyone else. Wal-Mart seems virtually invincible these days, but so did Sears and Kmart at one time. Is Wal-Mart invincible? What should Scott worry about? Email your thoughts to Mike Hartnett at mike@clnonline.com – on or off the record. Actually, we don't think Scott is too worried about much of anything at the moment. Last Friday Reuters reported that Scott was paid $1.19 million in salary and received a bonus of $4.2 million.)

The national media continues to publish reports on scrapbooking, which should entice numerous consumers to try it. The latest example was the Apr. 4 edition of the prestigious New York Times. The article focused on the success of a jewelry company, Key Item Sales, that created The Memory Maker Photo Bracelet. The bracelet at retail from $20 to $30, reported the Times.

The article said news of the bracelet, which contains six small photo frames, spread like wildfire through scrapbook Internet bulletin boards. Abbie Rapport, the bracelet's inventor and co-owner of Key Item Sales, says the cyber word of mouth created such a demand that the bracelet is now sold in more than 15,000 stores, including Hallmark outlets, department stores, and of course scrapbook and craft stores.

The Times cited HIA's industry survey putting scrapbook sales at $2.5 billion, double the amount in 2001. The Times also quoted anthropologist Robbie Blinkoff, head of Context-Based Research Group. He said scrapbooking fits perfectly in the post-9/11 consumption habits. "There's a need for people to feel they're creating products that they have put time into and invested in.'' Blinkoff believes social events, such as crop parties, are a critical element in scrapbooking's appeal.

(Comment: The Times' scrapbook article is just one example of the media's continuing interest in scrapbooking. HIA's Don Meyer said in a recent two-day period, he's received calls about scrapbooking from National Public Radio, Greetings etc. magazine, Utah Business magazine, and Home Furnishing News. That's just in two days!)

Michaels same-store sales rose 7.0%, thanks to a 6% increase in the average ticket, a 3% rise in customer traffic, a 2% decrease in custom frame deliveries, and a favorable currency translation, due to the stronger Canadian dollar. Overall sales rose 12% to $283.7 million. Year to date, sales have increased 14% to $515.4 million.

CEO Michael Rouleau said, "Our sales results were driven by a brisk retail environment, improved merchandise offerings, stronger advertising execution, and higher inventory in-stock levels." Rouleau said the best performing regions were the Northeast, the Northern, and the mid-Atlantic zones, and the best categories were scrapbooking, custom framing, yarn, and general crafts.

Michaels also raised its earnings/diluted share to $0.36-$0.38 for the quarter and for the year to increase 16%-17% over last year's $2.54.

Jo-Ann's same-store sales jumped 6.8% and overall sales rose 8.3% to $159.4 million. Year-to-date sales are up 10.7% to $283.0 million.

A.C. Moore, which does not release monthly sales figures, reported that sales for the first quarter ended Mar. 31 rose 21.0% to $111.5 million. Same-store sales rose 9.4%. A pleased CEO Jack Parker attributed the strong results to better merchandising programs and weather. The company raised its first-quarter earnings estimate to $0.09-$0.11/share, before an accounting change that will reduce earnings by five cents/share.

The major fly in the ointment was Hancock, which continues to adjust to its new warehouse facility. Same-store sales dropped 3.6% and overall sales dipped from $42.2 million to $41.1 million.

Other retailers' same-store sales results: Chico's, +18.9% ... Nordstrom, +15.9% ... Limited, +15% ... J.C. Penney, +11.4% ... Costco, +11.0% ... Marshall Field's, +9.9% ... Sam's Club, +8.3% ... Gap, +8.0% ... Target, +7.8% ... Wal-Mart, +6.0% ... ShopKo, +5.2% ... Pamida, +5.1.% ... Pier I, +3.5% ... Dollar General, +3.2% ... Family Dollar, +2.4% ... Duckwall-ALCO, +2.4% ... Sears, +0.1% ... Kohl's, -0.9%.

In light of the annual changes in the Easter date, most companies were conservative in their estimates for April sales.

The first joint TNNA/INRG show, "The World of NeedleArts," set for Columbus, OH June 12-14 has already attracted a large number of exhibitors and attendees. To date, 386 companies have reserved 876 booths; a year ago, there were 216 exhibitors in 516 booths. A number of hotels have already sold out, but officials say rooms are still available, particularly at the Adam’s Mark Columbus and the Hyatt on Capitol Square which offer a free shuttle during Market events.

An expanded educational program of 111 classes begins June 10. Traditional TNNA events such as the Retailers’ Luncheon, NeedleArts Bee, Fashion Show, and Galleria will continue, and Needlepoint and Yarn groups will provide additional activities. The Manufacturers’ Reps will meet to discuss organizing, and the new Counted Thread Group will meet for the first time. A popular INRG event, the Sample Spree, will also be held.

Citing a 42% increase in attendance at TNNA's Long Beach show in January, officials are predicting "one of the largest attendance records in our history."

For more, call 740-455-6773, email tnna.info@offinger.com, or visit www.tnna.org. For Columbus info, visit www.columbusconventioncenter.com, www.surpriseitscolumbus.com.

Now that the rumors are dispelled and the Carol Duvall Show has been renewed, here's how to be considered to be included on the show:

1. Write, email, or call the Supervising Producer, Kelly Ehrlich, or the Coordinating Producer, Lisa Sichi. Include a BRIEF description of your work along with a sample or a photograph. The photo must be close-up, sharp (in focus), with an uncluttered background. Items will not be returned.

2 Include your name, address, and day and night phone numbers on everything you send.

3. "We will not go into pre-production until May 17th and will not be in the office until that date" Carol says, "so it is best to wait until then to send anything. If you send it a few days before that date, be sure to mark each envelope or package HOLD FOR ARRIVAL." Address items to Kelly Ehrlich or Lisi Sichi, The Carol Duvall Show, % Weller/Grossman Productions, 5200 Lankershim Blvd., Ste. #500, North Hollywood, CA 91601. The email addresses are kelly@wellergrossman.com and lsichi@wellergrossman.com.

"We move to the studio on August 9," Carol adds, "so any submissions should be sent prior to that time. For those who simply want to share one of their ideas for me to show or talk about, send your project, photo and/or letter at any time to Carol Duvall's Shoebox, 859 Hollywood Way, Box #629, Burbank, CA 91505."

Note: Carol's HIA special will be rerun Sat., May 1 at 5 pm EDT/PDT, and will include Sue Astroth, author of Fast, Fun & Easy Scrapbook Quilts published by C&T Publishing.

Note: In the last issue CLN reported that the government, after lobbying by the National Candle Assn., was slapping a 95% duty on most Chinese candles.

A comment on the National Candle Assn.'s attempt to once again get the U.S. consumer to pay ridiculous prices for candles. They have done everything in their power to thwart growth in the industry. Is it any wonder the overall candle business is way down the past couple years?

We sell American-made candles as well as those from offshore, and while the American ones are nicer than anything we can buy in China, the pricing is way beyond the means of most American consumers.

If we want to buy goods from China, I don't think the U.S. industry should be lobbying the government to raise duty rates to salvage their own business. Instead, they should find ways to produce goods at affordable prices or create such an exclusive or unique product that consumers are compelled to buy based on its merits.

Even with a 95% duty rate, Chinese candles are still priced at a range so much lower than what we can purchase in the U.S. that they are still a comparable bargain. Raw materials are priced essentially the same in the U.S. or China, and the manufacturing process is nearly all automated which eliminates most of the labor excuse. Finally, freight costs are much lower to ship candles from a U.S. manufacturer to a U.S. distributor than shipping from a Chinese manufacturer to a U.S. distributor, so why can't candles be produced in the U.S. that are comparable in costs to those produced in China?

Perhaps part of the answer lies in the cost of paying attorneys to lobby the U.S. government to raise the duty costs of Chinese goods, rather than finding ways to produce U.S. goods at reasonable cost. – Bob Ferguson, Ferguson Merchandising/Ben Franklin Crafts

Officials for Wal-Mart and Best Buy testified before a U.S. trade panel urging the panel to block the Bush administration's plans to impose stiff tariffs on Chinese color televisions, Reuters reported.

(Note: Is Bob right? What role should our government play regarding imports? Email your thoughts – on or off the record – to CLN at mike@clnonline.com.)

1. Tom Ware of BagWorks alerted me to a new email/debit card fraud. Tom received a message, seemingly from Citibank, telling him he needed to click on the link to complete various information. "The link," Tom warned, "though it looks real, evidently takes you to the crooks’ site, and they ask all the information that they need to use your debit card. NEVER USE A LINK IN AN EMAIL FOR SOMETHING CONTAINING PERSONAL INFO OF ANY TYPE!"

2. Everybody is writing about Wal-Mart these days. To read an extremely pro Wal-Mart piece, visit www.townhall.com/columnists/richlowry/rl20040408.shtml. Visit www.thedailyjournal.com/news/stories/20040410/localnews/204309.html for the opposite view. Both pieces are unfair, I think, but the opposing view is hilarious.

COMPANY FOR SALE. Well established, scrapbook manufacturer with annual sales of $3 million is looking to sell. The parent company is going in a different direction. Customer base includes independent scrapbook, rubber stamp and craft retailers. Could be easily moved to the buyer's facility if desired. For more information and a confidentiality statement, call Mike Hartnett at 309-025-5593 or email mike@clnonline.com.

COMPETITION. "I know in your past newsletters you have mentioned how everybody and their brother is on the selling-scrapbook supply bandwagon: local drug stores, Target, gift shops. Well, add in the cousins too! An Avon catalog was placed at my door the other day and I hadn't seen one in many years. I opened to find the usual stuff AND 2 pages devoted to a scrapbooking starter kit for a mere $19.99! UNBELIEVABLE!" – Annette Pfau, http://www.stamponthis.com

PAINTING. The 4/2 issue of the Wall Street Journal detailed the enduring popularity of painting teacher Bob Ross, whose tv series continue to be broadcast around the world, despite his death almost nine years ago. The series, The Joy of Painting, reaches an estimated 500 million households in almost 20 countries, and 200+ PBS stations in the U.S. "He has become one of the most recognized artists on earth," the Journal wrote. There are 11 years of shows (the last taped in 1993) which are broadcast in Iceland, the United Kingdom, Iran, Japan, and Bob Ross Inc. is talking to officials in Russia, Finland, and Poland. Today there are 3,000 Certified Ross Instructors teaching his wet-on-wet oil painting technique.

PEOPLE, I. Patty Fletcher joins Michaels as VP/Merchandising tomorrow. She had been Divisional Merchandise Manager and Buyer for Sears. Before that she held senior-level merchandising positions with Joske’s, Bealls, and Foley’s. She will have responsibility for floral and seasonal and the sr. buyers now reporting directly to Greg Sandfort – Ami Hutchings, Beth Raley, Gwen Edwards, Laura Sturm, Brigid English, and Celeste Morales.

SCRAPBOOKING. Attendance dropped a bit, 4,125 from 4,353, but the 70 exhibitors in 130 booths seemed pleased with the Memories Expo in Chicago earlier this month. More than 2000 class tickets were sold for the three-day education program, and 400+ people attended the two evening crop parties. Attendees came from 14 states, as far away as Nevada, Washington – and Austria. The remaining 2004 Expos are in New Jersey, Apr. 30-May 1 and Orlando, Oct. 7-9. For info, visit www.memoriesexpo.com, email memories@offinger.com, or call 740-452-4541.

PEOPLE, II. Industry veteran Barbara Weiland is Editor of Clotilde’s Sewing Savvy magazine ... Brenda Groelz is Edtor of Quiltmaker.

TV. Leisure Arts spokesperson Amy Ellison appeared on Living It Up with Ali & Jack last Tuesday, talking about a new book, Lampshades for Every Decor. The series is carried by 100+ stations across the country.

MICHAELS. The "open buying day" schedule for the remainder of 2004: June 8, Aug. 10, Oct. 5, and Dec. 7. It's only for new business from new companies. Sign up from 1-3:30 pm. All appointments are 15 minutes or less, even for multiple products.

QUOTATION. "I beg to differ with the nice comments about Hobby Lobby in your last issue. Yes, they do a lot of things right, but it's not fair that they copy products overseas, whether they're up front about it or not." – Large manufacturer.

ACCI, I. Beginning in May, ACCI exhibitors can post their show specials on the ACCI web site and links to their websites. They can post the info directly onto the site, www.accicrafts.org ... ACCI is also creating three kinds of free booth signs for exhibitors – for new products, show specials, and items ready to ship. The show is July 16-18 in Chicago, with education beginning July 15. Booth space, badges, and class and event tickets may be reserved online at www.accicrafts.org. A registration brochure can be requested by emailing accishow@offinger.com or calling 888-360-2224 or 740-452-4541.

ACCI, II. The House That Crafts Built was very popular at last year's show, and will return this year with the four rooms freshly re-decorated with projects donated by the Society of Craft Designers. There will be an opening breakfast at the House for exhibitors and the media Fri., July 16. House sponsorships are still available for $2,500 for this wonderful p.r. opportunity. The sponsor list already includes Delta, Duncan, FloraCraft and Walnut Hollow. For more sponsorship info, call Tracia Williams at 407-677-6929 or email traciaw@earthlink.net.

COMPUTERS. A.C. Moore has chosen Proofpoint Protection Server from Proofpoint, Inc., to "defend the company's 85 locations and 2,500 employees from spam, viruses, and other potentially malicious or offensive email." The press release claimed the Server reduced the company's spam and viruses by 65% in its first two days of operation.

NEEDLEWORK. The Crochet Guild of America and the Knitting Guild Assn. will sponsor two Fiber Arts Markets shows, one in Manchester, NH July 22-25, and one in Burbank, CA Oct. 21-24. For info, call 740-452-4541 or visit www.tkga.com, www.crochet.org, or www.fiberartsmarket.com.

NAME. Foss Manufacturing changed the name of its retail unit, Kunin Felt, to the Kunin Group. Officials say the change reflects the unit's direction to "expand its position as a manufacturer of non-woven fabrics in the retail consumer market." Kunin's product lines include Rainbow Classic Felt, Rainbow Plush Felt and its newest line, The Lane House Collection ... Hampton Art Stamps is now Hampton Art.

ROLODEX. Crafty Productions moved to 1679-A La Costa Meadows Dr., San Marcos, CA 92069. New phone: 760-736-8130; new fax 760-736-8131; new email: alice@craftyproductions.net ... AMACO: 6060 Guion Rd., Indianapolis, IN 46254-1222. Call 800-374-1600; 317/244-6871; fax 317-248-9300.

STOCK. One of the Zacks Expert Advice newsletters, The Validea Hotlist, recently gave its highest marks to Michaels and A.C. Moore. It's the first time in the newsletter's history that it's given such high marks to "two stocks that are virtually identical in their operations."

WAL-MART. A new study by the consulting firm, Bain & Co., found that companies who rely on Wal-Mart for 20+% of their business suffer a steep drop in profits, Reuters reported.

CLN will profile one company per issue, which will remain online for at least a year. A Profile is a perfect way for a new company to let itself be known to the industry, or for an established company to enhance its reputation by showing the industry its history, diversity of products, personnel, etc. For more information on how your company can be profiled, call Mike Hartnett at 309-925-5593 or email mike@clnonline.com.

THE CREATIVE NETWORK: JOB OPENINGS

To see a partial listing of the positions currently available, from the only personnel recruitment firm specializing in our industry, click on Jobs in the left--hand column.

A. C. Moore (ACMR). Last*: 28.06 ... Change**: +0.90
Hancock Fabrics (HKF). Last*: 14.91 ... Change**: -1.09
Jo-Ann Stores (JAS). Last*: 29.33 ... Change**: +0.01
Michaels (MIK). Last*: 49.38 ... Change**: +0.58
Rag Shops (RAGS). Last*: 3.60 ... Change**: No Change
Wal-Mart (WMT). Last*: 58.44 ... Change**: -0.16
CLN Retail Index. Last*: 183.72 ... Change**: +0.1%
Dow Jones Index. Last*: 10,451.97 ... Change**: -0.2%

Here's a major change I've seen in the 25 years I've been covering the industry: the amount of media coverage. For about twenty years, any mention in any media of any industry company or category was BIG news. Now, CLN could be filled with nothing else. Today it takes something unusual, like actor Russell Crowe telling a magazine how much he likes to knit, or major pieces by the New York Times and Wall Street Journal. So I don't report every media reference, but there are some smaller items that caught my eye:

The February issue of Real Simple has a wonderful piece by a mother saying how knitting helped her cope with the grief of a daughter who had died suddenly. "Knitting became a kind of prayer. I could spend hours knitting, and in those hours I could briefly escape from the grief that shaped my days," wrote Ann Hood.

The Apr. 15 issue of the Peoria Journal Star highlighted a first grade class at St. Mary's school in Metamora, IL. Teacher Barb Clem's class voted to give up morning recess every day so that on Fridays they would have two hours to spend on sewing, crafts, and cooking. The accompanying photo showed a six-year-old boy sitting in front of a sewing machine. Clem told the Journal she asked for volunteers to help with the project and so many parents and grandparents volunteered she had as many volunteers as students.

1. For more information on how your business can be the subject of a "Business

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xxx

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