Date: May 21, 2007
Vol. XI, No. 10

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TABLE OF CONTENTS

COMMENTARY: THE MORE THINGS CHANGE 

Rag Shop, bankrupt. Hancock, bankrupt. A.C. Moore reports first-quarter same-store sales are down 4.9%. Michaels reports it expects first-quarter same-store sales to be down 1.0%. Jo-Ann's reported overall sales for the quarter were up only 1.8%. Business Week reported in its 4/30 issue that Wal-Mart was going through a "midlife crisis." No independent has told me lately that business is great.

April was lousy for almost everyone. And the National Retail Federation reported, "With summer just around the corner, uncertainty about rising gas prices is causing concern for both consumers and retailers."

Are we having fun yet?

Since I stumbled into the industry in 1979, the industry has changed – manufacturers, retailers, technology, design, etc. But some basics remain the same. A major topic these days is driving more traffic into our stores – exactly the same concern we all had a quarter century ago. Back then, Aleene Jackson told me the key for a successful independent retailer was to introduce his/her store to 50 new consumers a week. Every week.

A tall order, but as true today as it was in the early 80s. And true for chain stores, too.

This issue presents some ideas for increasing store traffic, but it is by no means complete. Have some ideas of your own? Share them with the industry. Email your thoughts to CLN at mike@clnonline.com.

Memory, Paper & Stamps. CLN interviews Dennis Conforto, the CEO of The SMART Group, on the state of scrapbooking and why he thinks vendors and retailers should join the Photo Marketing Assn.

Scene & Heard. Industry veteran and design/marketing pro Ellie Joos reports from the Quilt Market in Salt Lake City.

Kate's Collage. So why did the Wall Street Journal call our industry "dowdy"? Where did that image come from? For the answer, read Mike Hartnett's sad tale, "The Craft Fur Duck."

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.

As reported in the last issue of CLN, the U.S. Supreme Court is considering how much control manufacturers should have regarding the pricing of their products at retail. The questions the Supreme Court will answer are, should manufacturers be allowed to set a minimum price which retailers must follow? Should the Manufacturer's Suggested Retail Price become the Manufacturers Required Retail Price? The Supreme Court will decide in September, but why wait? Vote now! Click on Industry Polls in the right-hand column or click HERE.

No, said a plurality of CLN voters; 41.9% said the world's largest retailer is bad for the U.S., and 18.6% think Wal-Mart is very bad for the country. On the positive side, 7.0% believe the company is good and 9.3% think Wal-Mart is very good for the U.S. The remaining 23.3% believe the pluses and minuses cancel each other.

For the first quarter ended Mar. 31, sales grew to 1.9% to $135.4 million, but same-store sales decreased 4.9%. Profits rose, however; net income was $0.6 million ($0.03/share), compared with $0.3 million ($0.01) a year ago. Analysts had expected higher sales but lower earnings. The company said its cash position improved by $20.4 million compared to a year ago primarily due to the 18% reduction in inventory per store.

CEO Rick Lepley stated, "We are pleased with our initial progress in improving gross margins and continued improvement in our inventory and cash positions. We realize that in the near term we are foregoing comp store sales increases to lay the foundation for improved profitability."

In a conference call with stock market analysts, execs blamed the sales on fewer new stores, bad weather, disappointing yarn sales, and general industry weakness. The company is also postponing new store openings until the fourth quarter, possibly while working on a new store prototype. Execs' expectations for the second quarter were low, due to the early Easter; department resets for scrapbooking, art, framing, and kids' crafts; and various ongoing technology initiatives.

The report inspired The Motley Fool to write "... the company just might prove to be an attractive target for private equity. When Michael's was bought out, the $6 billion deal valued the retailer at around 1.5 times its enterprise value to revenue. A.C. Moore is currently valued at around 0.6 times its revenue, which mean it could be a cheap target for someone looking at a company trying to turn around."

Analyst Laura Richardson of BB&T Capital Markets was more positive. "We continue to like A.C. Moore's stores, which we think have a strong consumer and industry following. We also think management is taking the right approach to improving the franchise, with a focus on improving operating efficiency longer term. However, we think retail turnarounds generally take longer than investors think, given the pace of making changes at retail is much slower than the pace of change on Wall Street. We also think the broader environment, which has weakened for specialty retailers of home- and leisure-related products such as crafts, could impact the pace of the company's turnaround. Thus, we maintain our Hold [rating} on ACMR."

Retailers thought sales would be poor in April due to the earlier Easter season, but sales were worse than expected. Poor weather, the housing slump, and rising gas prices were named as the culprits. Almost nine of ten retailers tracked by Thomson Financial missed analysts' expectations.

Wal-Mart's same-store sales fell 4.6%, the largest drop in recent memory. "Sales in apparel, home, and hard lines at Wal-Mart Stores were soft, as the cold weather affected traffic and seasonal merchandise," the company said. (Fabric and crafts are in the "home" department.)

Same-store sales for April: Saks, +13.1% ... Costco, +7.0% ... Nordstrom, +3.1% ... Sam's Club, +2.5% ... Federated Dept. Stores, -2.2% ... Dollar General, -2.4% ... Target, -6.1% ... Duckwall-ALCO, -5.3% ... J.C. Penney, -4.7% ... Kohl's, -10.5% ... Dillard's, -14.0% ... Abercrombie & Fitch, -15.0% ... Gap, -16.0%.

The UBS-International Council of Shopping Centers same-store sales tally of 53 stores posted a decline of 2.4%, the biggest decline since the ICSC began tracking sales in 1970. ICSC's Chief Economist Michael Niemira said it was the was the weakest spring performance since 2003. "The slowdown is at hand," said Niemira.

A survey commissioned by the National Retail Federation revealed the average consumer thinks the price of gas will reach $3.32 per gallon by Father’s Day. As a result, consumers say they are finding a variety of ways to offset the financial impact. Many say they are taking fewer shopping trips (40.2%) and shopping closer to home (37.9%), while one in three consumers (30.7%) are shopping for sales more often and one in five (23.5%) are using more coupons.

"To offset the effects of higher prices, more consumers are giving their wallets a little extra cushion by cutting back on discretionary spending or choosing to frequent retailers closer to home,." said NRF President/CEO Tracy Mullin.

Many consumers (40.0%) are choosing to drive less, in an effort to lighten the impact of higher prices at the pumps. The survey found that 32.6 percent have decreased their vacation/travel and 31.1 percent are dining out less. Nearly a quarter of consumers (24.1%) are spending less on clothing and only one in five (20.1%) have delayed major purchases, such as a car, television or furniture.

Jerry Fallwell, the evangelical minister who founded the Moral Majority and made Christian fundamentalists a powerful political force, died last week of an apparent heart attack. One of his strongest supporters was David Green, Founder/CEO of Hobby Lobby. Green told the Roanoke Times that Fallwell was a personal hero of his.

But Green was more than an admirer. When Fallwell's Liberty University was struggling in 1999, Green purchased an abandoned 800,000 sq. ft. cell phone plant and donated it to the school. Fallwell told the Lynchburg News & Advance the donation was "the most important event to happen to the ministry in its 49 years."

In commenting on the school's future, Green told the Times, "About two years ago, we discussed on the subject of keeping Liberty on course after his departure ... because you have a lot of universities wavering from their roots. From what I understand, he's brought a lot of people up under him who have been strong leaders. I think he has a tremendous number of alumni. There would be some of those to make sure the school continues."

Net income for the first quarter rose 8.1% to $2,826 ($0.68/share). Net sales for Wal-Mart stores rose 5.6% to $55.44 billion, but same-store sales slipped 0.1%.

"While these are record sales and earnings, we feel there was an opportunity to have done better," said CEO Lee Scott. "Delivering on our mission – saving people money so they can live better – is more important than ever around the world. The worldwide organization is focused on improving sales and returns."

For the second quarter the company estimates the same-store sales increase in the U.S. to be 1.0% - 2.0% and earnings per share from continuing operations to be $0.75 - $0.79.

Creativity, the corporate parent of Autumn Leaves, Blue Moon Beads, Crop In Style, DMD, and Westrim Crafts, announced that Christopher Mclain has stepped down as President/CEO, replaced by Ronald Cooper. Mclain will continue as a consultant for the company. Cooper is a former VP of The Boston Consulting Group, leading the business strategy as president of General Electric, and president of multiple divisions at Black & Decker.

Also new is Frank Muscatello, Exec VP – Sales. He had been VP/Sales - Consumer Products for Playtex and President – Global Sales for California Tan, a cosmetics company.

In other management changes, Lori Ott was promoted to Exec VP – Product Development and Creative Services and Nick Lazarou was promoted to Exec VP – Product Development & Marketing and Supply Chain Management.

1. Online registration is now available. Visit www.chashow.org.

2. CHA will partner with Art Materials Retailer magazine to strengthen and enhance the art materials offerings at the Summer Show, July 20-22 in Rosemont, IL. There will be an online product preview and buyers' guide, special lounge area on the show floor highlighting new products, distinctive show signage, best new product award competition, and more. (CHA and Art Materials Retailer plan to expand the art materials section for the CHA Winter 2008 show.)

CHA will also host a special Art Materials Task Force meeting (Sun., July 22, 11:30 am-12:30 pm) to receive input from CHA members on specific seminar and workshop programs they feel will add the most value to their show participation. A complimentary lunch will be served. Members interested in participating in the program should email Semo Sennas, CHA Marketing Program Manager, at ssennas@craftandhobby.org or call 201-794-1133, ext 218. The magazine's website is visit www.artmaterialsretailer.com.

3. The deadline to reserve space in the Designer Showcase is May 31.The Showcase will be Sun., July 22 and will be only for private viewing by CHA member editors, publishers, manufacturers and members of the press. For more info, email Elaine Schmidt at esdesigns@att.net.

Ron Whitmore, the co-owner of Artisan Santa Fe, began his term as President of the National Art Materials Trade Assn. at the recent annual show in Chicago. Elected to the NAMTA board of directors were Marcello Dworzak, General Manager of Da Vinci Paint, and Frank Stapleton, President of MacPherson's, as Domestic Supplier Representatives. Mark Wiener, owner of The Art Colony at the Blueprinter, was elected as Domestic Retailer Representative. Each will serve a three year term on the NAMTA Board.

WINDMILL, The Revolving Easel was named Best New Product and Brain Noodles was named Best New Kids' Product. The WINDMILL easel, three feet square at the base and six feet tall, revolves to provide artists with new dimensions in creativity. Visit www.artistsadvantage.com. Brain Noodles are jumbo fluffy fiber sticks that bend and twist, and each kit comes with a children's idea booklet. visit www.catnoodle.com.

Delta of North America was named Best Small Booth and Designs Polymorphous Group won a Judges Special Recognition award; both were new exhibitors. Artist's Advantage was named Best New Exhibitor. Ampersand Art Supply was named Best Medium Booth and Savoir-Faire Best Large Booth. ColArt Americas won the Best Point-of-Purchase Display award for its Liquitex Palette and Painting Knife Display. Pebeo of America's New Studio Wood Cases won for Best Packaging.

A previous issue of CLN invited readers to suggest how retailers, individuals, and organizations can help increase traffic in our industry's stores. Some suggestions:

1. This from Kizer & Bender's website: "Make our stores more fun.... [For example, for St. Patrick's Day] wear green, give shoppers a discount if they wear green, or offer a percentage off all green items; buy a bunch of plastic shamrocks and do a "Draw a Discount" event as in "Feeling the Luck of the Irish? Choose a shamrock to reveal your discount!"; host a class or crop; serve Irish snacks and green lemonade; and be sure to set your store displays to reflect the holiday." (Note: Visit www.kizerandbender.blogspot.com.)

2. Scrapbook stores should remember two facts: a) the birth of a baby inspires many consumers to start a scrapbook; b) many maternity wards give a "goodie bag" to mothers when they leave the hospital with their newborns. Retailers should check to see if the hospitals would include a store coupon.

3. A great example of independent stores working together to drive more traffic is the annual Greater Kansas City Area Quilt Shop Hop, which occurred last month. Eleven quilt/needlework stores offered extended hours, prizes, free patterns, and more. Customers who visited all 11 stores were eligible to win a $1,100 shopping spree.

4. From newspaper columnist Kathy Murillo of Crafty Chica: "Retailers can watch what celebrities are wearing and tap into that when it comes to workshops, campaigns, etc. For example, when Ugly Betty came out, many of my friends and I noticed the lead character's chunky gold initial necklace. I loved it so much that I did a craft column on it that showcased the designer of the necklace, and I included how to make your own version. The response was crazy! I had so many people call and tell me they loved the idea. Some of them had never worked with polymer clay, but felt they could handle it with this project. Next thing I knew, crafters were sending me their ideas for making earrings they saw on Grey's Anatomy. Retailers have to look beyond traditional methods. We are a celebrity-obsessed culture these days. In addition, we have to show new ways to use long-time products. Every little bit helps! American Idol, Dancing with the Stars – these are all avenues to look for hip ideas!" (Note: For more hip ideas, visit www.craftychica.com.)

5. Consider billboard advertising. Retailer Mike Dolan of Scrapbook 911 in San Antonio recently started billboard advertising and reports, "Our daily average sales for March are up 25% over February. We are getting about five new customers a day on the weekdays and about 15 on Saturday and Sunday. About a third are tourists, convention attendees, or affluent families from south of the border. We are hoping this trend continues."

6. Create a slide show presentation about scrapbooking, knitting – whatever – then contact every business, women's, and church group in the area and offer to be a speaker at the next meeting.

7. Enthusiastically support trade associations' promotions, such as TNNA's Stitch N' Pitch and One Pixel at a Time (www.tnna.org), CHA's National Craft Month, and CK Media's upcoming World Cardmaking Day.

DRIVING MORE TRAFFIC : INDIVIDUALS/ORGANIZATIONS

1. Wear your crafts. Wearing a scarf, embellished jeans and blouses, handmade jewelry and purses – the list is endless. You and your employees become walking advertisements for your store. "What a lovely scarf!" "Thanks, I knitted it in an hour. Visit my store and I'll show you how."

2. CLN often reports on industry-related tv series being uplinked to local PBS stations, each of whom has the option of carrying a particular series. Call your local station saying you want it to carry these series!

3. If the Craft Yarn Council of America – a handful of manufacturers and publishers – can sponsor Knit-Out & Crochet consumer events in parks and shopping malls that attract thousands of consumers, what might companies in other product categories accomplish if they worked together? What else could trade associations do?

There's a new trend in retail – smaller stores. Among the big-box chains who are either testing smaller store prototypes or are expanding the number of their smaller stores are Tesco, Publix, Krispy Kreme, Home Depot, DSW, Office Max, Giant Eagle, Supervalu, Lowe's, J.C. Penney, and FedEx Kinko's, reported CoStar Group, a commercial real estate information company.

Add Wal-Mart to the list, too. In addition to its Neighborhood Market stores, which are expected to grow in number to about 130 outlets this year, the company may be considering a 20,000 sq.-ft. prototype of a traditional store, the New York Post reported.

Smaller stores have numerous advantages: they cost less to build, stock, and staff, and the trend fits with the demographics of aging Baby Boomers, who may not want to trudge down the aisles of big-box stores to buy a gallon of milk, office supplies, basic groceries – or crafts?

A new PBS series, Knit and Crochet Today, will premier this fall, It's underwritten by Coats & Clark and is produced by Candice Jensen Productions. Thus far 41% of the PBS markets, including 12 of the top 20, have agreed to carry the series. The series will also be seen on the CREATE network, a public tv network that runs how-to, DIY, and other instructional programming. Additional stations may carry the series if they receive enough requests.

The host is Kassie DePaiva, who plays the character "Blair" on ABC-TV's One Life to Live. She is also a singer and will release her third CD tomorrow, and will co-host and perform on The View. Producers say she is well versed crochet and is a beginning knitter.

Scheduled guests include designers Kaffe Fassett, Brandon Mably, and Kristin Nicholas and editors from magazines such as Vogue Knitting and Crochet Today.

1. On May 9, A.C. Moore emailed customers advertising patio furniture, an adult rocking chair, decorative boxes, garden torches, crayons, construction paper, and scrapbooks. This is what happens when there is no hot craft trend drawing in customers. Years ago, during one of the industry's fallow periods, Leewards, then the industry's leading chain, tried to sell cooking spices.

2. Whenever the topic of increasing store traffic arises, someone complains that the trade associations should sponsor an ad campaign similar to "Got Milk." Here's why you won't see "Got Crafts": a) It costs millions. b) There's a federal law that gives agricultural producers tax breaks for such programs. That's why you have only seen campaigns for milk, beef, pork, eggs, and fresh flowers. So unless we start growing scrapbook albums and paint, it ain't gonna happen.

SALE. All My Memories (AMM) is in the process of selling the company (including all product lines) to another industry-related company. The deal is expected to be completed in 30-45 days. In the meantime, AMM will no longer sell directly to independent stores. Any unfilled order previously placed with AMM, has been canceled and will need to be placed with a distributor. In the U.S., that's Notions Marketing and Provo Craft. In Canada it's Memories Wholesale, Multi Crafts & Gifts, Open Page Wholesalers, and Scrapbook Eh?

MARTHA. Promoted her paper crafting line in Michaels on The Today Show May 10. She taught substitute host David Gregory how to make a Mother's Day card, and recommended her line for making and wrapping Mother's Day gifts and cards. The week of May 7 was "Scrapbooking Week" on her tv series.

PHOTOS. Kodak has added partnerships with retailers who are aligned its online printing network. CLN reported the partnership with Target in the previous issue; now Kodak has announced similar partnerships with Rite Aid and Best Buy.

QUOTATION. "Martha Stewart has a new crafts line, and all we can say to that is: Martha, what took you so long? – Susan Fornoff, "Around the House" columnist for the San Francisco Chronicle

SHOWS. Stacy Julian, founding editor of Simple Scrapbooks and BigPictureScrapbooking.com will be the keynote speaker and MemoryTrends in Las Vegas Sept. 18-20. Registration opens soon. Visit www.memorytrends.com.

CLN STOCK INDEX: A.C. Moore: $22.37, up $2.39 ... Hancock: $0.91 ... Jo-Ann's: $29.02, down $1.58 ... Wal-Mart: $47.27, down $1.00 ... CLN Index: 99.57, down 0.2% ... Dow Jones: 13,556.53, up 2.2%. (Note: All changes in price are since 5/04 and are exclusive of dividends. Trading in Hancock stock stopped with the bankruptcy filing.

SALE. The sale of Leisure Arts and the Atlanta Braves baseball team by Time Warner to Liberty Media has been completed. The deal had to be approved by the owners of other major league teams. Liberty exchanged approximately 68.5 million shares of Time Warner common stock for the Braves and Leisure Arts and $960 million in cash.

NEEDLEWORK. The upcoming TNNA show in Columbus, OH June 2-4 promises to be a record-breaker. Pre-registration has already exceeded last year's numbers; 1,600+ have already registered and 28% of the 111 classes and six of the convention hotels are sold out. Highlights of the show are expected to be the Needlearts Gallery and Fashion Show, the New Product Display, the Great Wall of Yarn, the Scrabble Board of Threads, the Sample It! event, the Silent Auction, the announcement of the winner of the TEN award, the retailer luncheon, and meetings of each of the specialty groups. Visit www.tnna.org or call 740-455-6773.

TV. The DIY Network recently broadcast DIY Inside: The Craft & Hobby Show 2007, an hour-long special filmed in the Anaheim Convention Center.

STRESS. Retail is one of the most stressful occupations, according to a new study in the UK and reported by Retail Bulletin (www.retailbulletin.com). According to the study, 71.4% of retail human resource managers said stress was a problem in their workplace, compared to HR directors in hotels and restaurants (50%), banking and finance (52%), and IT (59.1%). The stress is often caused by high demands on employees who have little control over their situation.

BOOKS. Noted needlework designer Lois Winston is following her funny, charming novel, Talk Gertie To Me, with Love, Lies and a Double Shot of Deception, on sale in June from Dorchester Publishing. "Smart, witty fun from an author on the rise!" wrote author/reviewer Christina Skye. The novel included reference to a project for an angel doll ornament; the actually instructions for the ornament are on Lois' website, www.loiswinston.com.

PAINTING. Officials say the online painting classes offered by the Society of Decorative Painters have been well received. The video classes are available to non-members ($30 for three 30-minute sessions) and members ($20 for three 30-minute sessions). The debut class, "Goldfinch Winter Plumage," a beginner project on Mi-Teintes paper taught by Janelle Johnson, will be available to download until May 23. Classes by Maureen McNaughton and Sherry C. Nelson also are planned. Visit www.decorativepainters.org.

CRAFTS. Last weekend Make and Craft magazines sponsored Maker Faire 2007 at the San Mateo (CA) fairgrounds. Another is scheduled for Austin, TX Oct. 20-21. Visit www.makerfaire.com to see examples of how many people have a far broader definition of "crafts" than is common in our industry. (In particular, check out the Swap-O-Rama section.)

CATALOGS. Dimensions (www.dimensions-crafts.com) and C&T Publishing (www.ctpub.com) have new catalogs of their Fall collections/releases of their kits and books.

SEWING. The Home Sewing Assn. announced that the Fall show will be managed by Pat Kobishyn, President of Int. Textiles Expo (ITE). The show is Sept. 17-19 at The Rio All-Suite Hotel & Casino in Las Vegas. For info, email tradeshow@sewing.org.

WAL-MART. Will expand its consumer electronics department, reports USA Today. No word on what department will be shrunk to make more room for the TV's, CD players, etc.

HANCOCK. Kathleen Kennedy's position as Sr. VP/Marketing has been eliminated.

WAL-MART. Will consolidate about 2,800 salaried-manager positions at some 580 U.S. Sam's Club stores, eliminating about 1,000 management positions. The company said it was intended to improve customer service, not reduce costs. Employees will be offered other positions within the company, Retail Merchandiser reported.

COPYRIGHTS. The Bush administration placed 12 countries on a "priority watch list" for failing to protect U.S. producers of copyrighted material from widespread piracy, the Associated Press reported. The list subjects the countries to extra scrutiny and could lead to economic sanctions if the administration decides to bring trade cases before the World Trade Organization. The list includes China, Russia, India, Israel, Thailand, Turkey, and Ukraine.

To see the latest listings from the only personnel recruitment firm specializing in our industry, click on Jobs in the left-hand column, or click HERE.

1. You accidentally enter your PIN on the microwave.

2. You haven't played solitaire with real cards in years.

3. You have a list of 15 phone numbers to reach your family of three.

4. You email the person who works at the desk next to you.

5. Your reason for not staying in touch with friends and family is that they don't have email addresses.

7. Every commercial on television has a web site at the bottom of the screen.

8. Leaving the house without your cell phone, which you didn't even have the first 20 or 30 (or 60) years of your life, is now a cause for panic.

9. You get up in the morning and go online before getting your coffee.

10. You're reading this and nodding and laughing.

11. You are too busy to notice there was no #6 on this list.

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4. Creative Leisure News is published the first and third Mondays of each month.  Your next issue will be Monday, June 4.

xxx

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