Date: June 18, 2007
Vol. XI, No. 11

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TABLE OF CONTENTS

COMMENTARY: RICH AND POOR 

The June 13 edition of the Wall Street Journal included a front-page profile of Stephen Schwarzman, CEO of The Blackstone Group. The Group, one of whose divisions sold part of itself to China for $3 billion, is half owner of Michaels, although the division involved with China is not connected with Michaels.

The Journal wrote, "When [Schwarzman] pursues deals as the chief executive of Blackstone Group, he says he wants to 'inflict pain on' and 'kill off' his rivals."

At least part of The Blackstone Group is going public. The Journal added Schwarzman "... stands to pocket as much as $672.2 million, and will retain a 23% stake in Blackstone, likely to be worth more than $7.5 billion."

The Associated Press reported that Schwarzman made $400 million in 2006, nearly double the combined compensation for the CEOs of Wall Street's five biggest investment banks.

Meanwhile, my wife Barbara continues to beg for money as CEO of Friendship House, a United Way agency serving the poorest area in Peoria, IL. Two weeks ago, two gangs had a shoot-out one block from Friendship House. A woman walking down the street was shot twice in the stomach by wayward bullets – a half hour before the little kids were to arrive at Friendship House for the after-school program.

In the last six years, attendance at the soup kitchen has tripled, but the donations have not. Now Barbara sees entire families in the food line, families who had been contributing members of the middle class, but mom and dad lost their factory jobs, and one of the kids got sick.

The Journal reported Schwarzman's personal chef would spend as much as $3,000 a weekend on food for Schwarzman and his wife.

I hope Schwarzman remembers the words of Mahatma Gandhi: "God has provided enough for the world's hunger, but there will never be enough for the world's greed."

"Benny Da Buyer". Business slow? Not at this independent scrapbook store in Salem, OR. Here's why.

Memory, Paper & Stamps. Bruce Aldrich, Sr. Operations Officer for the Photo Marketing Assn., talks about PMA, Memory Trends, and The SMART Group.

"Vinny Da Vendor". Sound advice for scrapbook companies who feel pulled in two directions by CHA and PMA.

Newsbriefs. Michaels names a new CEO and Advantus acquires most of AMM – the newsbrief emailed to subscribers on June 4.

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.

Everyone has had enough time by now to see Martha's craft line in the local Michaels store. Whether or not you're involved with scrapbooking, what did you think? Will it succeed? To vote, click on Industry Polls in the right-hand column or click HERE.

Voters in CLN's unscientific poll apparently believe scrapbooking belongs with crafts rather than photography. More than three-fourths, 76.1%, said , "Scrapbooking is a craft, therefore it's truly part of the craft industry." Only 9.0% believe "Scrapbooking starts with a photo so it belongs with the photo industry," while another 9.0% said, "Scrapbooking is unique unto itself and should be a separate industry." Finally, 6.0% said they weren't sure.

A.C. Moore President/COO Larry Fine resigned for personal reasons. He was also a member of the board of directors. "This was a very difficult decision for me," Larry said. "A.C. Moore has tremendous growth opportunities ahead. I wish Rick Lepley and the entire A.C. Moore team great future success."

CEO Rick Lepley said, "Larry has provided A.C. Moore with strong industry knowledge and business skills since joining the Company. We respect his decision and wish him well in his future endeavors."

Fine, 53, served as A.C. Moore's President since June 2001 and COO since Feb. 2003. He has been a member of the Board of Directors since Aug. 2002. Previously he had been a top exec at Michaels.

The day of the announcement, Webush Morgan Securities sent a note to its clients. "[We] view the resignation of Larry Fine, President and COO, as potentially negatively impacting the turnaround in the short-term but neutral in the long-term, as we believe Mr. Fine has been instrumental in providing leadership during the management transitional changes.

"We believe that long-term merchandising and operating initiatives are not in jeopardy of being curtailed by the departure of Mr. Fine," the note added, "however, we are concerned in the short-term due to the significance associated with executing during the upcoming Christmas season. Mr. Fine had a strong group working with him, including new buyers, a new marketing director and a new director of store operations, which should continue much of the work involved in the turnaround. Nonetheless, we believe that ACMR must execute during this Christmas season, given its miscues in 2006, in order to demonstrate that current management is capable of making progress with the turnaround."

The company maintained its HOLD recommendation for the stock.

(Note: CLN sent a blast email to subscribers on June 4, reporting that Brian Cornell had been hired as CEO of Michaels. To read the original report, click on Newsbriefs in the left-hand column or click HERE.)

Michaels new CEO Brian C. Cornell will receive a $1 million salary, reported Dow Jones News. According to a filing with the Securities and Exchange Commission, Cornell will also receive a $2.5 million cash award and 133,333 restricted shares, which will vest over two years, plus an option to buy 2.27 million shares, vesting over five years.

Dow Jones News said Cornell was "A grocery executive credited with masterminding the resurgence of the Tom Thumb supermarket chain."

"Michaels is in a very good position as the leader in its category," Cornell told Dow Jones News. "I see exceptional growth prospects by building on the plans in place and enhancing our understanding of our core shopper. The demographics and income levels [of craft consumers and grocery shoppers] are similar. We're trying to reach women, 18 to 54, in the same income levels," Cornell added.

"All is well at Michaels," Co-President/COO Greg Sandfort told CLN. "Jeff [Boyer, Co-President/CFO] and I are in full support of Brian and the skill set he brings to our company."

CK Media and the Photo Marketing Assn. have an agreement in principle to have the MemoryTrends show "co-locate" with the PMA show in 2008. The 2008 PMA show is Jan. 31-Feb. 2 in Las Vegas. The 2007 Memory Trends show will run as scheduled this Sept. 18-20 in Las Vegas. Online registration is now open. Visit www.memorytrendsexpo.com.

Hilco Merchant Resources, a liquidation company, won the right to conduct going-out-of-business sales with a bid of $16.1 million. Next week real-estate liquidators DJM Realty is expected to win the bid to dispose of the unexpired store leases for $2.75 million in cash and payment of up to $1.6 million in lease obligation costs, NorthJersey.com reported.

The leveraged-buyout firm Sun Capital Partners bought Rag Shops in 2004 through its affiliate, Crafts Retail Holding, and vowed to grow the company. Since then Rag Shops has had three presidents, and last fall demanded vendors accept 25 cents on the dollar or the company would file for bankruptcy. The vendors agreed, saving Rag Shops $12 million. A few months later the chain declared bankruptcy anyway.

(Comment: This news brings to mind a comment a former chain store exec recently told CLN: "What took 20 years to build can be destroyed in two.")

The National NeedleArts Assn.'s June Market was a record breaker – almost 1200 buying companies, more than 33% higher than attended the Indianapolis show last year and 6% more than TNNA's record-setting show in 2005. John Caldera of Just Nan, a well established cross-stitch vendor, commented, "It's the best TNNA show we've ever had."

The Yarn Group announced the launch of www.yarngroup.org, a new web site designed to promote knitting and crochet to the consumer. The Designer/Teacher Section elected Gwen Bortner and Monique Keylon as co-chairs for the coming year. The Manufacturers' Representatives Group held its first formal "meet and greet" to provide a forum for manufacturers and reps to connect. The Retail Section met for the second time and focused on confirming their three committees: education, communication, and business services.

TNNA Board President Marilyn Murphy of Interweave Press presented the prestigious TEN award (Tribute to Excellence in Needlework) to Doug Kreinik of Kreinik Manufacturing. As a child Doug and his brothers stitched canvas models for the company founded by Doug's parents in 1971. He joined the company in 1983 and served as TNNA President and board member. The award is given annually to "an individual who has had a lasting impact on the world of needlearts by upholding the highest standards in needlework creativity, education, product development, and industry promotion."

The show seemed slower than the last two years, according to a number of vendors, but to CLN's knowledge still remains the largest consumer bead show in the country. (Last year's event attracted approximately 16,000 people.) Is interest in beads is slowing down? Not necessarily.

There are more bead shows, so the pie is being divided into more pieces. Local attendance may have been hurt by higher gas prices, and the timing. Two school teachers told CLN they only attended on Sunday because it was the last week of school. "If the show had been earlier, I would have taken personal days off and come to the show ever day," one teacher said.

It appeared there were fewer retailers shopping the show. We asked one independent retailer who attended last year why he didn't travel to Milwaukee this year. He cited several reasons: "1) Too many shows overall and travel too expensive. 2) Contacts made there last year have kept the pipeline full of products. 3) We shop other venues and locations. 4) Other bead vendors have made contact with us and are keeping us supplied."

Most of the bead vendors at consumer shows are not capable of selling to the chain stores – although the chains were there walking the show. But "consumer" shows remain excellent places for independents to find a wide array of products that would make their bead departments substantially different from their chain competition.

Sales rebounded somewhat after a miserable April. According to TSN Forward, same-store sales growth posted averaged 2.6% for 50+ retailers; that's down from a 4.4% growth in May, 2006.

"This provides some evidence that April was a fluke and shoppers aren’t ready to check out of this economic cycle," said Frank Badillo, Senior Economist and Director of the Retail Forward KnowledgeBase™. "As long as job and income growth is sustained, at least for upper income households, then that should help offset the impact of high fuel prices, the weak housing market and other drags on the economy."

Wal-Mart's U.S. same-store sales, without fuel, rose only 0.3%, hurt in part by weak apparel and home department sales, which includes fabric and crafts. "The price rollbacks on thousands of products throughout our stores help our customers make ends meet," said Eduardo Castro-Wright, President/CEO for U.S. stores. "We continue to highlight rollbacks and the 'save even more' features throughout the store, as well as in our circular advertising."

Target's same-store sales rose 5.8%.

To gain input and direction from its members on key industry and membership issues, CHA will assemble five task forces during the Summer Show. Each task force will have 10-12 members, and participants will be chosen on a first-come, first-served basis. (Only one person per task force from each company.) A complimentary lunch will be served. The schedule:

Scrapbooking Growth Opportunities. Fri., July 20, 11:30 am-12:30 pm.

CHA Member Benefits. Fri., July 20, 12:30-1:30 pm. Objective: obtain feedback on potential new CHA member discount programs and services that will be presented.

Exhibitor Survey. Sat., July 21, 11:30 am-12:30 pm. Objective: manufacturers of all sizes share feedback on the CHA Winter and Summer shows.

CHA Website. Sat., July 21, 12:30-1:30 pm. Objective: obtain member input in improving the website, including message boards, resource library, and pod casts.

Art Materials. Sun., July 22, 11:30 am-12:30 pm. Objective: how to strengthen art materials offerings at CHA shows.

Interested members should contact Semo Sennas, CHA Marketing Program Manager at ssennas@craftandhobby.org with their CHA Member ID and task force preference or call 201-794-1133, ext. 218. When the task force members are determined, participants will contacted.

I have been sitting back with some amusement at the recent banter between CHA and PMA – amusement not in a funny sense, but more of a, "FINALLY we're having this discussion!"

I wrote a couple of pieces a year and a half ago about too many shows (back when ScrapbookBiz was trying to enter the arena) and member benefits. As a result of the piece I wrote, I had the opportunity to have an exchange directly with Steve Berger, the CEO of CHA.

Our discussion centered around what CHA was doing to add value to its membership, and I am happy to say that things are moving in the right direction. The staff/board IS listening. I've personally attended three roundtable discussions over the last year and a half on topics such as: member retention, member benefits, and marketing sponsorships. In attendance were large and small board members, retailers, manufacturers, and designers contributing to the discussions.

These issues aren't going to be resolved overnight, but I do believe that in order to see change we all need to be part of the solution. Email or call Steve; he will call you even on evenings and weekends, and he will listen. Grab a staff member or board member at the next show and bend their ear; they want to know what you think.

Don't bail on CHA because you think it isn't working (I've certainly done enough complaining, trust me!), be a part of the change. We have this incredible opportunity to talk openly about what is/not working. Let's not waste it. – Amy Alfaro, Memories in Uniform, Inc.

P.S. I for one am SO SO SO glad that the SMART store is GONE from CHA. Good riddance. Myself and three other manufacturers had LENGTHY discussions with Steve last Fall about the SMART store and how it wasn't good for the show or small manufacturers.

I have taken classes from Dennis Conforto at CHA shows and found him to have a wealth of good, sound information and advice for the scrapbook retailer. He is passionate in his belief of the scrapbooking industry and in helping the independent stores be successful, especially when they have to compete with the big box stores.

For my store, we will attend Summer CHA and the PMA show. I had made this decision long before reading Dennis’ interview. How did I make this decision?

1. The CHA Summer Show is within driving distance, so it is a definite to attend.

2. I don’t mind traveling out west to a convention, but I can much more afford to go to Las Vegas than I can Anaheim. As a business owner, I need to stay on budget with travel expenses. I would like to see the Winter CHA show moved back to Las Vegas.

3. Photos are where scrapbooking begins and with digital photography growing, more customers are upgrading to digital SLR cameras and learning the techniques of taking a better photo. In order to teach photography tips in my store, I want to learn with the professional photographers. I also want to learn from the experts on photo preservation, as I promote scrapbooking as a way to preserve photos and memories for future generations.

4. As a business owner, I am interested in business classes. Sure, I’d love to take lots of technique classes and do make-it/take-its – but I’m not a hobbyist, I am a business owner. My teachers take the technique classes. I need to learn everything I can to improve my business. CHA seems to have the same business classes over and over. I look forward to new business classes at PMA.

I am still undecided about attending MemoryTrends. Honestly, I’m not thrilled with the venue – I enjoyed the MemoryTrends show more the year it was held in the Las Vegas Convention Center. The Sands Expo is not as convenient and user-friendly as the LVCC. However, this show is about scrapbooking only, and I like that. I can even make it through the entire show floor during the show.

I do enjoy the CHA organization, but see many opportunities for improvement. I would like to see more support for the independent store owners, and sometimes feel that CHA is geared more toward the big box stores. – Winona Dulka, Weaving Memories, Springfield, IL

Dear Dennis [Conforto]: I am one of those small retailers who is going out of business! I have felt in the year that I have been open, the incredible rush to buy, buy, buy. Always new and better items coming out without the old ever being reordered. It has hurt my small business as I can't keep buying the new and best when the one-month-old, new-and-best has not even sold yet. I agree with your philosophy and understand why you are making the changes you are. I sincerely hope things will become stronger and stronger in the industry as I believe that scrapbooking is so much more than a hobby, it is a way of life! – Nancy R. Peterson, Scrapbooking With Aloha

Once every 17 years the Midwest is inundated with a bug called the cicada, and it's helping our industry's sales, reports the Arlington (IL) Heights Herald. Female cicadas make slits in small branches when they lay their eggs, which can damage young trees and shrubs, so thousands of homeowners are buying yards of tulle to protect their trees. The females will live into July, then a new generation will hatch weeks later and burrow into the earth for another 17 years.

"We probably sold 8,000 yards of tulle in the last three weeks. Usually we sell 500 yards a month," said Kurt Matthews, a manager at an area Hobby Lobby. "People are buying pink and chartreuse green, saying, 'We'll make our back yard fun,'" Matthews told the Herald.

1. The head of a quiet but successful industry e-commerce company complained about business turning very slow. If consumer demand was strong, but high gas prices were the cause of mediocre sales in brick-and-mortar stores, wouldn't his e-commerce site be doing better?

2. For Jo-Ann's, Hobby Lobby, Wal-Mart, and independent stores who are seeing mediocre fabric sales, consider this: Hancock is closing some stores, as previously announced, and the final closing sales are offering fabric at 25 cents a yard.

BOOKS. Interweave Press is previewing its lineup of books to be released this fall. Topics include knitting, crochet, fiber arts, beading/jewelrymaking, and weaving. Visit www.interweave.com/PressRoom/fall2007preview.asp.

ADS. Michaels is getting more aggressive in its advertising. The July issue of Family Circle includes a full-page ad for its scrapbook department, and the July issue of Marie Clare includes another page – along with Horizon Group – for beading. CLN has also heard good things about Michaels' new tv commercials.

KIDS. TD Monthly lists new kids crafts products expected to be strong sellers this fall. Visit www.toydirectory.com/monthly/article.asp?id=2538.

TV. Walnut Hollow and Sakura of America are sponsors of the PBS series Paint, Paper & Crafts, produced by Cutters Productions. Another sponsor is National City Bank and CK Media with NCB's Scrapbook Reward Visa® card. Visit www.cutterstv.com ... The 16th series of Shay Pendray's Needle Arts Studio uplinks to PBS stations July 22. Sponsors include Coats and Clark and TNNA. The producer is KS Inc. Productions. There's also a Needle Arts Studio e-newsletter. Visit www.knittingdaily.com.

CONTEST. The deadline for CRAFT magazine's Stitch N' Pitch™ Baseball Item design contest is June 30. The categories are needlepoint, crochet, cross-stitch, embroidery, and knitting. Visit www.craftzine.com/stitchnpitch for details. To learn more about TNNA's very clever Stitch N' Pitch promotion, visit www.stitchnpitch.com.

CLN STOCK INDEX: A.C. Moore: $23.03, up $0.14 ... Jo-Ann's: $30.09, down $2.66 ... Wal-Mart: 49.34, up $1.85 ... CLN Index: 103.37, down 0.6% ... Dow Jones: 13,639.48, down 0/2%. (Note: All changes in price are since xx/xx and are exclusive of dividends.)

IT'S ALL RELATIVE. "In your latest couple of newsletters you have covered the price of gas. We call it petrol here, but if anyone thinks the price of gas is high in the U.S., I thought it would interest you that the price here in Hong Kong is equivalent of US $6.60 per gallon." – Bill Mangelsen, Sino Harvest Ltd.

ACQUISITIONS. Marlin Equity Partners purchased Ultra*Pro, a manufacturer of scrapbook supplies under the 7 Gypsies label ... Imaginisce acquired AMM’s Urban album product line. Previous AMM sold its Tote-ally Cool Tote and Tot-ally Cool Tote 2 lines, and the Vituri Lifestyles, Vituri Camera Bags, and Vituri Urban lines to Advantus. For details of that transaction, click on Newsbriefs in the left-hand column or click HERE.

HANCOCK. After months of delay, Hancock Fabrics finally has filed its annual financial statement. In 2006 sales declined 3.7% to $388.49 million, and the company lost $41.47 million, 11.2% worse than a year ago.

SHOWS. TNNA announced a date change for its January show in Long Beach. Education begins Wed., Jan. 9, exhibitor set up is Thurs., Jan. 10, and the show runs Jan. 11-13. To see a list of show hotels, visit www.tnna.org. One hotel, The Renaissance, is sold out ... In an email to customers Making Memories said it had "tentatively" decided not to attend the MemoryTrends show, and asked customers if they were planning to attend, and would they take advantage of an online "show special" offered during the dates of the show.

PROMOS. Triscape, makers of the FxFoto Creative photo organization and digital scrapbooking software, is promoting Nov. 3 as the first annual Digital Scrapbooking Day. The company promised consumers will find "a wide variety of inspirational and educational resources at www.digitalscrapbookingday.com."

BEADS. Look for an impressive new line, The MacKay Collection, at Jo-Ann's. Designed by Jill MacKay and produced by Darice, the 48-sku line includes many styles of clasps, bead frames, pendants, and beads in both silver and gold plate. The Collection will be available for other retailers soon. Jill has also designed educational content for beginning jewelry classes at Jo-Ann's which will begin this fall. Visit www.jillmackay.com and www.darice.com.

CRIME. A high school teacher in Brooklyn pled guilty to defrauding a number of New Jersey retailers, including Michaels, out of a total of $200,000, the NJ Star Ledger reported. The teacher and a partner would steal items from a loading dock on Long Island and from unattended delivery trucks, and took receipt tapes from the stores. He used a computer scanner to produce counterfeit receipts after buying one item that matched the stolen products. He then used the receipts to return the stolen merchandise for a cash refund. Authorities said Bed, Bath & Beyond was defrauded of $120,000, Pier 1 lost $70,000, and the loss to F.Y.E. and Michaels was estimated to be $10,000 ... Meanwhile, Wal-Mart is losing $3 billion a year from shoplifters and employee theft, the Associated Press reported.

PEOPLE. Mark Peters was promoted to Exec VP/COO of Duncan Ent. "I have been very pleased with the performance of Executive Staff under Mark's leadership," said President/CEO Larry Duncan. "He has definitely earned the added title and responsibility of COO." ... Duncan Ent. also named Kathy Cano-Murillo, the Crafty Chica, as Sr. New Product Designer and Spokesperson, to develop and promote the new Crafty Chica line, scheduled to be released in 2008. She will continue her website, www.craftychica.com, her myspace account, www.myspace.com/craftychica, and her blog, www.craftychica.com/blogs/diary. She will also continue to write her weekly craft column that is syndicated in 50+ Gannett newspapers ... Jemina Keller is Associate Publisher, Crafts and Scrapbooking for F+W Publications, with responsibility for Memory Makers, CNA, and Scrapbook Retailer magazines.

LEGAL. Rag Shops, Toys "R" Us, and other national retailers are being sued for printing too much credit or debit card information on receipts, thereby violating new regulations of the federal Fair Trade and Accurate Credit Transaction Act of 2003 that went into effect in December, reported NorthJersey.com. (Comment: Suing Rag Shop? What would you win if you won the case?)

NAMTA. Students sponsored by the RAM Sales Group, NAMTA, Strathmore Artist Papers, Borden & Riley Paper, and Jack Richeson & Co. were awarded $1,000 scholarships through the National Art Materials Trade Association Educational Assistance Award program. The program is open to all NAMTA-member company employees and their families. For info, call 704-892-6244 or visit www.namta.org.

PAINT. Martin/F. Weber is featuring a new Getting Started Gray Tone Value Set with complete instruction by the noted artist Bernadette Kunko. Call 215-677-5600.

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.

Stand on a comfortable surface with plenty of room at each side. With a 5-lb potato sack in each hand, extend your arms straight out from your sides and hold them there as long as you can.

Try to reach a full minute, then relax. Each day, you'll find that you can hold this position for just a bit longer. After a couple of weeks move up to 10-lb potato sacks, then 50-lb potato sacks. Eventually try to get to where you can lift a 100-lb potato sack in each hand and hold your arms straight for more than a full minute.

After you feel confident at that level, put a potato in each of the sacks.

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xxx

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