Date: October 4, 2004
Vol. VIII, No. 19

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TABLE OF CONTENTS

COMMENTARY: ATTRACTING NEW CUSTOMERS

The scrapbook pie is big and appears to be growing larger. But no matter how large it becomes, there is a real danger of dividing the pie into pieces that are too small for businesses to survive. Judging from the respondents to our CLN Poll, we'll see even more scrapbook products next year. How can they all survive?

But it's not just products, visit http://www.nsa.gs/dispNewsAndEvents.cfm to see a list (possibly not even complete) of the consumer shows this fall. Plus, there may be too many trade magazines, too many retailer groups, too much of everything. Unless...

... We continue to attract more and more consumers so the scrapbook pie is large enough for everyone to make a profit.

So I have a challenge for you: read Benny Da Buyer, which includes an email from a hard-core crafter who, so far, is not interested in scrapbooking. She's creative, she's been crafting for years, and she has countless photographs that could/should be in scrapbooks.

How do we change her mind? If we can't attract consumers like her, the pie won't be large enough for every business. Read her thoughts, then email your suggestions/strategies to me and I'll share them in a future issue.

Memory, Paper & Stamps. A report on the growing scrapbook and cardmaking market in Great Britain.

Benny Da Buyer. How do we turn this crafter into a scrapbooker?

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

This poll is for vendors and buyers who attended the recent Memory Trends show in Las Vegas. Vendors: Were the traffic and orders what you expected? ... Buyers: Were you pleased with the array of products on exhibit? Were you pleased with the classes and workshops? ... Everyone: How was the mood of the show? To vote, click on Industry Polls in the right-hand column or click HERE.

Almost half the vendors who responded to the latest CLN Poll indicate they are increasing the number of new product lines they're planning to introduce next year. The percentage was 46.2; only 15.4% are introducing fewer lines. The remaining 38.4% will be unveiling the same number of new lines as they did this year.

Almost 55% will be introducing 1-3 lines; 27% will introduce 4-6 new lines; no one is unveiling 7-10 lines, but almost one-fifth (18%) will introduce 11 or more lines. (Comment: we suspect most of the new lines will be in the paper/scrap category, as if that category wasn't already swamped with a bewildering array of products.)

1. CLN predicts industry sales for the fall/holiday season will be ... ok. Not particularly good or bad, just ok. And it will be the same story we've seen throughout the year: yarn, scrapbooking/paper crafts, beads, quilting, and kids' crafts will lead the way.

2. As usual, the "experts" can't agree on the critical holiday season. The National Retail Federation said retail sales excluding food will grow 4.5% this holiday season; that's less than last year's 5.1% increase. The consulting firm Retail Forward disagrees. It predicts sales to increase 6.0% - 6.5%, which would make the season the best since 1999. Carl E. Steidtmann, chief economist for Deloitte Research and a recognized expert on forecasting retail sales, predicts overall retail sales to be a bit lower than last year, while the Ernst & Young Retail and Consumer Products Group predicts the holiday sales will be a bit better than last year.

3. You can throw out all of the traditional economic indicators as predictors of the season. The hurricanes will skew all kinds of data (unemployment, retail sales, etc.) for months, and consumers' preoccupation with the election and Iraq will probably distract them at least until after Nov. 2.

4. Gift Cards are growing in popularity and could be an excellent source of sales for our retailers. The non-crafting relative of a hard-core scrapper, knitter, painter, etc., would have no idea what to buy in our stores, so a gift card could be perfect ... Assuming gift cards will grow in popularity, they could skew the traditional sales figures in December and January. Most retailers don't count the "sale" until the gift card is used.

 Retailers: Better keep the "Help Wanted" sign in the window. A recent survey by CareerBuilder.com of retail store employees found that more than 20% plan to change jobs before the year ends, and 34% plan to quit within six months.

The study, The Pulse: Retail 2004, indicates that one fifth of retail workers look for a new job on a weekly basis. The major motivators are more money, a job outside of retail, and more opportunities for advancement.

Many workers who aren't actively looking to change jobs are unhappy, too. One-half of respondents are unhappy with their pay and haven't received a raise this year. Forty percent are dissatisfied with opportunities for advancement, 62% said their workloads have increased in the past six months, and 33% said they were unable to balance their work and family lives due to changing work schedules.

So what to do? "With one third of retail workers planning to change jobs in six months," Diane Christopher, retail employment expert at CareerBuilder.com told Retail Merchandiser, retailers need to address problem areas such as pay and opportunities for career advancement in order to attract and retain top producers."

(Comment: If storeowners raise clerks' wages, they have to raise prices. If they raise prices, they may lose customers – and won't need as many clerks.)

The Dow Industrial Average fell 2.0% between July 2 and Sept. 30, while our industry's stocks, collected in the CLN Index, dropped 2.6%. Rag Shops was the big gainer, up 30.3%, but that's because the company is being sold to an investment firm as reported in the last issue of CLN. Jo-Ann's fell only 1.1%, thanks in part to a Buy recommendation by KeyBanc Capital last week. Michaels announced a stock split, but the stock fell 5.8%. Hancock, troubled by disappointing sales reports, fell 7.4%. Apparently investors were concerned about the partial collapse of the A.C. Moore distribution center because the stock fell 9.2%. (Figures do not include dividends.)

The discounters outperformed the Dow and the CLN Index. Wal-Mart was up 2.4% and Target gained 8.7%. Among industry-related publishers, Meredith was down 6.9% and Primedia was down 15.0%.

We don't know if this is any consolation to Martha Stewart as she packs for prison, but her company's stock rose 71.2% in the third quarter.

The figures look much brighter for the first nine months of 2005. Rag Shops was still the best performer, but only because of the company's sale. As of Sept. 3, before the sale, the stock had risen only 4.3% for the year. Year-to-date, the leading CLN Index performers were Jo-Ann's, up 37.5%; A.C. Moore, up 27.4%; and Michaels, up 16.1%. The only negative is Hancock, down 17.2% for the year.

Among the discounters, the mighty Wal-Mart is basically flat, up only 0.2%, while Target rose 18.0%. Meredith rose 5.1% while Primedia fell 19.8%. Martha's company stock rose 56.0%.

Half of all U.S. primary household shoppers visit a Wal-Mart store on a monthly basis, reports Retail Forward in the company's newest Wal-Mart World program report, "Wal-Mart Shopper Update." Consequently, our industry's retailers can make certain assumptions about their customers and adjust accordingly. Among the study's findings:

1. Because half of all U.S. primary household shoppers visit Wal-Mart stores monthly and a quarter of America shops there weekly, the odds are good that your customers are also shopping at Wal-Mart; often they probably visit your store immediately before or after stopping at Wal-Mart.

2. Two-thirds of Wal-Mart Supercenter shoppers cross the aisles and shop both sides of the store on the same trip. (Since your customer is probably an enthusiast in one or more craft categories, assume she wheels her grocery cart over to the craft/fabric department.)

3. Wal-Mart shoppers love a bargain. They regularly patronize other discounters such as

Target, Kmart, Dollar Tree, and Dollar General. (If you carry the same brands as Wal-Mart, you can assume consumers will compare prices.)

4. Wal-Mart is well on its way to achieving its goal of controlling 30% market share in every category in which it competes. It has already reached that goal in categories such as small personal appliances, skin/haircare, housewares, small kitchen appliances, and toys. (Surely it hasn't reached a 30% share in crafts and scrapbooking – yet. But when the company turns its attention to a particular category, such as toys these past two years, the consequences for competitors can be devastating.)

Meanwhile, Sr. VP Jay Fitzsimmons recently told an investment conference that the company's current 8% annual square-footage growth is "sustainable" in its coming fiscal year, the Wall Street Journal reported. (That translates into many, many more stores.)

To learn more about Wal-Mart World, visit www.retailforward.com. For weekly updates, sign-up for Retail Forward's free weekly newsletter, News from Bentonville.

Recommended reading: What I Learned From Sam Walton: How to Compete and Thrive in a Wal-Mart World, by Michael Bergdahl and published by John Wiley's Jossey Bass Division ... The Los Angeles Times Pulitzer Prize winning series on Wal-Mart can be read online at www.latimes.com/news/custom/showcase/la-walmart-sg.gallery.

David Green, head of Hobby Lobby, made the 2004 Forbes 400 listing of the richest people in the U.S. The magazine listed his net worth at $1.2 billion, ranking him #234. A year ago, the magazine said his net worth was $1.1 billion, but then his ranking was #224.

About Green the magazine wrote, "Built chain of arts-and-crafts stores from scratch, starting in 1972 with 1 store selling handmade wooden picture frames. Now 335 stores, estimated $1.3 billion in sales. Expands on the cheap, often by renovating empty big-box stores instead of building new. Low-tech retailer eschews bar codes, buying from wholesale suppliers; set up offices in China, Philippines to buy direct from factories. Devout Christian keeps stores closed on Sundays, supports churches and evangelical missions around the world."

A year ago Green tied with Oprah Winfrey at $1.1 billion, but Oprah increased her worth to $1.3 billion and scooted up to #215.

Sam Wyly, a board member and major stockholder with his brother, Charles, of Michaels, ranked #314 with a net worth of $900 million. According to Forbes, poor Sam's net worth dropped $70 million this past year.

(Note: We received the following email responding to our report on the death of Katherine Yoss, one of the industry's pioneers.)

"That was a very poignant and heartfelt tribute to Katherine. It is sad when one of your peers dies. When I was a young woman in the late 70's, breaking in to the business, Katherine took me under her wing in a male dominated hobby industry. What a ride it was, both inside and outside of the industry.

"She introduced me to many good people and truly wanted to see me succeed. She held my hand through the early SCD meetings and Inaugural Press Day. She taught me the ropes at trade shows. I sat with Katherine and friends as she brainstormed about her mat idea. My sales company was part of her first rep group roster for her company, Mats. Etc.

"She was on top of the world and her game in the good old days, and managed to survive many obstacles throughout her career.

"Her laugh is haunting right now, as this girl liked to have a good time. I was fortunate to be part of those good times.

"Thank you for giving her such a kind tribute. She will be fondly remembered and deeply missed." – Midge Baudouin, Walnut Hollow

1. After being caught by surprise by Wal-Mart's price cutting last October, Toys R Us and KB Toys have already started slashing prices this year, Playthings reported. Wal-Mart's strategy last year helped push KB Toys into bankruptcy and TRU to consider getting out of the toy business.

The strategy won't work. Thanks to its technology, Wal-Mart can move products onto store shelves more cheaply than anyone else – Kmart tried it and ended up in bankruptcy. Plus, Wal-Mart can use toys as loss leaders and make it up with other products. But the toy retailers have to make money on, well, toys.

2. Sometimes reading the Two Peas in a Bucket (www.twopeasinabucket.com) message boards is like watching a soap opera. Not only do there appear to be cases of using photos of other people's families in posted layouts, but also copying journal entries. One woman is accused of being a "serial scraplifter."

Copyright violations have been a serious problem in cross stitch for years, because so many consumers either don't know or don't care about the law. I never thought we'd see it in scrapbooking, too.

3. I was delighted but not surprised to receive Midge Baudouin's note about Katherine Yoss. Not surprised because Katherine was as nice, patient, and helpful to me when I was an incredibly ignorant and naive journalist stumbling into the industry in 1979. She never thought any of my questions were stupid, although looking back, I'm sure many of them were just that.

Did you have a Katherine Yoss when you stumbled into this industry? I think almost all of us did. And the only way to repay Katherine and her kind is to try to be as patient and helpful to newcomers as they were to us.

4. Toys R Us unveiled its Joy List of the toys it predicts will be on kids' "most wanted" this holiday season. None of them related to kids' crafts. Maybe it's the cynic in me, but I wonder if the toys that made the list were high margin, TRU has plenty in stock, and TRU received a good deal from the vendor. And since Wal-Mart was so successful undercutting TRU on key toys last season, I bet the discounter is already planning to slash prices on the toys on TRU's list.

MEMORY TRENDS. First reports: It was a HUGE success. Much more in the next issue of CLN.

PEOPLE. One of the industry's truly good guys, Ron LaRosa, resigned as President of Delta. He will stay on through the transition to a new president; the search process is underway. Ron served on the board of the Assn. of Crafts & Creative Industries from 1994 to 2002 including serving as Chair during 2000. LaRosa currently serves as VP of Finance for the Craft and Hobby Assn. and played a significant role as a member of the ACCI/HIA merger task force.

PEOPLE. Bruce Miller, head of merchandising for Rag Shops, has left the company.

MICHAELS. Is planning to open stores in Queens, Brooklyn, and eventually in Manhattan, the New York Times reported yesterday. "Our approach has been to gradually push in further and further to the city," Doug Sullivan, Michaels's Exec. VP/Development told the Times. "That's how Wal-Mart used to describe the strategy many years ago – surrounding a city and then entering it." A real estate broker told the Times the rent at one of the locations is in the "mid-$30s" per sq. ft. As for the prospects for Manhattan, "We are flush with people from Manhattan who have sent us letters or emails telling us that they love the store and that they don't like driving out to Long Island or New Jersey to shop," Sullivan told the Times.

EXPANSION. Hobby Lobby is investigating real estate in the Minneapolis/St. Paul market for an unnamed number of stores, the Minneapolis/St. Paul Business Journal reported.

CONDOLENCES. Marvin Kulkin, yet another pioneer in the craft industry, passed away Sept. 16th. Marvin worked for Western Trimming (later Westrim Crafts) beginning in 1966, working for 27 years as a sales representative in California. He also represented Aleene’s, Hazel Pearson, Malco, and Snow Foam. Marvin is survived by a son, Howard, and two daughters, Tina and Helen. Donations can be made to the Stroke Association of Southern California, 2001 S. Barrington Ave., Ste, 308, Los Angeles, CA 90025; and to Hospice Cheer, 625 Fair Oaks Ave., Ste. 229, South Pasadena, CA 91030.

FLOOD RELIEF. The 11 Michaels stores in the Pittsburgh market participated in a clothing drive to benefit area families affected by last month's floods. Each store accepted donations during the company's Free Family Event that took place last Saturday.

AWARDS. A.C. Moore announced its 2004 "Vendors of the Year": Lion Brand Yarn, Knitting Fever, K & Co., Walter Foster, Milestones, Spinrite, Kertzer, Me & My Big Ideas, Royal Brush, and Pepperell Braiding.

SHOPA. Reports to CLN about the recent School, Home & Office Products Assn. trade show were disappointing. The number of attendees was lower than expected by half, Retail Merchandiser reported.

SCD. New officers of the Society of Craft Designers are Lisa Galvin, President Elect ... Vicki Schreiner, Secretary/Treasurer ... Marie Browning, Director ... Kirsten Peters McGrath, Director ... Chris Wallace, Director (Marketing Communications Director for Walnut Hollow) ... Elaine Pecora, Director ... Debra Quartermain, Director. Elected board members will begin their terms Jan. 1, 2005. Galvin, Schreiner, Pecora, and Quartermain will serve through 2005. Browning, McGrath, and Wallace will serve through 2006. Current President Elect Julie Stephani (Krause Publications) takes over as President on Jan. 1. For info, visit www.craftdesigners.org or call 740-452-4541. The 2005 Conference will be Oct. 5-8 in Atlanta.

JOB OPENING. Long-time but entrepreneurial New England supplier needs a Product Designer who can contribute to the creative development of product introductions – conceptualize and create product concepts and models and work with other departments. Requires minimum 5 years product design experience; illustration, time-management, and teamwork skills; and basic knowledge of Illustrator, PhotoShop, Quark, and MS Office. A love of scrapbooking and other creative pursuits would be ideal. Email resume and salary requirements to resumebox@metrocast.net.

JOB OPENING. Chicago-based publisher (photo albums, stationery, journals, organizers, etc.) is looking for a National Account Manager for crafts. Minimum of five years of sales/account management and new product development experience. Must be a creative thinker and a self-starter who is passionate about what he/she does. Email resumes to: susaner@sbcglobal.net.

HALLOWEEN. A survey by the National Retail Federation says consumers will spend $3.12 billion on Halloween this year, up from $2.96 billion last year. The average consumer will spend $43.57.

TV. The fourth series of America Quilts Creatively will be uplinked to PBS stations Jan. 2. Sponsors are Pfaff, Bear Thread Designs, Hewlett Packard, Fairfield Processing, Jo-Ann's, Krause Publications, Martingale, Michael Miller, Quilter's Touch, QuiltSmart, Rit Dye, Rowenta, Sulky of America, Tsukineko, Electric Quilt, and The Warm Co. Karen Good and Sue Hausmann are hosts.

FRANK'S. Launched its going-out-of business sales, which should end after Christmas.

IMPORTS. The Los Angeles Times reports the Los Angeles and Long Beach ports are log-jammed with ships to be unloaded. The problem is the growing production of China, so the amount of goods coming in is growing while the ports are not. Meanwhile, the rail facilities are virtually at maximum capacity. Playthings Extra said another problem "is the decision of Wal-Mart to move an increased amount of goods through Southern California during September and October, rather than spreading holiday shipments across several months."

HANCOCK. The board of directors increased the size of the board to seven and appointed Wellford Sanders, Jr. as a director. Sanders, 59, has been a managing director with Wachovia Securities since 1997 and has served on the boards of retailers such as Peebles and Catherine's Stores.

CAMERAS. The J.D. Power and Associates 2004 Digital Camera Satisfaction Study revealed Kodak EasyShare products ranked highest in two of the four segments, the $200-399 and $400-599 price ranges, Retail Merchandiser reported.

CAMERAS. Adobe Systems introduced a new format for digital photos to create an industry public standard to make the archiving and editing process compatible across all types of cameras and photo software, the Associated Press reported. Most consumer digital cameras capture images in the JPEG format, but JPEG's are compressed images that suffer some data loss. A higher-quality, "raw photo" format is becoming more popular but various camera manufacturers are using different software for it. Adobe is proposing that its new Digital Negative Specification become the universal standard, and is offering it free to manufacturers.

MICAH. Micah Jones, daughter of Offinger Management VP Marrijane Jones, has been released as a full-time patient at the Dodd Hall Rehab Center in Columbus, OH and will be an outpatient there. Send cards to c/o 806 Fairmont Ave., Zanesville, OH 43701.

TV. The popular Canadian series, Sue Warden Creative Decor, currently airing on HGTV Canada, has premiered in 65+ U.S. markets including Philadelphia, DC, Dallas, St. Louis, Pittsburgh, Columbus, Birmingham, Oklahoma City, Las Vegas, Louisville, Charleston, Anchorage, and Cleveland.

PR. Wal-Mart CEO Lee Scott told a Goldman Sachs analyst conference that management has been lax in staying sheltered in Bentonville while lawsuits and negative media stories continue to grow, Reuters reported. Wal-Mart has begun a "little bit of a culture change," and would no longer be as forgiving of employee transgressions.

BOOKS. To see the new releases from Jeanette Crews Designs, visit www.jeanettecrews.com/results.cfm?Subcategory=108.

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.

To read the latest openings, click HERE.

A. C. Moore (ACMR). Last*: 24.62 ... Change**: +1.57
Hancock Fabrics (HKF). Last*: 11.93 ... Change**: -1.11
Jo-Ann Stores (JAS). Last*: 28.46 ... Change**: +1.06
Michaels (MIK). Last*: 59.57 ... Change**: +1.11
Rag Shops (RAGS). Last*: 4.26 ... Change**: +0.01
Wal-Mart (WMT). Last*: 52.13 ... Change**: +0.65
CLN Retail Index. Last*: 181.97 ... Change**: +1.8%
Dow Jones Index. Last*: 10,192.65 ... Change**: -0.9%

THE DONKEY IN THE WELL

One day a farmer's donkey fell down into a well. The animal cried for hours as the farmer tried to figure out what to do. Finally he decided the animal was old and the well needed to be covered up anyway; it just wasn't worth it to retrieve the donkey. He invited his neighbors to help him. They each grabbed a shovel and began to shovel dirt into the well.

At first, the donkey realized what was happening and cried horribly. Then, to everyone's amazement, he quieted down. A few shovel loads later, the farmer looked down the well and was astonished at what he saw. As every shovel of dirt hit his back, the donkey would shake it off and take a step up. As the farmer's neighbors continued to shovel dirt on top of the animal, he would shake it off and take a step up. Soon the donkey stepped up over the edge of the well and trotted off.

The Moral: Life is going to shovel dirt on you. The trick is to shake it off and take a step up. Each of our troubles is a stepping stone. We can get out of the deepest wells just by not stopping, never giving up! Shake it off and take a step up!

OK, that's enough of that. The donkey later came back, caught the farmer out in the field and kicked the daylights out of him. Then he went to each of his neighbors and kicked the daylights out of them, too.

The REAL Moral: When you try to cover your ass, it always comes back to get you.

REMINDERS

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.

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5. Creative Leisure News is published the first and third Mondays of each month. Your next issue will be Monday, Oct. 18.

xxx

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