Date: July 30, 2004
Vol. VIII, No. 15

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TABLE OF CONTENTS

COMMENTARY: A WONDERFUL USE FOR SCRAPBOOKS

My wife, Barbara, has thought of a great idea for scrapbooking, but she needs your help. She is the exec director of Friendship House, a social agency serving the poor in Peoria, IL. They run a number of programs for kids, many of whom are in foster homes.

"Foster kids have no one to keep track of their lives, to care about school events, report cards, outings, etc.," Barbara said. "They go from place to place with their belongings in a plastic bag. It is truly sad and they can grow up with no record of their childhood."

So Barbara has rounded up volunteers, and on Sat., Aug. 28 the volunteers are taking 20 foster kids, giving each of them a throw-away camera, and then when the photos are developed help each child make a scrapbook.

"The volunteers are hoping to give the kids something, get their foster parents involved, and hope the children can take it with them as they are moved around." Barbara said. "In a perfect world, new foster parents would continue the scrapbook for them."

But like most social agencies these days, Friendship House has money troubles, and would greatly appreciate any/all scrapbook supplies donated to the project for these kids, whom Barbara calls "some of the saddest kids on the planet."

Have any supplies you could donate? Please send what you can to Barbara Hartnett, Friendship House, 8000 N.E. Madison, Peoria, IL 61603.

And come to think of it – couldn't a program like this be spearheaded by retailers across the country?

Kate's Collage. "Kate" gives up her column this issue for Frank Stapleton, president of MacPherson's, the major art materials distributor. Frank gives us an effective, surprising strategy on how to elicit great ideas from your employees.

Designing Perspectives. Design trends and products that caught the eyes of two top designers – Tracia Williams and Lynda Musante.

Tech Topics. Pam Smart investigating the massive theft of copyrighted material from websites – possibly including yours.

Note. If you surf to a column and it's an "old" column. Click on your "Refresh" or "Reload" button on your browser.

This is your last chance to vote, in confidence, on the results of the CHA (formerly ACCI) Summer show. To vote, click HERE. Thus far the votes show a successful show for buyers and sellers, with the buyers a bit more positive than the exhibitors. The final tallies will be in CLN's next issue and will be compared to our poll of buyers and vendors' expectations for the show.

As if retailing wasn't hard enough. A 100 ft. x 200 ft. portion of the roof at the Blackwood, NJ warehouse-headquarters facility collapsed as the company was in the process of moving to a new facility in Winslow Township about nine miles away. None of the 150+ employees was injured.

CEO Jack Parker said "We are grateful that none of our team members were injured in this unfortunate accident. We are still in the process of determining what caused the roof to collapse, and the extent of the damage that was caused. It is also fortuitous that the move to our new Winslow facility is well underway."

Execs expect any disruptions in supplying merchandise to stores will be temporary because two-third of all merchandise is shipped by vendors directly to the 85 stores, and most of the warehouse inventory had been moved to the new facility. Execs also report the company has adequate insurance.

What if new home party operations could do for crafts and painting what Creative Memories and Stampin' Up! have done for scrapbooking and stamping? That's the goal behind new operations that have been launched or are in the works.

Creative Living Network. Duncan Enterprises President Larry Duncan says the company's new subsidiary "is a new venture for the Duncan family, one that I strongly believe will strengthen the creative industry as a whole, creating new crafters and driving sales in all channels of distribution." There are 300+ products in the program, all with the Creative Living Network label for use in a variety of types of products – home dec, memory, etc. By design, the products are similar to Duncan's branded products – Tulip, Scribbles, Aleene's, Chunky Stamps, Rainbow Rock, and PSX – but will not be sold in stores. Likewise only CLN products will be sold through the CLN channel. For more, visit www.mycln.com.

In-Home Art. Dewberry Designs, with full support by Plaid, has started a home party operation to teach Donna Dewberry's One Stroke methods and sell special packages of Plaid products to novices who are not shopping in craft stores. "The products and kits are specially configured to provide the student with enough supplies to complete a single project and include the surface to make getting started easier for the beginner. They are all branded FolkArt One Stroke to ensure the consumer she can find the products in stores," said Plaid's President Mike McCooey. The product sets and kit packages are unique to the program, much like Plaid's QVC products are unique. For more, visit www.in-homeart.com.

The Purple Tree is another party-plan operation scheduled to debut late this fall. More when information becomes available.

Comment: Untold millions of consumers are curious about crafts, but are hesitant to try them, and if they enter a craft store at all, they are probably confused by the bewildering array of products – and stores don't conduct many beginner classes. If these consumers go to a friend's house for a party and learn how easy crafts are – and how much fun they are – THEN they'll have the confidence and enthusiasm to shop in our industry's stores.

(Note: A.C. Moore's earnings were reported before the roof caved in!)

Net income for the second quarter ended June 30 was $0.4 million ($0.02/fully diluted share), down from $1.05 million ($0.05) from a year ago. The 2004 results include a cost of $0.03 per share as the result of an accounting change. Excluding that cost, earnings would have been the same as a year ago. Sales for the second quarter rose 8.0% to $101.2 million; same-store sales, however, slipped 1.0%.

Sales for the first two quarters rose 14.6% to $212.7 million, and same-store sales grew 4%. Net income for the first half was $1.58 million ($0.08). The accounting change cost $0.08, so income/fully diluted share would have been double without the change.

CEO Jack Parker said, "The second quarter was one of significant change and accomplishment as we re-merchandised several key departments. We are encouraged with the positive sales results we have generated since the start of the third quarter. Our inventories are in very good shape and we're confident of our sales and marketing plans for the balance of the year."

Parker maintained the previous earnings forecast for the year of $0.94 - $0.97. "We also continue to be pleased with the progress we are making in the new distribution center," Parker added. "The facility is open, we are stocking and shipping merchandise, and we are on schedule to be fully operational by the end of August."

(Note: The following articles are based on impressions/experiences at the recent CHA Summer – formerly ACCI – show.)

Two conversations among many at the recent CHA summer show: one was with Michael Rouleau, CEO/President of Michaels and the other with an independent retailer in business one year. Rouleau said without question, the hardest part of craft retailing is managing the inventory, and he's been working on that almost since day one on the job.

The independent and I were talking about what seemed to me to be an overwhelming number of scrapbook products. I said I'd met with a couple of retailers who were going to open scrapbook stores and how I couldn't imagine trying to choose the right products from among so many. I said if I were in their shoes, I'd go to a major distributor and say, "I have 2,500 sq. ft. for scrapbooking. Fill it."

"Oh no," the retailer said. "That's no fun. I was just starting last year and I had lots of fun buying at this show."

Fun?????

I think Michael Rouleau's idea of fun is to have a successful, profitable operation. If that storeowner evaluates business practices by what is or isn't fun, she has no chance of survival.

I heard a remarkable example of how a single act by an unsuspecting chain store can have a wide ranging effect throughout the industry. Consider: a major scrapbook company took lots of orders from independents early in the year and at the HIA show in Dallas.

Then a major chain placed an order.

Many independents did not receive their orders until May. Paid for them in June. Then the CHA summer show comes along and these retailers either skipped the show or attended without much money to spend.

So there are probably some scrapbook exhibitors who were disappointed by the number of orders they received at the show. They may wonder if there's something wrong with their product lines, their booth, or whatever.

It may be none of those things. The culprit might be a chain store placing an order with another vendor six months ago.

With the exception of needlework, retailers traditionally scoff at kits for beginners. They believe, accurately, that their primary customers prefer open stock. That's true, but how does a retailer attract new customers who are curious about scrapbooking, but don't know where to start?

A number of "non-scrapbook" chains are adding memory products – often kits for beginners. As Karen Lichwaller said in an email responding to CLN's last issue, "Teaching the beginner is key to success. Often the store doesn’t have enough help/classes to work with the true beginner, and certainly with all the merchandise on the shelves, it’s overwhelming for a beginner to make her own selections.

"Other beginner opportunities also include busy people who just don’t have the time," Karen added, "or those who really don’t want to take a class. We, as an industry, must meet their needs. This applies to ANY craft.

"We need to teach. Kits, in my opinion, are an answer to this problem – kits with GOOD directions that are designed for a successful completion.

"Kits offer one-stop shopping for the beginner or the rushed customer. They often are less costly than purchasing the components," Karen added.

If a quality kit whets the appetite of a novice, the novice will then look for open-stock materials. Consequently, chains such as Linens 'n Things carrying beginner kits may ultimately help overall industry sales. But beginner kits need not be the exclusive domain of retailers "outside" the industry. There are a number of companies such as Xyron and Janlynn offering beginner kits that could be successful luring newcomers into our industry's independents and chains.

Here's an interesting perspective on the scrapbook beginner kit/attracting newcomers from Annette Pfau of Stamp On This (www.stamponthis.com):

"I am not a scrapper but I have two friends that have been into it for seven or more years now. They guard their crop nights with fervor and seek out all the newest products. Having started when there were fewer products on the market, they have grown into it and have developed their style and know how to sift through the overwhelming selections available.

"Conversation as of late has been about the new scrappers who are trying to join in and how lost they all seem to be. They both wholeheartedly agree that if they started now, they wouldn’t have a clue where to begin.

"Both wholeheartedly refer newbies to Creative Memories consultants. Each have done the home parties along the way and truly feel that the in-home focus and the consultant’s ability to explain and show examples are more helpful in the beginning than trying to buy a kit to figure it out. Even one home party can give enough information to build a comfort level to begin exploring the local craft store.

"I know a sample of two people is not statistically sound, but it sounds like the retailers may need to step up to Basic Scrapbooking 101 classes as a standard offering."

(Comment: We've heard some scrapbook retailers lately complaining about low enrollment in beginner classes. Who knows if that's due to classes scheduled at the wrong time or not promoted enough, consumers too busy for a class, etc.)

"Although it doesn't seem like it from the number of exhibitors and retailers, I think the hottest category in the industry is yarn, not scrapbooks."

"The number of independent scrapbook retailers who are financing their stores with credit cards is amazing – and dangerous. It would be interesting to see, in five years, if any of them are left."

"When the big-box stores come into an industry, they change the business from a cottage industry to a commodity industry."

"This is an industry that quietly eats its own."

"This show is another classic example. If you have good new products, you'll have a good show. If you don't, you won't."

"Crochet doesn't use more yarn, per se, than knitting, but its projects – like afghans – do."

"Those acid-free gloves from Procraft – consumers spend all sorts of money on acid-free this and lignin-free that and then use their oily hands making their scrapbook pages."

Textile quota restrictions of World Trade Organization member nations, including China, India, and Bangladesh, will expire on January 1, and textile companies in the U.S. and other countries have launched a major lobbying effort to extend them. Their expiration or extension could have a major impact on our industry – affecting home sewing fabrics, woven-edge ribbon, and other fabrics.

The U.S. lobbying effort, Unity 2004, is led by the American Manufacturing Trade Action Coalition and the National Council of Textile Organizations. "(Our) purpose is to send a message to the administration that it must stop China," Cass Johnson, president of the NCTO, told Just-Style.com.

The lobbying effort contends that thousands more jobs in the U.S. and other countries will be lost to China when the quotes expire.

"Unless the Administration steps to the plate, over the next two years, 75% of the 702,000 U.S. textile and apparel workers along with 30 million other workers around the world will lose their jobs," said NCTO's Allen Gant Jr. "Orders are already shifting – our industries need to see results from their governments," Gant continued.

Part of their argument is that "free trade" is not fair in part because China keeps its currency, the yuan, pegged to the U.S. dollar rather than allowing it to float. The result is an unfair advantage for Chinese manufacturers, lobbyists contend.

Prospects for the quota extension are dim, however. The effort is opposed by the Bush administration, U.S. retailers, and the U.S. Chamber of Commerce.

The HunTex Report (www.huntexreport.com), a textile industry trade publication, reported: "Specifically, the groups asked the Administration to recognize that China poses a severe threat to the domestic textile industry and to use appropriate safeguard actions, as allowed under World Trade Organization rules. To date, the Administration has refused to consider safeguard actions before actual damage has occurred in the marketplace."

Merger & Acquisition specialist Chad Burnett has the following companies for sale – a sure sign that consolidation is occurring in scrapbooking.

1. Scrapbook Supply Designer/Manufacturer ... Revenue: $6,600,000 (2004 est.) ... EBITDA: $2,640,000 ... Sells to independents and a home shopping network ... Owners wish to sell in order to pursue other business opportunities.

2. Hobby/Craft/Scrapbook Company ... Revenue: $7,400,000 (2004 est.) ... EBITDA: $1,406,000 ... Twentysome years old, the company sells scrapbook, craft, notions, appliques, and apparel lines to independents and some craft chains. Owners are looking to retire.

3. Hobby/Craft/Scrapbooking vendor of pressed flowers, papers, embellishments, journals, etc., for the craft, gift, stationery, and scrapbook industries ... Revenue: $1,600,000 (2004 est.) ... EBITDA: $352,000 ... Owners are looking for a recapitalization with a financial buyer or to be acquired by an industry buyer who will allow them take some equity off of the table and provide continued capital and growth incentives for the future.

4. High-growth Scrapbook Company – papers, embellishments, albums, etc. ... Revenue: $4,000,000 (2004 est.) ... EBITDA: $400,000 ... First full year was 2003. The owners are interested in a recapitalization with a financial investor or a merger with a strategic company to gain access to capital for growth.

Burnett's company, IndustryPro, is a subsidiary of Zirkle & Co., an international banking firm facilitating business mergers, acquisitions, divestitures, buy-outs and valuations. For info in complete confidence, call Chad Burnett at 801-838-7708, fax 801-566-2808, or email cburnett@zirkle.com.

1. As I reported in the last issue, 23 year-old Micah Jones, daughter of ACCI exec director Marrijane Jones, was very seriously hurt when she was hit by a car crossing a Nashville street. Micah is still in very serious condition, still in a coma as I write this. So cards are still welcomed by the family. Send them (no flowers) to Attn: Patient Micah Ashley Jones, Vanderbilt University Hospital, 1161 21st Avenue South, Nashville, TN 37232.

Incidentally, the fact that hundreds of CHA show attendees who never met Micah took the time to sign the posters for her in the lobbies of the convention center is a perfect example of why I love this industry.

2. In the last issue we announced the passing of Thelma Sbar, who founded Sbar's with her husband, Albert, and her sister-in-law, the late Millie Sbar. I said they built Sbar's into one of the most successful companies in the industry – and I received this response:

"Not only is Sbar's one of the biggest and most successful, I would imagine if you asked [President] Pepe Piperno, he would tell you they also never forgot how to practice the forgotten art known as CUSTOMER SERVICE. Maybe he should give a seminar to the craft industry. Hats off to a great company and competitor! Competition makes the world go round, and if one has to have competition, it is good to have one the caliber of Sbar's." – Casey Casebolt, VP/Sales and Marketing, Gerson International

SCAMS. We've heard of two recent cases now of scrapbook vendors being burned by orders from Kenya. If you're suspicious of a credit card order, call your credit card company.

GARDEN RIDGE. July same-store sales rose 15%, thanks to promotions of summer merchandise, expansion into furniture and housewares, and early fall/Halloween sales, officials said. GR also secured a seasonal increase in its Debtor-In-Possession financing to build up fall/holiday inventory, and reported progress on lease negotiations.

MEDIA. BIA Digital Partners and Frontier Capital closed a $5 million investment in Hoffman Media. Hoffman Media, based in Birmingham, AL, is a leading publisher of special interest magazines including Just CrossStitch and Sampler and Antique Needlework. The investment will be used to support the launch of at least four additional Southern-focused titles and to fund the acquisition of Martha Pullen, a leading specialty sewing business and the publisher of Sew Beautiful.

TV. Quilt Central, the award winning PBS series hosted by Janie Donaldson and Cindy Walter, will tape Series 600 and 700 in September in Paducah, KY for uplinking in 2005. The series is now broadcast as far away as New Zealand and will be available in Singapore by the year’s end. For info, call Ellie Joos at 908-459-9269, Cathleen Campbell at 201-792-7413, or visit www.quiltcentraltv.com.

E-COMMERCE. Internet Retailer named Jo-Ann's, Flax Art & Design, Hancock, eHobbies.com, Hobbytron.com, HSN.com, Martha Stewart Living, and QVC.com to its "Top 300" e-commerce sites. To see the complete list, visit www.internetretailer.com/top300/top300sheet.htm.

PEOPLE. Industry pro Marynell Christenson, formerly of Craftrends, is Publisher of Today's Creative Home Arts. TCHA is the official magazine of the Creative Home Arts Club. It's published six times/year; it's not sold on newsstands but mailed to the homes of approximately 300,000 members. For ad info, call Marynell at 770-982-5158 or email creativehomearts@bellsouth.net ... Jason Cesare was promoted to Sr. VP, Finance for Michaels. Cesare reports to CFO Les Gordon ... Denise Carter, formerly of JoAnn’s, has joined S&S Worldwide ... Gwen Edwards has resigned from Michaels.

LOOKING TO HIRE. Consultant Brenda Lugannani has a client who is looking for three marketing VPs who are Orient savvy and have strong leadership skills. New Jersey relocation required. Call Brenda at 972-519-1667 (office) or 469-441-0944.

POLITICS. Wal-Mart has donated more money to Republicans than any other company, and Costco's CEO, Jim Sinegal is a major contributor to the Kerry/Edwards campaign, the Bloomberg Report said.

BACK TO SCHOOL. A survey by the National Retail Federation found that back-to-school spending will be up 7.2%.

MEDIA. Time will launch a new magazine, All You, for Wal-Mart beginning in September. It's a monthly magazine with a guaranteed circulation of 500,000 aimed at "value-conscious" American women. No word of crafts being included in the editorial content, but since Wal-Mart has a craft/sewing department, it seems likely. Isobel "Bella" Price is the editor.

EVENTS. TNNA 's Needlecraft Market in Phoenix is Aug. 29-30. For info, call 800-889-TNNA, email tnna.info@offinger.com, or visit www.tnna.org.

KNITTING. TriCoast DVD Publishing has introduced Vol. I of a four-part DVD set, The Art of Knitting. For info and a free Resource Guide, visit www.theartofknitting.com, email info@theartofknitting.com, or call 877-KnitDVD.

Note: 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*: 24.38 ... Change**: -2.08
Hancock Fabrics (HKF). Last*: 11.63 ... Change**: -0.50
Jo-Ann Stores (JAS). Last*: 26.56 ... Change**: -0.25
Michaels (MIK). Last*: 54.05 ... Change**: -3.74
Rag Shops (RAGS). Last*: 3.21 ... Change**: -0.21
Wal-Mart (WMT). Last*: 52.48 ... Change**: -3.14
CLN Retail Index. Last*: 172.31 ... Change**: -.0.6%
Dow Jones Index. Last*: 10,129.24 ... Change**: -0.2%

HE PROBABLY WON'T WIN "BOSS OF THE YEAR"

Ever been angry at an employee who was chronically late for work? Probably not as angry as Gale Lewis Power, 61, of Seattle. According to the Columbian (WA) newspaper, an employee was late once again one day last fall.

So Power took a gun and found her outside her trailer with her boyfriend. He struck her boyfriend on the head with the gun, which fired through the window and hit the neighbor's fence. Then Power allegedly fired again, this time at a neighbor who'd come to the defense of the startled couple. When police arrived, they found Power and the woman in his truck; apparently he was taking her to work.

Power was jailed on suspicion of kidnaping, three counts of first-degree assault, burglary, and third degree assault. "It's a drastic measure to be that upset about an employee not coming to work," a detective told the Columbian.

Hmmm. Wonder what effect that had on Power's other employees.

1. For more information on how your business can be the subject of a "Business Profile" call Mike Hartnett at 309-925-5593 or email mike@clnonline.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. Just click on "Current Subscribers Click Here To Register."

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5. Creative Leisure News will return to its regular publishing schedule of the first and third Mondays of each month. Your next issue will be Monday, August 16.

xxx

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