Date: November 21, 2005
Vol. IX, No. 22

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TABLE OF CONTENTS

COMMENTARY: The News from Jo-Ann's  

The grim quarterly report from Jo-Ann's had a plus and a minus: I was glad to see management take responsibility and not blame the lackluster numbers on the weather. And Jo-Ann's execs could have said that the numbers were yet another example of the industry hitting a bump in the road, but they didn't.

On the other hand, the timing of the report was tough – after management sent a letter dated Nov. 4 to vendors requesting "support" for stocking its new, 700,000 sq. ft. warehouse in Opelika, AL. Jo-Ann's is paying $45 million to build the facility. The letter said, in part, "a 20% debit will be taken on opening purchase orders for the Opelika distribution center through April 30 of next year to mitigate a portion of the cost of the base inventory."

Business-Wise. Too many trade shows and the value of trade association membership – the discussion continues, with answers and comments from the original complaining manufacturer and Steve Berger, CEO of the Craft & Hobby Assn.

Memory, Paper & Stamps. Some complain that others have over emphasized techniques and forgotten that simple storytelling is the key, but this reader disagrees. She says techniques enhance memory by appealing to more senses: "Words are not enough."

Designing Perspectives. The CHA Winter Show has a host of activities designed specifically for designers and companies looking for designers. There's the Inspiration and Design Faire on the show floor, and a number of seminars, too. Read the details here.

New Trade Show Exhibitors. Check the websites of the companies exhibiting at the upcoming CHA Winter Show for the first time. There are additions since we published the list earlier this month, including the British vendors exhibiting in the new U.K. Pavilion.

Note. If a column appears to be an "old" column, click the Refresh or Reload button of your browser.

For the past few months, independent and chain retailers have blamed high gas prices for lackluster sales. But lately oil prices have moderated, and most consumers have not yet been hit with the expected higher heating bills. So retail sales should have improved lately, right? Even factoring in Christmas? If they have, then apparently gas prices were a serious problem (and high heating bills will be in the near future). If sales have not picked up, then the problem of lackluster sales may lie elsewhere. Retailers and vendors: vote in CLN's poll so we can all learn the answer. To vote, click on Industry Polls in the right-hand column or click HERE.

Vendors' sales representatives scored very well among CLN readers. Almost half of the manufacturers, 48.1%, rated their reps as "Excellent" or "Very Good." Only 18.5% rated them as "Poor" or "Very Poor." More than a quarter of the vendors, 25.9%, rated them as "Good" and 7.4% do not use reps.

Retailers' ratings were not as positive: 42.8% said "Excellent" or "Very Good"; 38.1% said "Poor" or "Very Poor"; 14.3% said "Good"; and 4.8% do not have reps call on them.

The buyer registration kit for the CHA show is now online. Forms can be printed, then completed and faxed. Hard-copy registration forms will be mailed the first week in December. Visit www.chashow.org/pdfs/06_BuyerRegKit.pdf. Don't wait! Hotels and events often sell out quickly. For general show info, visit www.chashow.org.

For the third quarter ended Oct. 29 there was a net loss of $4.1 million ($0.18/diluted share), compared with net income of $6.9 million ($0.30) a year ago. Net sales increased 5.8% to $474.2 million and same-store sales rose 0.7%.

Operating loss for the third quarter was $1.7 million, or 0.4% of net sales, versus an operating profit of $14.7 million, or 3.3% of net sales, a year ago. Gross margins for the quarter decreased to 45.6% of net sales from 47.8% in the third quarter last year, due to higher promotional activity and markdowns.

Rich Duprey of The Motley Fool, writing for MSNBC.com, described the problem this way: "With fewer customers in its stores, Jo-Ann inventories bloated, forcing the company to slash prices and offer coupons and other promotions to move product. It didn't seem to work. As a result, the company has around $35 million in excess inventory that it probably won't be rid of until next year. It was particularly telling that management noted they had to discount Halloween items 70% some 10 days before the holiday. That may have worked a little, since comps for October leapt 3.4%. They fell off again in the first two weeks of November, and management is concerned for the rest of the year." (To read his article, visit http://msnbc.msn.com/id/10051554.

Chair/CEO Alan Rosskamm said, "While our results stem in part from general industry softness, particularly in soft lines and home-related categories, it is clear that decisions we made have compounded the problem. We went into the year with what proved to be an aggressive sales plan, and made inventory commitments in an attempt to energize our sales in the second-half of the year. Unfortunately, we did not anticipate the extent of the slowing demand and customer traffic, which has dramatically declined in the third quarter. We now face the challenge of liquidating excess inventory in a very difficult retail environment. The result has been and likely will continue to be deteriorating gross margins, as we are forced to take markdowns to sell through inventories."

For the first three quarters, net sales were $1.28 billion versus $1.22 billion a year ago and same-store sales increased 0.3%. Operating profit for the nine-month period was $1.4 million, versus an operating profit of $33.1 million a year ago.

In addition to inventory liquidation, Rosskamm said plans are in the works to modify the product mix and reallocate store space from less productive seasonal categories to better performing craft-related categories. Rosskam is also looking to increase margins and cut costs, but added, "... it is unlikely that we will be in a position to deliver earnings improvement until at least the second half of next year."

The company estimates fourth-quarter same-store sales could range from a decline of 3% to an increase of 1%. (The fourth quarter last year had a same-store sales increase of 4.3%.) Management expects margins to decrease due to inventory sell through, and as CLN reported previously, the company will not be providing an earnings guidance for the fourth quarter.

Year-to-date, Jo-Ann's opened 40 superstores and four traditional stores, and closed 50 traditional stores. For the balance of the fiscal year, management has no plans to open new stores and expects to close four traditional stores.

Hancock reported a net loss of $2.5 million ($0.14/diluted share) for the third quarter ended Oct. 29, compared with net earnings of $1.0 million ($0.05) a year ago. The company also suspended indefinitely its quarterly dividend, and recorded a loss of approximately $230,000 for insurance deductibles related to Katrina and Rita..

Sales decreased 5.5% to $103.9 million and same-store sales fell 6.3%. CEO Jane Aggers said the home dec and fleece fabrics category "provided the most negative results," but the gross margin rate remained flat, before the effect of the LIFO (Last-in-First-out) accounting procedure, despite increased promotions.

Aggers said the company had implemented three major initiatives involving merchandising, marketing, and store presentation, with mixed results. However, "... we believe we have taken the necessary steps to improve our connection with our customers. We will continue to monitor the results of these initiatives for the remainder of the fall selling season and determine which strategies are appropriate for the future."

The focus will be on debt reduction in the fourth quarter. The debt is $62 million under its $110 million credit facility. "From an operational standpoint, we will reduce operating costs and manage our year-end inventory levels," Aggers said. "We have begun the expense reduction process and will continue to refine and right-size our operating expense structure."

The company expects to complete the sale/leasebacks of two more store properties this month and to have a letter of intent to sell its former distribution center and corporate offices in Tupelo. The sales should yield about $7 million, Aggers estimated. The sale of one other property could yield another $2 million, and suspending the dividend will add about $4.5 million to the company's cash flow. The store count is 446 and the company won't be opening new stores in 2006, Aggers said.

Regarding the news reported in CLN that Primedia has put its craft-related magazines up for sale: CLN has learned it's a group of 10 magazines, not 11. The titles are Craftrends, Creating Keepsakes, Simple Scrapbooks, PaperCrafts, McCall's Quilting, McCall's Quick Quilts, Quilter's Newsletter, Quiltmaker, Sew News, and Creative Machine Embroidery.

Apparently the company's bead-related magazines – Colored Stone, Lapidary Journal, Step-by-Step Beads, and Step-by-Step Wire – are not included.

Since that first report, Primedia reported its third-quarter earnings – a loss from continuing operations of $14.7 million ($0.06/share); it had reported a $10.2 million ($0.05) loss a year ago. Primedia CEO Dean Nelson blamed lower automotive ad revenue from its car magazines, but said the decline was partially offset by growth in non-automotive categories.

Meanwhile, Abry Partners (the new owner of Memory Makers, CNA, and other industry-related magazines under the F+W and Krause banners) is suing the company from whom it purchased the magazines in August for $500 million, the Associated Press reported. Abry Partners filed suit against Providence Equity Partners alleging that under Providence’s ownership, F&W, artificially inflated its revenue for the six-month period ended June 30. Abry wants to rescind the transaction or collect unspecified damages from Providence Equity and affiliated funds. A Providence Equity spokesman denied the charges.

A recent article on beads by the Knight Ridder news syndication service and published in the Columbian (WA) – and no doubt many more newspapers – documents the rise of the bead trend.

"Across the nation, bead stores have increased by 150% over the past four years. More than 15 television shows about beading have surfaced on HGTV, the Style Network, the DIY Network, and public television."

The reporter interviewed Judy Weinstein of Jubili Beads & Yarns in Collingswood, PA. The store opened in 2003 and within a year beads "... accounted for the majority of my revenue. Now I know why," Weinstein said. "People can come in here, spend less than $10, and make a necklace with literally no training, and walk out with a wearable piece of art."

The media has been filled lately with articles about the world's largest retailer. Countless newspaper, magazine, and television reports – even a movie or two – are praising or criticizing the company. Here's a brief sampling:

1. A new documentary, Wal-Mart: The High Cost of Low Price, opened around the country. The movie's producer and director, Robert Greenwald, makes no excuses for its anti-Wal-Mart bias ... A pro-Wal-Mart video, Why Wal-Mart Works and What That Drives Some People Crazy, has also been released.

2. Last week the anti-Wal-Mart group Wal-Mart Watch launched "High Expectations Week," a series of events in 41 states that target concerns over health care, corporate responsibility, economic justice, etc. Visit www.walmartwatch.org ... "Wal-Mart's low prices have been a great boon to the American people," says a new advocacy group, Americans For Free Enterprise, that supports the retailer. Visit www.americansforwalmart.org.

3. Wal-Mart sponsored a conference for academics and journalists where a new study, "The Economic Impact of Wal-Mart," was presented by the economic research firm, Global Insight. The study claims Wal-Mart saves working families $2,329/year, among other benefits to the national economy. But critics pointed out that Wal-Mart paid for the study. To read it and selected papers from the conference, visit www.globalinsight.com/walmart.

4. The legal wrangling continues between the company and Tom Coughlin, former exec vp. Wal-Mart now claims Coughlin misappropriated $262,497 and threatened to fire anyone who worked for him if they talked about it, reported the Dallas Morning News.

5. One of Coughlin's assistants, Robert Hey Jr., pled guilty to three counts of wire fraud as part of a scheme to manipulate invoices to funnel money to an unnamed senior executive, the Associated Press reported.

6. Two senior executives knew cleaning contractors were hiring illegal immigrants, according to a federal agency's affidavit. The affidavit was part of an investigation by federal immigration officials that led to a 2003 raid on 60 Wal-Mart stores in 21 states and the arrests of 245 illegal workers. Wal-Mart paid $11 million to settle the case, but now 200+ immigrants have filed a lawsuit against the company.

7. Wal-Mart announced a plan to make health insurance more affordable for more of its employees. But then an internal company memo was leaked to the New York Times which revealed the company is looking for ways to reduce its insurance bill, such by as hiring healthier employees. (Comment: Isn't almost every U.S. business concerned about health care costs?)

Perhaps the most thoughtful analysis of Wal-Mart's value/harm to the U.S. came from Joseph Nocera, a New York Times reporter writing in the International Herald Tribune. "Whatever you might think of its tactics, its wages, its effect on local communities, and its economic power," Nocera wrote, "Wal-Mart has largely played by the rules that society has set out for it."

In support of his theory, Nocera quotes Robert Reich, a professor at Brandeis U. and former Secretary of Labor under President Clinton. "Wal-Mart has devised an extremely efficient way to deliver low prices to consumers and good returns to shareholders. That is American capitalism. That is what the system rewards."

Nocera's conclusion: "Americans could shut down Wal-Mart, and allow small local stores to thrive, by doing one simple thing: shopping at the latter instead of the former. But Americans don't do that, and for the most basic of reasons: They care about low prices above all else. That is what the U.S. economy is built around. The growth of Wal-Mart is a direct result of its understanding of that fundamental fact. Does America really want to change Wal-Mart? If the answer truly is yes, then Americans need to change themselves first."

The complete article is at www.iht.com/articles/2005/11/04/yourmoney/mjoe05.php.

WAL-MART. "Even with the lingering impact of the hurricanes and energy prices, I believe we will have a good holiday season," said CEO Lee Scott in a recorded message released in conjunction with the earning report. For the quarter ended Oct. 31, net sales rose 10.1% to $75.4 billion, but net income rose only 3.8% to $2.4 billion ($0.57/share). In U.S. Wal-Mart stores, sales increased 9.5% to $50.2 billion and same-store sales rose 2.9%. The company estimated it incurred $40 million in costs as a result of hurricanes Katrina, Rita and Wilma. The earnings matched analysts' forecasts, reported CBS MarketWatch.

HOLIDAY SHOPPING. According to a survey by the National Retail Federation, the most popular stores will be discount stores such as Wal-Mart and Target. More than 71% of the survey respondents said they plan to shop at discount stores. The next most popular type of store was the department store (59.4%) and consumer electronic stores (19.9%).

DISCRETIONARY INCOME. The Bureau of Labor Statistics said natural gas prices rose 36.4% over the past year – the biggest annual jump in the 34-year history of the Consumer Price Index, the New York Daily News reported. The government already is forecasting that natural gas bills will increase 48% this winter, or $350 extra for the typical household ... Meanwhile, the Denver Post reported that Colorado consumers are flocking to local Hancock and Jo-Ann's stores to buy/make insulated window coverings to reduce winter heating bills. Hancock store manager Pat Guist told the Post she estimated the insulation, which fits behind existing curtains, blocks out about 90% of the cold.

TEACHERS. "At the top of the list [of what teachers want for Christmas] are gift certificates to 'teacher stores' where they can buy supplies to supplement classroom needs. Think ... A.C. Moore (acmoore.com), Staples (staples.com), or any bookstore." – Boston Globe

FRAUD. "Our research on holiday gift returns shows that it's only 3% of Americans who are real jerks and they indulge in consumer fraud and return abuse. The rest of us have to deal with the consequences. Retailers are fighting lower profits than in years past. The industry is definitely more competitive today and companies have to do what they can to not take unnecessary markdowns." – Britt Beemer, chair of America's Research Group (CNN/Money)

Vendors: To maximize your success at upcoming trade shows, you want to generate as much press coverage as possible. Kindra Foster has written excellent advice in two articles that remain in the CLN Archives. To read "Trade Show Press Pointers," click on "Vinny Da Vendor," then scroll the right-hand column to and click on the headline. To read "Anatomy of a Product Press Release," click on Kate's Collage, then scroll the right hand column and click on the headline.

The CHA staff recommends exhibitors bring approximately 1,000 flyers, catalogs, or whatever to distribute at their booth. If that's too many, the material can be shipped home; if it isn't enough, exhibitors can take business cards from buyers and mail the material later. Exhibitors should also take advantage of the press room and send 100-150 press kits in advance (mailing info is in the registration kit) or bring them to the press room the day before the show. (Editors can't visit every booth, so they scoop up the material in the press room.)

WEBSITES. For yarn retailers who would like an e-commerce website for their stores, Yarn-Shops.com is a new company that offers websites tailored to the online yarn audience, showcasing yarn and building e-commerce that meets the needs of knitters and crocheters. The company will create a simple, readable website (with or without e-commerce) with everything yarn customers want and nothing they don't. Visit www.yarn-shops.com or email info@yarn-shops.com.

SCRAPPING. Xyron and Lexmark Int. unveiled the Xyron® Design Runner™, a cordless, portable printer that fits in the palm of a hand, giving consumers the ability to print custom designs on odd-size paper, fabric, wood, polymer clay, etc. Xyron will begin shipping it next month with a suggested retail price of $139.99. Xyron also announced new product development/marketing partnerships with Karen Foster Design, Scrapworks, and S.E.I to create custom, co-branded content for Xyron’s newest cutting and printing product platforms.

TV. The satellite feed for PBS stations for the sixth America Quilts Creatively, hosted by Karen Good and Sue Hausmann, begins Jan. 1. Sponsors include Pfaff, Hewlett-Packard, Jo-Ann's, Sulky of America, Fairfield Processing, Lazy Girl Designs, Rit Dye, Rowenta, The Warm Co., Coats and Clark, Wrights, Chenille-It, and Moonlight Design. A project book is also available; call 877-881-4179.

IMPORTS. The U.S. Commerce Dept. made a preliminary determination in the canvas anti-dumping case filed by Tara Materials, imposing a 74% tariff which will continue until the final determination in March. Regarding MacPherson's Art Alternatives, the company has adequate inventory in stock and will maintain current retail prices and general discounts through mid-2006. "We have been laying the ground work that will allow us to keep our market-building program in place without interruption," said MacPherson's Frank Stapleton ... The National Retail Federation asked President Bush to reject a tax reform panel's recommendation that would end the corporate tax deduction for imported goods, saying the move could cost consumers more than $200 billion.

BOOKS. David Blumenthal of Lion Brand Yarn was interviewed on WNPR, New York's public radio station, on a strong-selling book, The Prayer Shawl Ministry, published with Leisure Arts. The book contains eight projects, a history of prayer shawls, prayers, and even the symbolic meaning of colors. To hear the interview, visit www.wnpr.org. The interview will be broadcast today between 3-4 pm EST. Visit the site a bit early to download it.

BEADS. The Washington Post profiled Marsha "Marty" Evans, President of the American Red Cross. Needless to say, she's had a hectic, stressful hurricane season. And what does she do to relax? Make jewelry. "It's therapy," Evans told the Post. "It's the one time I'm not wound up in who's saying what on Capitol Hill about the Red Cross, what million-dollar donor you have to repair a relationship with." Evans is making necklaces and naming them Katrina, Rita, etc., and plans to give them to friends as Christmas gifts.

BEADS. If she hasn't read it yet, Marty Evans should read Beading for the Soul: Inspired Designs from 23 Contemporary Artists, by Deborah Cannarella (Interweave Press). It has 26 projects and describes how beading can be relaxing, meditative, and even healing.

NEEDLEWORK. Four of the show hotels for the TNNA San Diego show are sold out. The buyer registration booklet has been mailed and you can register online at www.tnna.org.

BEADS. The 2006 Bead & Art Glass Fest will be Nov. 10-12 in Orlando. Classes begin Nov. 9. Booth assignments start today; for exhibit info, email Penny Marshall at pmarshall@offinger.com. Email Kareena Gibson at kgibson@offinger.com for teaching and or sponsorship info. The first Fest attracted nearly 3,000 attendees and included 50+ classes.

BOOKS. To see the latest releases from Jeanette Crews, visit www.jeanettecrews.com/results.cfm?Subcategory=148.

BOOKS. A recent article in the Gwinnett Daily Post (GA) indicates that the book industry has the same challenges as our industry: a) Bookstores are losing market share to stores such as Wal-Mart, Target, and Sam's Club, and to Internet retailers such as Amazon; and b) books are facing other forms of competition for consumers' entertainment dollars – tv, video games, ipods, etc. But our industry is growing faster, we think: The article cited a study that showed the book industry was expected to grow only 1.9%, to $21.5 billion, from 2003 to 2008.

COMPANY FOR SALE. Small, well-established scrapbook supply manufacturer, with strong brand identity and product lines, seeks buyer. Annual sales: $350,000. This company would be an excellent candidate for vertical integration into an existing company. Products work well with a variety of other products. Excellent customer base, including key accounts, and valuable clean mailing list. Owner willing to work through transition period. For more info in confidence, email Mike Hartnett at mike@clnonline.com or call 309-925-5593.

STORES. Another Ben Franklin is closing, this one in St. Helena, CA. Owner Ken Locher told the St. Helena Star he blamed townspeople shopping in big-box stores in a nearby town. "$2 per month, per person, in the area would have more than saved the store," Locher said. "We just didn't get it. We have a core of good loyal supporters who are there every week, but there just weren't enough of them."

MEDIA. One of the numerous consumer magazines on display at the CHA show will be the Spring issue of Clapper Communications' 101 Bridal Ideas. The ad deadline is Dec. 1; for info, call Kristen Thorburn at 800-CRAFTS-1, ext.254 (kthorburn@clapper.com), or Bobbie Zych 800-CRAFTS-1, ext. 266 (bzych@clapper.com).

PEOPLE. Edwin Binney and C. Harold Smith were named to the Toy Industry Hall of Fame for creating Crayola crayons, Playthings reported. The two cousins founded Binney & Smith in 1885 and began producing red paint for barns. The first Crayola crayons were produced in 1903. The 100 billionth crayon was produced in 1996.

COUPONS. A recent thread on a Two Peas message board contained complaints about some chains' inconsistent policies on redeeming competitors' coupons, asking for phone numbers and zip codes, etc. Visit www.twopeasinabucket.com/mb.asp?cmd=display&thread_id=1466042.

PAINTING. The Society of Decorative Painters Conference – June 5-10, in Nashville. – will include a number of business seminars: "How to Be an Artistic and Financial Success," by Elizabeth Hayes Pruitt; "Remove the Fear and Find Success," by Shea Szachara; "How to Run a Successful Home Studio: Getting Students and Keeping Them," by Mary McLean; "How to Profit from Internet Sales," by Debbie Brown; "Marketing Makeovers," by Laurie Speltz; "Licensing Your Artwork," by Tammy L. Browning-Smith. Registration is taking place now and the catalog is available starting today at www.decorativepainters.org. For more info, call 316-269-9300, ext. 101, or email         lori@decorativepainters.org.

QUOTATION. "If you want 1 year of prosperity, grow grain. If you want 10 years of prosperity, grow trees. If you want 100 years of prosperity, grow people." – Chinese proverb

CONDOLENCES. To the family of James Foster, 65, who has died of cancer. Before retirement he had been a buyer for A.C. Moore. He is survived by his wife, Madeline, and a daughter, Jennifer. Memorial contributions may be made to the Community Nursing Service of Clinton County, 124 Woodward Ave., Lock Haven, PA 17745 ... Also, management guru and author of 30+ books, Peter Drucker, passed away at the age of 95.

To see the latest job listings, click on Jobs in the left-hand column, or click HERE.

A. C. Moore (ACMR). Last*: 14.74 ... Change**: -2.08
Hancock Fabrics (HKF). Last*: 4.69 ... Change**: -0.50
Jo-Ann Stores (JAS). Last*: 12.42 ... Change**: -0.25
Michaels (MIK). Last*: 34.03 ... Change**: -3.74
Wal-Mart (WMT). Last*: 49.50 ... Change**: -3.14
CLN Retail Index. Last*: 115.38 ... Change**: -2.1%
Dow Jones Index. Last*: 10,766.33 ... Change**: +2.2%

Blamestorming: Sitting around in a group, discussing why a deadline was missed or a project failed, and who was responsible.

Seagull Manager: A manager who flies in, makes a lot of noise, defecates on everything, and then leaves.

Assmosis: The process by which some people seem to absorb success and advancement by kissing up to the boss rather than working hard.

Salmon Day: The experience of spending an entire day swimming upstream only to get screwed and die in the end.

Cube farm: An office filled with cubicles.

Prairie Dogging: When someone yells or drops something loudly in a Cube farm, and people's heads pop up over the walls to see what's going on.

Mouse Potato: The on-line, wired generation's answer to the couch potato.

Stress Puppy: A person who seems to thrive on being stressed out and whiny.

Swipeout: An ATM or credit card that has been rendered useless because the magnetic strip is worn away from extensive use.

Percussive Maintenance: The fine art of whacking the daylights out of an electronic device to get it to work again.

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xxx

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