Date: January 1, 2007
Vol. XI, No. 1

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TABLE OF CONTENTS

COMMENTARY: A CHRISTMAS PUZZLEMENT 

Would someone please explain to me why retailers can only count gift card revenue when the cards are redeemed? Retailers received the money when the card was purchased, why not count it then? Early reports say the Christmas season was disappointing, up only 4.3% instead of the predicted 5%. But the estimated $25 billion in gift cards, can't be counted yet.

If there's an accounting pro reading this, who can explain why gift cards aren't counted when they're sold, please let me know! (mike@clnonline.com.)

Business-Wise. More predictions for 2007 from Pete Heinsimer of Westlake Associates on the industry, Kathie Stull of KS Productions on industry-related television, Jan Kahn of Caron on yarn, and others.

Memory, Paper & Stamps. Pam Riddell of The Riddell Group and Maps2Memories and Xyron Inc. gaze into the future of scrapbooking and see....

Designing Perspectives. Cindy Groom Harry, the driving force behind the successful integration of the Society of Creative Designers into the CHA Designer Section, describes the world in 2007 for designers – and how manufacturers can use them to benefit both groups.

Category Reports. If you haven't read it yet, don't miss Phil Metzger's touching "Teaching Painting To Heroes," a first-hand report on teaching wounded military vets how to paint at Walter Reed hospital.

Tech Topics. "A bit of research and a small (under $200) hardware investment can have you reaching thousands of customers interested in your product," says Michelle Temares. (She's talking about blogs and podcasts.)

"Vinny Da Vendor" and "Benny Da Buyer." Provo Craft's explanation of its marketing/sales policies for the Cricut, and retailers' reaction, are still online, as is a listing of new CHA Winter Show exhibitors in New Trade Show Exhibitors.

Note: To read the columns, click on the titles in the left-hand column. If it appears to be an "old" column, click on the "Refresh" or "Reload" button on your browser.

Buyers, do you expect to order more or less at this month's trade shows? Exhibitors, how do you think your business will fare at this month's shows? To vote, click on Industry Polls in the right-hand column or click HERE.

The new year will be excellent for business, according to respondents in CLN's unscientific poll. A full one third said they expected their business to increase 10% or more, while 36.4% think business will improve by 1%-9%. Almost a quarter, however, 24.2%, expect sales to be flat. Only 6.1% expect business to decline 1%-9%, and no one thought business would drop 10% or more. (Comment: We hope the voters are correct, but we wonder if, perhaps, some readers were too depressed to vote.)

It was a good year for stocks, particularly for the CLN Index stocks. If an investor bought $1,000 worth of Index stocks at the end of 2005, that investment would now be worth $1,240.92, an increase of 24.1%. The Index outperformed the Dow, which rose 16.3%; the S&P, up 13.6%; and the NASDAQ, which rose 9.5%. (All the figures are exclusive of dividends.)

The year's big winner was Jo-Ann's, which more than doubled, up 106.8%. A.C. Moore rose a hefty 48.9%, and Michaels had risen 24.6% when the trading stopped. Although Hancock rebounded in the fourth quarter (see below), the stock fell 15.9% for the year. Wal-Mart continued to stagnate, losing 1.4% for the year. The stock was almost $65 in early 2002 and has gradually sunk to the mid/upper $40's since then.

For industry related companies not included in the CLN Index, Martha Stewart Omnimedia increased 25.4%. Target outperformed Wal-Mart again, but increased only 3.7% for the year. Meredith rose 7.7% and Primedia, which sold it's craft/jewelry magazines during the quarter, rose 3.7%.

The CLN Index performed well in the fourth quarter, but not quite as well as the Dow which rose 6.7 and NASDAQ, which rose 6.9%. The CLN Index, accounting for Michaels going private and therefore its shares no longer traded, rose 6.2%. The S&P increased 6.1%.

Among individual stocks in the CLN Index, Jo-Ann's was the big winner, increasing 45.9% in the quarter. Hancock was up 19.9%, and A.C. Moore increased 13.9%. Only Wal-Mart declined, down 6.4%.

Regarding other industry-related stocks, Martha Stewart Omnimedia rose 23.3% and Target rose 3.3%. Among publishers, Meredith rose 14.2% and Primedia increased 11.2%.

Investors did well in 2006, and so did board members and company execs with stock options. The fourth quarter also showed the changing of the guard at A.C. Moore and Jo-Ann's. A.C. Moore's Director William Kaplan cashed in 912,000 stock options for $17,011,000. Jo-Ann's former Chair/CEO Alan Rosskamm sold a total of 261,121 shares for $5,255,606.

A.C. Moore Director Richard Lesser sold 8,900 shares for $200,005, and Director Richard Drake cashed in 1,100 shares for $25,300. Exec VP for Store Operations sold 5,000 shares for $110,050, and President Larry Fine sold 13,334 shares for $295,748.

Hancock reported no execs or directors cashing in stock options in the fourth quarter. Wal-Mart's Vice Chair, Michael Duke, sold 38,708 shares for $457,141, and Sr. VP Charles Holley sold 1,166 shares for $13,770.

A year ago CLN published a list of challenges facing the industry in 2006. How did we do? Here's a condensed list, and a report card:

Beads. "Much of the trend is taking place outside our stores; how do we bring more beaders into our stores?" GRADE B+

Chains Stores. "Whoever is hired as CEO of A.C. Moore and Jo-Ann's will have a major impact on the industry." The jury is still out on A.C. Moore's Rick Lepley and Jo-Ann's Darrell Webb, but it appears to be a case of so far, so good. GRADE: Incomplete

Decorative Painting/Cross Stitch. "The categories need new designs that attract a younger audience, and projects that allow younger consumers to somehow do their own thing.... Retailers need to lighten up on pricing." GRADE: C+ for designs, F for pricing.

Home Dec. "Convince the consumer that our stores have AT LEAST as many inexpensive, creative home dec ideas as Home Depot or Lowe's. GRADE: D

Merchandising. "Make our stores more interesting." GRADE: D.

Michaels. "The U.S. is pretty well filled with Michaels' stores; Where does it go for growth?" GRADE: Incomplete, given the company's sale in 2006.

Retailers. "Need to reduce pricing pressure on vendors so they have money for new product development, promotions, inspiration, and education." GRADE: F

Scrapbooking. "Stop the constant emphasis on new products every three months" GRADE: C ... "Independents need to control their inventory and open-to-buy, and concentrate more on attracting newcomers." GRADE: C. ... "Provide products and services that digital scrapbookers will want to buy – in our stores." GRADE C.

Young Consumers. "We need to understand them." GRADE: C (It would be an F if not for the series of seminars on younger customers at the CHA Winter Show.)

Yarn. "Entice the newcomers who knitted a scarf to try larger projects." GRADE: C

Here are highlights from industry pros about the prospects for the new year. To read their complete articles, read Busines-Wise, Memory, Paper & Stamps, and Designing Perspectives.

"The best-of-breed suppliers will continue to constantly develop new products, programs, and concepts – some of which will be the next scrapbooking. The biggest deterrent to developing the next winner would be retailers and suppliers not working together to do so." – Peter Heinsimer, Westlake Associates (Click on Business-Wise)

"Chain stores will start to shrink their scrapbooking departments and move on to the next big thing. Manufacturers, some of whom have enjoyed a roller-coaster ride on the backs of chains, will turn more attention to the independents if they (manufacturers) ultimately want to survive." – Pam Riddell, The Riddell Group and Maps2Memories (Click on Memory, Paper & Stamps)

"Many companies have been questioning if scrapbook has peaked and where the market is going; my take is that scrapbookers have become crafters – they just don't know it.... Also, we are seeing huge interest on both our web site and from consumer mail on digital or computer-based scrapbooking." – Kathy Stull, KS Productions, producers of numerous industry-related tv series for PBS.

"Sales will be flat in 2007 for many suppliers unless they can find other places to sell their wares. Diversification will be the key to survival, but that's always been the case." – Industry Manufacturer (Click on Business-Wise)

"Where scrapbooking manufacturers and retailers will see growth is with non-scrapbookers and among scrapbookers who start to use their scrapbooking tools/supplies in new and different ways; as essentials for home décor, entertaining, kids crafts, and other projects." – Xyron, Inc. (Click on Memory, Paper & Stamps)

""Designers will acclimate and settle into the CHA Designer Section. They'll form small networking groups of 4-8 designers, connecting and supporting each other through email." – Cindy Groom Harry, Craft Marketing Connections (Click on Designing Perspectives)

Interweave will have authors of new books at its TNNA booth – Lisa Kartus, author of Knit Fix, will be there Jan. 13 and will sign complimentary copies of her book in Unicorn’s booth (#245-251) Jan. 14, at 12:15 pm. Amy Singer, author of No Sheep for You, will be in Interweave's booth Jan. 14. Lily Chin will be signing her new book, Couture Crochet Workshop, at the Unicorn booth Jan. 13, at 1 pm.

Chroma (CHA, #5301) will unveil its enhanced line of Archival Oils, whose long-term flexibility allows artists to circumvent traditional rules of oil painting, such as allowing paint layers to settle without stress or cracking. Visit www.chromaonline.com or call 800-257-8278.

Crafterstudio (CHA, #5529) is introducing two new programs, Trendsetter Research Reports, which will be emailed to subscribers showing what consumers are looking to do from a category perspective, and a Retail Branding Program, which allows, with the purchase of a license, a store access to multiple printings of a project with its logo imbedded on it. The retailer can then give them away or sell them. The site, www.crafterstudio.com/crafterstudio.html, offers consumers a wide array of projects in various categories.

MEGA Brands (CHA #5135 is introducing new kids' crafts in latch hook, picture framing, pillow art, painting, temporary tattoos, etc., featuring Disney properties, including Disney Princess, Pirates of the Caribbean, Hannah Montana, and Little Einsteins. (MEGA Brands purchased Rose Art last year.)

There will be one more issue of CLN – Jan. 15 – before the CHA Winter Show. Savvy buyers know they cannot see everything at the show, so they do as much pre-show scouting as possible. Exhibitors, send info about new products, and your booth number, to CLN at mike@clnonline.com. If the new products are online, send the URL, too.

(Note: "Vinny Da Vendor" and "Benny Da Buyer" contain Provo Craft's defense of its sales policies regarding the Cricut, and retailers' responses. But the issue is not limited to scrapbooking, as the author, a former quilt shop owner, reveals.)

I don’t even sell the darn Cricuts and I was miffed at the official position. So many retailers upset and that’s the best batch of double talk that they could come up with? I competed with chains for years, using "Local Store Marketing" efforts in our quilt store. We did more in store, and we offered more classes for less money, than any competitor. (Try to find a quilting class at Michaels or Wal-Mart!)

Like other retailers, we saw people coming into our low-priced classes with bags stocked with the needed supplies bought at Wal-Mart. We constantly had people coming in asking how to use expensive tools bought at Jo-Ann’s, people we never saw again. Some had the moxie to ask us to help them by phone to save them the trouble of coming in to our store.

I never had a manufacturer or distributor pay us (or even thank us) for funneling this business to chains, but that’s what we were doing. We created awareness, developed brands, taught, and waved goodbye to the customer who knew which store had a coupon that week. Of course we had time to do all this free instruction and local marketing – and the customers figured that out, too – because we weren’t busy ringing sales at the cash register. The expensive stuff was being bought at a discount elsewhere.

That store is now closed, no surprise. You need the high-priced items to keep a store going, and that’s the truth. My daughter rides English hunter/jumper horses, and we have a tack store here in town that lovely people own. They are helpful, knowledgeable, and experienced. The store is well stocked, clean, and easy to shop. They are doing everything right. I try to shop there for everything, but I bought a saddle on eBay that cost $1,000 less than the one in the local saddlery, even though I could afford it, and I really wanted to frequent the local shop. It seemed downright imprudent to drop an extra $1,000 just because I like the people. If I am going to react that way, knowing what I know about small business and the chances of that tack store surviving, what is the average consumer going to say as she sets out to shop?

No more B.S. about the retailer being able to make up the losses with Local Store Marketing. You undercut small stores too much, you kill them. Then who will do the heavy lifting developing your brand and your product?

I gave up and now sell on the Internet, and yes, I compete on price. (And my husband’s business pays for that expensive hobby of my daughter’s, since the craft business is kind of dicey!) Now I buy inventory every year at a deep discount from well meaning storeowners who are closing. But I regret that I had to go that direction. – Catherine Bracken, DiscountNeedlework.com (www.discountneedlework.com).

The real estate boom is over for now, so consumers will be decorating, rather than "flipping." To help retailers take advantage of the expected increase in home dec sales and technology, the CHA Winter Show is offering a variety of special seminars:

"Home Decorating: Bringing Crafts Home" (S103) with Jan Page and Julie Stephani, editor of HomeArts magazine, sharing tips for working in the home dec industry and opportunities for product development and designer projects.

"Add Picture Framing to Your Craft Business" (S108). Why framing is profitable and how to get started.

"DIY Seminar on Fabric Treatments, Framing and Wall Decor" (S112). Hosts Vickie Howell of Knitty Gritty and Michele Beschen of B. Original share the latest trends and provide product demos in fabric treatments and framing techniques.

"Accent on Home" (S115). A panel of the industry’s top designers reveal creative ideas to turn any product into home dec sales.

"DIY Seminar on Floral Design & Decorative Painting" (S125). Hosts Cathie Filian and Steve Piacenza of Creative Juice will demonstrate the latest home accent trends in floral design and introduce new techniques in decorative painting.

There are also home dec-related product workshops sponsored by Lara's Crafts (W022); Polyform Products (W100); and Princess Mirah Design (W106).

"Should Your Second Store be Virtual? Making the Web Work for You" (S116). Mary Liz Curtin explains how to set up and run an online store and launch an email marketing campaign.

"Digital Opportunities: Boosting Revenue and Driving Retail Traffic" (S128). Fujifilm USA’s VP Gael Lundeen explains how new advances in digital photography and photo imaging technologies allow retailers to offer unique, in-store digital photo-printing services.

To register and/or review full details of the entire show schedule, visit www.chashow.org. (Note: Don't delay. CHA officials told CLN 20 workshops are already sold out, as are some of the convention hotels.)

1. A teacher at an independent scrapbook store complained on Two Peas about the owners' new rules: teachers could only conduct classes using "old, clearanced, and overstocked products." That's not as self-defeating as it might appear. Consider:

In the relatively early days of the industry, Zim's was one of the pioneers and a major distributor. Eleanor Zimmerman would always run a trade magazine ad that was a how-to project. When asked one day how she picked the projects for the ad, Eleanor smiled and said she'd go back into the warehouse and ask the employees which products weren't selling so well. Then she'd make up a project using some of those products and presto, sales would increase.

As one retailer said to CLN, "I don't need new products; I need new ways to sell the products I already carry."

2. Recently National Public Radio's Morning Edition included a segment on the death of the videotape after only 20 years. The report included a prediction that the same fate would befall the CD. This should be a strong selling point for the scrapbook category that wants consumers to continue making hard-copy memory albums: "The way technology changes, will your grandchildren be able to access your all-computer, CD scrapbooks?"

3. A recent Two Peas message board had a long thread about independent scrapbook stores closing. Included in the discussion is a comparison with the cross-stitch craze of the 1980s. CLN's 3/6/06 edition included a series comparing the two categories. Click on "CLN Archives" in the right-hand column. Then 2006, then 3/6/06.

1. Kudos to Wal-Mart for funding When Parents Are Deployed, a 30-minute PBS special designed to help the 700,000+ children under 5 who have one or more parents away from home serving in the military. It's produced by Sesame Workshop. Check your local listings.

2. I have been drafted by CNA magazine to be a speaker at the CHA Winter Show seminar, "No Risk Path to New Customers: New Revenue," (S117; Sun. 3-4:15 pm) which will offer retailers suggestions for working with professional crafters. I have written extensively about the conversion of my wife, Barbara, from a hard-core non-crafter into a jewelrymaking enthusiast or, uh, fanatic. I'll give you a first-hand view of how professional crafters need stores like yours – and what they can do for you.

3. Among the wide variety of CHA Winter Show seminars and workshops to choose from, a real no-brainer for retailers should be the "$1.99 An Idea Luncheon" (E5080; Sun. 12:30-2 pm). It's a change to sit down, eat lunch while avoiding the long convention center food lines, and listen to Rick Kizer and Georganne Bender give you specific, practical ways to improve your store's profits.

4. Is this a sign of the times? I asked someone at a major industry company for his predictions for 2007 and he said, "I took a random poll and I couldn’t get two people in this building to agree on anything."

5. Godspeed, Jerry Ford. Thank you for your service.

6. I am getting fed up with groups who think they have god on their side telling me where to shop. The Christian law firm Liberty Counsel told me I could shop at Wal-Mart because the company used "Merry Christmas" instead of "Happy Holidays." Meanwhile, another group ran ads telling me not to shop at Wal-Mart because of its employee practices. The ad asked, "Where Would Jesus Shop?"

Gee, I didn't know Jesus needed to shop.

CLN STOCK INDEX. A.C. Moore: 21.67, down $0.57 ... Hancock: 3.44, up $0.25 ... Jo-Ann's: 24.40, down $0.14 ... Wal-Mart:46.18, down $0.27 ... CLN Index: 95.69, down 0.08% ... Dow Jones: 12,463.15, up 0.14%. (Note: All changes in price are since 12/15 and are exclusive of dividends. In previous years the CLN Stock Index was published as a separate article in each issue. But because Rag Shop and Michaels are no longer publicly traded, the CLN Index will be listed in Miscellaneous News.)

PROFIT-TAKING. Olstein Capital Management sold some of its shares in Jo-Ann's, reducing its stake in the company from 7.8% to 4.9%. A Securities and Exchange Commission filing said, "Olstein believes that [Jo-Ann's] has taken steps to improve its corporate performance, including management changes and corporate governance improvements, as well as other business developments." (Note: Jo-Ann's stock increased 46% in the fourth quarter.)

SHIPPING. UPS will increase its ground shipment rates by an average of 4.9% and boost air express and international shipments from the U.S. by an average of 6.9%, the Associated Press reported. FedEx increased its express shipping rates by 3.5% and the cost of first-class mail is expected to increase three cents this spring.

JOBS. Crafts America (dba Herr’s Pacific) is looking for a Sales Manager to be located onsite in Danville, IL. Responsible for in-house and outside sales force – hiring, training, evaluation, and management. Interested parties can email Leslie Pouilliard at leslie@herrspacific.com, or call 217-442-4121.

CONTEST. Jan. 22 is the deadline to enter Toner Plastics Professional Designer Challenge that offers three $150 prizes and a $200 Grand prize for projects using Toner products such as CraftLace, Fun Wire, and Toner Hemp and the themes are Children, Seasonal, and Jewelry. Winners will be announced at Toner's CHA booth, #3820. To enter, complete the Challenge entry form at www.tonercrafts.com.

PEOPLE. Activa named industry veteran Jim Tierney, formerly of The Mountain Idea, as National Sales Manager, reporting to David Murray ... A.C. Moore hired Daniel Maguire as VP of Store Planning and Visual Presentation. He most recently served as the Chief Store Development Officer of DOTS, a national retailer of women's plus-sized fashions. Prior to that, he served in senior management positions with Jo-Ann's ... DRG promoted Michele Fortune to Product VP and Dan Fink to Marketing VP. marketing.

SEWING. The media coverage continues. The 12/23 edition of NBC's Nightly News included a report "that talked about the growing interest in sewing, especially among younger customers who are looking to personalize their wardrobe," said Ellie Joos of Ellie Joos & Associates. "There was a nice visual plug for Bernina, with a close up of the machine, a nice plug to G Street Fabrics and another store in San Francisco that said all of their sewing classes are booked and have waiting lists."

SIGN OF THE TIMES. The Peoria [IL] Journal Star reported that the annual Salvation Army bell-ringing Christmas solicitation brought in less money this season. One reason: because of the increase in the use of debit cards, people don't carry as much actual money any more.

QUOTATION. "We are trying to understand the consumer and how SHE reacts, and even though we thought we had it figured out for a few years, we are back in a morass of indecision with what seems like a lack of creative juice flowing from manufacturers, craft stores, and consumers." – Major Independent Craft Retailer

MEDIA. Interweave Press is increasing the frequency of its Interweave Crochet magazine from a semi-annual, special-interest publication to a subscription-based quarterly, and named Kim Werker as Editor. She is the founding editor of the online magazine, Crochetme.com, and is the author of Crochet Me: Projects and Inspiration for the Crochet Revolution, a collaboration with designers from the website, to be published by Interweave this fall. With the expansion of Interweave Crochet, Interweave will have the largest "footprint" in the needlework category. The company publishes Interweave Knits, Interweave Crochet, Piecework, Spin-Off, Handwoven, and Fiberarts. For ad info, email Tiffany Ball-Zerges at tiffanyb@interweave.com or call 970-669-7455; for classifieds and shop listing: Corina McClanahan, corinam@interweave.com or 877-613-4621; for editorial and submissions inquiries for the Fall 2007 issue, email Assistant Editor Katie Himmelberg, katieh@interweave.com.

YARN. Coats & Clark and Westminster Fibers are supporting the upcoming exhibition, Radical Lace and Subversive Knitting, Jan.25-July 17 at the Museum of Arts & Design in NYC. The exhibition examines the mystique of contemporary lace making, crocheting, knitting, tatting, and knotting, and will feature world-renowned artists who use these mediums for creative expression. The exhibition will include a variety of workshops, also supported by Coats and Westminster. For more, visit www.madmuseum.org or call 212.956.3535. (Comment: Some of the items to be exhibited are absolutely remarkable.)

WOMEN. The National Retail Federation has launched an online resource for female retail professionals, the Women’s Resource Center, at www.nrf.com/wrc. The Center features resources relating to professional development and is password-protected for accessing networking directories.

SERVICES. Home Depot is offering small business owners services such as payroll and credit card processing and business and health insurance through its Business ToolBox program. Business owners can also buy office supplies and computers.

LICENSING. Vendors interested in learning more about licensing and the latest developments in that industry may want to visit www.licensemag.com.

QUOTATION. "i finished shopping ... all internet ... except ac moore ... u have 2 go in person ... to b inspired ... by moms with daughters ... teachers in the check out line" – Rosie O'Donnell speaking computer-ese in her blog at www.rosie.com.

CROSS STITCH. Yesterday's edition of Parade magazine included "The Year's Quirkiest Stories." One of the entries: "A parakeet called Spike was named Young Cross-Stitcher of the Year by a British sewing magazine. Spike's owner – Sandra Battye, 31, of Stevenage, England – said, 'She would sit on my shoulder and watch me for hours. One day, she picked up the needle in her beak and began cross-stitching. She is very good but still gets a bit confused at how the patterns work.'"

The only personnel recruitment firm specializing in our industry has a number of job openings. To see the latest list, click on Jobs in the left-hand column or click HERE.

1. Light travels faster than sound. This is why some people appear bright until you hear them speak.

2. He who laughs last, thinks slowest.

3. Change is inevitable, except from a vending machine.

4. Those who live by the sword get shot by those who don't.

5. Nothing is foolproof to a sufficiently talented fool.

6. The 50-50-90 rule: Anytime you have a 50-50 chance of getting something right, there's a 90% probability you'll get it wrong.

7. If you lined up all the cars in the world end to end, someone would be stupid enough to try to pass them, five or six at a time, on a hill, in the fog.

8. If the shoe fits, get another one just like it.

9. Things that come to those who wait will be the things left by those who got there first.

10. The shin bone is a device for finding furniture in a dark room.

11. A fine is a tax for doing wrong. A tax is a fine for doing well.

12. When you go into court, you are putting yourself into the hands of 12 people who weren't smart enough to get out of jury duty.

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4. Creative Leisure News is published the first and third Mondays of each month.  Your next issue will be Monday, January 15. HAPPY NEW YEAR! 

xxx

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