Date: May 3, 2004
Vol. VIII, No. 9

Printer Version

TABLE OF CONTENTS

COMMENTARY: ALL SORTS OF COMPETITION

This and the previous issue of CLN have references to the Wall Street Journal, N.Y. Times, Trenton NJ Times, the Detroit News, and the Peoria Journal Star newspapers. The magazines referred to include Time, Business Week, Information Week, Creating Keepsakes, Home Textiles Today, and Real Simple. Other media included National Public Radio, QVC, CNN, the Coronation Street and Carol Duvall tv series, ArkansasBusiness.com, and even the Avon catalog. Plus there are results of market research studies by A.C. Nielsen, Market Facts, Creative Specialties Int., and Bain & Co. Then there's the Reuters, Associated Press, and Canada News Network news organizations, and countless press releases.

You must think I read a lot.

I do, but not that much. CLN subscribers tip me off to a scrapbook article here, a painting article there, or a crochet reference on tv. Then I can bring them to you and in many cases provide you with a link so you can read the complete article.

Thank you! Please, keep it up! Any media references to our industry, send me a quick note telling me, and if need be I'll find it.

Some day, when I attend my last industry trade show, I'm going to walk around and hand out T-shirts with "CLN Cub Reporter" on them. There's an offer you can't refuse, eh?

Business-Wise. Is the word "crafts" outdated? Is there a better term? Sandra Kay and Mike debate the issue.

Memory, Paper, & Stamps. An interview with Crafter's Home's Norm Carlson, probably the industry's leading spokesperson for the independent scrapbook retailer. Read Norm's take on the state of the industry today.

Legal Q. & A. Donald Trump vs. an industry-related independent retailer – the saga continues.

Designing Perspectives. Excerpts from trend guru Kathy Lamancusa's newsletter on market research on decorating styles.

(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. Our new question – for retailers and for vendors each: How have your sales been thus far this year? Up 10+%? Up 0-10%% Even? Down 0-10%? Down 10+%? Vote, then see how your business compares. (Remember, you can vote only once and your vote is confidential.) To vote, click on Industry Polls in the right-hand column.

And if you haven't already done so, vote for President. This particular poll will close May 7, and we'll post the "final" results in our next issue. (In October we'll run this question again to see if the presidential campaign changed the results from this early "election.")

AccuCut Systems, manufacturer of roller die cutting systems and template products, has purchased the assets and interests of its competitor, DayCo.

Established in 1990, AccuCut will integrate DayCo’s die designs and products into its own line. DayCo’s founders, Cony and Dave Larsen, will join the AccuCut team. Cony will continue to design dies and products and Dave will lend his expertise to the venture in a number of strategic areas.

"We’re bringing all of the world’s roller die cutting machines under one roof," said AccuCut CEO Steve Nabity, "and combining the industry’s best creative and best customer service – who knows what the potential could be?"

The company launched a new tagline that will appear on promotional materials: "AccuCut & DayCo: Great Things Are Rolling!" Any vendor or DayCo customer with questions should call the AccuCut Customer Service Center at 800-288-1670.

A recent article in the Trenton, NJ Times may be an omen. While it documents the continuing growth of scrapbooking, it also cites examples of scrapbook businesses going out of business. Perhaps we're seeing scrapbooking repeating the history of crafts: as the overall sales grow, the number of vendors and retailers begins to shrink.

The focus of the article is on the demise of Scrappin' Do-Dads, a supplier of embellishments that is ceasing operations. The problem? Too much competition which would have forced the company to lower prices to the point where the business would not be profitable.

There weren't enough orders from independents, who are struggling to survive against growing chain competition. The Times cited the Dallas area, where Michaels has opened two ReCollections stores. Jean Bergeson, who has closed her two Scrappy's stores, told the Times that as many as 10 other Dallas-area scrapbook stores went out of business in the past year.

"I've been hard-pressed to find any (independent) store owner who is taking home a salary," Michael Venzor, co-owner of Fun Facts Publishing, told the Times.

Increased competition means lower prices, which means lower profit margins for vendors and storeowners. "Store sales are doing very well," he said, "but owners have to put everything back into the store, " Venzor added.

Other problems include lack of capital. "People don't realize it takes at least $75,000 to outfit a store, and that's before you have to put up money to buy the merchandise," Lynette Young, a successful scrapbook independent, told the Times.

A much more positive report came from the Detroit News. In a feature story published last Wednesday, the News claimed scrapbooking sales have doubled to $2.5 billion in the past two years. The article cited Margene Buckhave, owner of Memories by Stampeddler, who claimed her sales have "easily doubled, even tripled" since her store opened seven years ago.

The News also quoted data from Creating Keepsakes latest survey: scrapbookers spend $50+ a month, already own $1,584 worth of supplies, and spend 10+ hours a month scrapping.

Reasons for the growth included the appeal across age groups, the social aspect, preserving history, and, as scrapper Barbara Chadick explained to the News, scrapbooking is a "nice way to reflect back on family and good times."

To read the article, visit www.detnews.com/2004/business/0404/28/b02-135983.htm.

(Comment: If scrapbooking sales really doubled to $2.5 billion in two years, then why aren't we all rich?)

For the quarter ended Mar. 31, income was $1.2 million ($0.06/fully diluted share), triple the results of a year ago – $420,000 ($0.02). As previously reported, sales rose 21% to $111.5 million and same-store sales rose a whopping 9.4%. The figures would have been even better, but there was an accounting change related to vendor/retailer coop advertising that reduced earnings by $0.05/share.

CEO Jack Parker said, "We were very pleased with the first quarter's results as our merchandising performance was strong and our cost controls continued to be effective."

The company also raised its earnings expectations for the year, from 92-94 cents to 94-97 cents, higher than analysts had been predicting by 5-8 cents, according to Reuters Research.

Home sewing retailers and vendors will have some serious trade-show choices to make next year. For the past seven years it's been simple: there were two trade shows, the Int. Textiles Expo in the spring and the Home Sewing Assn. show in the fall.

Now the Home Sewing Assn. has taken management of its trade show in house – and is returning to a two-show-a-year schedule. The first is Oct. 5-7 (this fall) in Las Vegas and the second is Mar. 21-23 at a location to be determined. And there will be two Expos next year, too. Mar. 29-31 (one week after the HSA show) and Sept. 27-29 (one week before the HSA show), both in Las Vegas. For more info, call HSA at 800-777-7983, visit www.sewing.org, or email tradeshow@sewing.org. ITE's number is 516-596-3937.

THE FUTURE IS CLOSER THAN WE THINK

Wal-Mart and eight manufacturers have begun testing RFID tags at certain supercenters and a distribution center in the Dallas area. These "radio frequency identification tags" are currently only being tested on warehouse pallets, but eventually will be on every product and will replace UPC codes and even checkout scanners.

Today RFID tags are too costly (10 cents or more) to place on every product, but the price is expected to drop below a penny in the next few years. When it does, Wal-Mart will require every vendor to use them.

And what Wal-Mart does in terms of technology, other retailers are sure to follow – and require of their vendors.

RFID tags are expected to reduce distribution costs and eventually will speed up the checkout procedure. For example, a customer at a grocery store can wheel a loaded cart through the checkout counter. The RFID tag on each item in the cart will transmit information to the cash register. The items will not need to be scanned.

The basic technology has been available since the 1940's; it's how a consumer can unlock a car door without using a key.

Concerned privacy advocates raise the question, if the RFID tag is not taken off the item, will Wal-Mart or any retailer be able to track the product in the customer's home and learn what the customer does with it? Wal-Mart claims its "readers" have a range of only 15 feet, but the California and Massachusetts legislatures are considering bills that would prohibit stores from using RFID tags to for anything beyond what the customer is buying, Information Week reported. The eight manufacturers are some of Wal-Mart's biggest vendors: Gillette, HP, Johnson & Johnson, Kimberly-Clark, Kraft, Nestle, Procter & Gamble, and Unilever.

The growth of "dollar" stores is attracting more attention from vendors in many industries and causing traditional retailers to sit up and take notice. Also called "deep discount" stores, they're the fastest growing segment in retailing and may have implications for our retailers and vendors.

According to a new study by A.C. Nielsen, 66% of all U.S. households now shop at dollar stores, up from 62% a year ago. The number of times dollar customers shop in these stores has risen, too, from 12/month to 13. It's not just poor people shopping there, either. The study found that 49% of households with annual incomes above $70,000 visit the stores 8 times/year.

The category's importance is causing vendors to create special packaging and pricing – a far cry from the recent times when dollar stores were considered simply an outlet for closeouts.

CLN has seen a wide, if inconsistent, variety of industry-related products in these stores and Stationery and School Supplies was among the categories that the Nielsen survey reported as taking market share away from traditional retailers. Among the leading retailers in the sector (and their stock symbol):

Dollar General (DG). Stores: 6,847 ... Sales: $7 billion ... Net income: $301 million ... Headquarters: Goodlettsville, TN ... Web: www.dollargeneral.com.

Family Dollar (FDO). Stores: 5,216 ... Sales: $5 billion ... Net income: $247.5 million ... Headquarters: Matthews, NC ... Web: www.familydollar.com.

Big Lots (BLI). Stores: 1,444 stores ... Sales: $4 billion ... Net income: $81.2 million ... Headquarters: Columbus, OH ... Web: www.biglots.com.

A recent commentary on National Public Radio's All Things Considered gave listeners a lovely view of scrapbooking, and offered an insight into part of the scrapbooker's motivation that we hadn't heard before.

Desiree Cooper, who is also a columnist for the Detroit Free Press, described how scrapbooking your memories adds a rosy glow to them. "My kids are teen-agers now," Cooper said, "but I recall their childhoods as an extremely inelegant time for me, full of panic and stress and drama. But after about five hours of lingering over photos, I saw those days in a much softer light. Had I mis-remembered the true experience of raising children?"

Cooper quoted her tablemate at a Creative Memories weekend scrap event who said, "... that's just the beauty of scrapbooking, because you can edit, just make it look like anything you want .... There's good times and bad times, but why not highlight the good times?"

Scrapbooking can also ease fears from childhood, Cooper said. She remembered being very frightened as a six-year-old when her father was sent to Thailand for a year during the Viet Nam war. Decades later she questioned him for a scrapbook. "His recollections fill the hole in my own life story, something I've reclaimed through scrapping. Suddenly, the memories aren't so scary anymore. They're full of perspective and hindsight, perfect and complete."

A transcript of the commentary can be purchased from NPR. Visit www.npr.org. The commentary was broadcast on Apr. 21.

Note: In our last issue we reported on a speech Wal-Mart CEO Lee Scott gave to the Little Rock Chamber of Commerce in which he detailed what he worried about (high gas prices, etc.). We asked readers to surmise what Scott ought to be worried about, and received the following:

"Monopsomy". Wal-Mart is likely already concerned about the prospect of being found a "monopsomy." Its Arkansas neighbor, Tyson Chicken, was recently judged to be one and was assessed damages in the billions. I understand that the Tyson case was the first of its kind. The Tyson case was immediately appealed and I don't know what the chances are that the decision will be overturned. Regardless, Wal-Mart was mentioned in the Wall Street Journal article in which the Tyson decision was reported.

"Monopsomy": The market condition where there are many sellers of a good, but only one buyer. The situation arose in the "command economies" – i.e., the old defunct communist economies and others controlled by the state. A market condition with many sellers but few buyers is termed an "oligopsomy." In the UK, a manufacturer of grocery products might believe he is in an environment such as this vis-a-vis the big supermarket chains. – Mark Hajduch, President, Polyform

Technology. If I were Lee Scott, I'd worry about technology failure. Since Wal-Mart is so tied to electronic commerce (sending orders, paying vendors, monitoring stores, security, heat, air conditioning – almost everything is tied to their computer system), any failure or sabotage (let’s face it, they are the world’s largest corporation, based in the USA, and terrorists could create havoc by disrupting them) would be catastrophic. – Wal-Mart vendor (Name withheld)

Meanwhile, Home Textiles Today quoted Sr. VP Jay Fitzsimmons as saying retailers may have gone overboard on price cutting, and are "leaving some dollars on the table." Fitzsimmons said he thinks there will be less price cutting and more emphasis on improving product quality.

Note: "Retail, E-tail, and Unfair Competition," the "Vinny Da Vendor" column posted last month, inspired a manufacturer's rep in England to write the following. (To read the Vinny column, click HERE.) The column was written by Catherine Bracken, who operates the e-commerce site, www.discountneedlework.com.

Whilst Catherine is obviously "in business," that is not always the case. Being part of a booming papercraft market in the UK, we are constantly bombarded by potential Internet retailers, often via a U.S. supplier, for whom one of my principals over here acts as distributor.

These Internet enquiries could be coming from someone the size of Harrods or, as is often the case, someone financing their hobby from the kitchen table. There is no way of telling, until after several phone calls (that's if the enquirer includes a telephone contact number!), whether it's a part- time operation, done after work, in between feeding the family and doing the washing, or whether there is genuine business to be done.

We follow up every inquiry, at considerable expense, and often not a little frustration, and have successfully done business with several career Internet-only customers. What we do not want to do is to cut the legs away from our regular brick-and mortar retailers, many of whom have spent years building up their business from modest beginnings and quite rightly resent Internet part-timers skimming off their profits. – Name Withheld

1. I think All Things Considered on PBS radio is the best source of news and analysis anywhere. The commentary on scrapbooking (reported above) is just one more example. Oh, and the second best news source? PBS' Morning Edition. If you commute, give both shows a try.

2. Television and our industry continue to astonish me. As part of National Scrapbooking Day and the sixth anniversary of Creating Keepsakes magazine. QVC devoted a two-hour special to the magazine and a variety of products to a wildly enthusiastic audience and the sales were, well, astonishing. It's yet the latest example of how popular our products are (and not just scrapbooking products) when consumers see them demonstrated.

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 309-925-5593 or email mike@clnonline.com.

SCRAP SHOWS. Online registration is now available for three of the four Great American Scrapbook Convention shows: Arlington, TX June 10-12; Chantilly, VA June 18-19; and Grand Rapids, MI July 30-31. Online registration for the San Antonio, TX Convention Aug. 27-28 begins May 15. Visit www.greatamericanscrapbook.com, call 801-627-3700, or email info@greatamericanscrapbook.com.

NEW COMPANY. Phyllis Hoover and Amie Farkas, formerly of Colorbok, formed Imagine That! Designs, Inc., providing product development, sourcing, and consulting services to the paper crafting, scrapbooking, stationery, and craft industries. Write to 3003 Washtenaw, Ste. 3, Ann Arbor, MI 48104; call 734-975-2933, email phyllis@imagine-that-designs.com.

FRANK'S NURSERY. The new non-craft strategy still seems to have some bugs in it. For the fiscal year ending Jan. 25, sales rose only 0.5% and same-stores sales rose only 0.6%. That resulted in a net loss before income taxes and reorganization items of $23.8 million; but on the bright side, a year ago the loss was $43.3 million. The store count is 169.

YARN. On a recent episode of the British tv series, Coronation Street, a male character told a woman, "Crochet is the new yoga."

ACCI. There are installments in marketing guru Steve Miller's Retail Summit seminars on the ACCI website, www.accicrafts.org. Click on "Craft Industry," "Industry Resources," and then either "Retail Seminars" or "Mfg/Dist Seminars."

BEST WISHES. Katherine Yoss of Katherine Yoss & Associates is fighting cancer and has retired. The industry is losing one of its best sales reps – and best people ... And to former Ben Franklin exec Darwin Lytl, who retired from Rust Wholesale last year and is seriously ill.

ROLODEX. While Lion Brand Yarns' showroom remains in Manhattan, the corporate offices moved to new headquarters: 135 Kero Rd., Carlstadt, NJ 07072. The toll-free number remains 800-795 5466. New phone: 201-804-3999; fax 201-804 8382.

PEOPLE. Thomas Edgeworth is Tombo's VP Sales/Mass Market.

TEACHERS. This week is Teacher Appreciation Week, and HIA has set up a service on its teacher website, www.teacherplace.org, where kids can write an email to their teacher, and HIA will send it on, and send the teacher a free gift, either a tote bag or an apron.

HOLIDAYS. Don't count on Halloween to be any great shakes this year – it falls on a Sunday ... A study by the market research firm Market Facts concludes that almost three-fourths of U.S. consumers want to receive monetary gifts (cash, gift cards) this coming holiday season. Almost 70% would like to give these cards, too. These gifts comprised 10% of all holiday sales in 2003, but retailers don't count them as sales until they are cashed in. If this study is accurate, then retailers may have a seemingly disappointing December and a better-than-expected January.

MARTHA I. "While Martha is awaiting her ultimate fate, her loss has been dramatic to all of us. Martha is still magic in creative circles and her ideas are sorely missed. The craft business thrives on inspiration and of course, practical creativity. With her gone from the scene, or at least with very limited exposure now with the decline in interest in her magazine and TV shows, there is a huge void and all of the pretenders are still just that. We are getting no kick from any of the other high profile folks who are trying to fill her shoes. WE NEED MARTHA!" Bob Ferguson, Ferguson Merchandising

MARTHA II. Kmart extended its contract with Martha another two years and dropped its lawsuit against Stewart's company. Last year Kmart paid Martha $47.5 million.

MARTHA III. (This was emailed to us by a friend, but somehow we're not sure he attributed the quote to the right person): "A little lemon and seltzer will remove those pesky ink stains after you've been fingerprinted." – Martha Stewart

QUOTATION, I. "Wal-Mart is an exemplary company with respect to working conditions." – Andrew Pelletier, spokesperson for Wal-Mart Canada (Canada News Network)

QUOTATION, II. Pelletier's statement is "a page out of George Orwell's novel 1984 and more proof that Wal-Mart is as dedicated to everyday, low ethics as they are to low prices." – Michael Fraser, the national director of the United Food and Commercial Workers Canada (Canada News Network)

 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.

A. C. Moore (ACMR). Last*: 27.23 ... Change**: -0.83
Hancock Fabrics (HKF). Last*: 14.86 ... Change**: -0.05
Jo-Ann Stores (JAS). Last*: 28.27 ... Change**: -1.06
Michaels (MIK). Last*: 50.03 ... Change**: +0.65
Rag Shops (RAGS). Last*: 3.90 ... Change**: +0.30
Wal-Mart (WMT). Last*: 57.00 ... Change**: -1.44
CLN Retail Index. Last*: 181.29 ... Change**: -.1.3%
Dow Jones Index. Last*: 10,264.04 ... Change**: -1.8%

Dear Dad,

$chool i$ really great. I am making lot$ of friend$ and $tudying very hard. With all my $tuff, I $imply can't think of anything I need, $o if you would like, you can ju$t $end me a card, a$ I would love to hear from you. Love, Your $on

Dad's Reply:

Dear Son,

I kNOw that astroNOmy, ecoNOmics, and oceaNOgraphy are eNOugh to keep even an hoNOr student busy. Do NOt forget that the pursuit of kNOwledge is a NOble task, and you can never study eNOugh. Love, Dad

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

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