Date: May 5, 2008
Vol. XII, No. 9

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TABLE OF CONTENTS

COMMENTARY: THE RECESSION'S LINGERING QUESTION 

A vendor asked how the industry does in a recession. The 3/7 issue of CLN included an article, "So What Does Happen in a Recession?" that was essentially an interview with Jim Bremer, a veteran retailer (Tall Mouse, in Southern California) who has guided his stores through numerous recessions. (To read the article, click on CLN Archives in the right-hand column, and go to the 3/7 issue.)

In general, history says the industry does fine. People stay home more and need something to do, save money by making gifts, etc.

Yet the industry goes through fallow periods when there is no trend so hot that consumers flock to our stores, like the tide rushing in. We seem to be going through that now. What I don't know is this: have we ever had a fallow period AND a recession at the same time?

Industry Research. The Hobby Manufacturers Assn. has released a new study on the size of the hobby industry. The data pegs the industry's size at $1.2 billion.

Kate's Collage. Yet another industry pioneer, Felix Bass, has passed away. Here's his remarkable story.

Designing Perspectives. Here's an explanation of the Orphan Works bills in Congress and why they will have serious ramifications for designers and the entire industry.

"Vinny Da Vendor." Plaid joins the growing ranks of companies working hard to conserve natural resources. Here are the impressive details.

(Note: To read the columns, click on the titles in the left-hand column. If a column appears to be old, click your Refresh or Reload button.)

Business is slow; the economy is tough. Many consumers have their economic stimulus checks, but various studies (see below) indicate many will use the cash to pay down debt rather than spend it. During such times, many businesses will cut back – trade shows, advertising and marketing, employees, etc. Others will expand, thinking that if they can increase their market share during tough times, they'll maintain that larger share when better economic conditions return. What are you planning to do, if anything? To vote, click on Industry Polls in the right-hand column or click HERE.

CLN readers are not impressed with the U.S. education system. Only 8.7% of the voters in CLN's unscientific poll said they are "very pleased" with the educational level of their employees; another 34.8% said the educational level of their employees is "adequate." Meanwhile, 17% said they were "very disappointed" by their employees' educational level, and 34.8% said they were "somewhat disappointed." Only 4.4% were not sure.

CLN readers also believe the situation is deteriorating. Only 4.6% believe the situation regarding the quality of new employees has improved in recent years, while a whopping 72.7% believe it has gotten worse, and 22.7% weren't sure one way or another.

The government economic-stimulus rebate checks are in the mail and researchers are quickly taking note. A survey by the NPD Group concluded 42% of the surveyed consumers said they would pay down bills. "... this could be good news for retailers," said NPD's chief industry analyst Marshal Cohen. "If consumers pay off their debts right when they get their checks, the next month they will be out shopping again."

Of the remaining consumers surveyed, 21% plan to save it, 14% believe they don't qualify for the rebate, 11% will spend it on "other," and only 12% will spend it on discretionary items.

A recent survey by American Century Investments revealed that only 25% of consumers plan to spend any of their stimulus checks when they arrive, Forbes reported.

A study by TNS Retail Forward, which allowed consumers to give multiple answers revealed 32% plan to pay credit card or other bills; 30% will save it; 23% will use it for everyday expenses (e.g., groceries, gasoline); 19% will use it for a special purchase (e.g., vacation, jewelry, or big-ticket consumer electronics items such as an HDTV); 4% will pay down mortgage debt; 3% will make charitable donations; 7% will use it for "other"; and 9% do not expect to receive a rebate check.

Thus far consumers aren't in a spending mood. Last week the Commerce Department reported consumer spending grew only 1.0% in the first quarter, down from a 2.9% gain in 2007 and 3.1% growth in 2006. It was the weakest showing since 2001, the New York Times reported, the last time the economy was in a recession. According to the National Retail Foundation’s 2008 Mother’s Day Consumer Intentions and Actions Survey, conducted by BIGresearch, consumers will spend an average of $138.63 this year, compared to $139.14 last year.

Meanwhile, retailers are employing various strategies to entice consumers to spend the money in their stores. Sears/Kmart and Kroger stores will give consumers $330 in merchandise credit for each $300 rebate check. Home Depot is marketing home improvement projects that can be expected to cost $300, $600 or $1,200 – the amounts of rebate checks. Wal-Mart will cash consumers' stimulus-rebate checks at no cost, with no purchase required.

The IRS aims to make 800,000 payments every day for the first three days of last week, then another 5 million on Friday. Paper checks are to be mailed beginning May 9.

Last Friday QVC celebrated the 10th anniversary of its Scrapbooking Day. (Visit www.qvc.com and you can see what was sold.) Among those vendors, who often sold in groups/kits, were 7 Gypsies, All My Memories, American Crafts, Dena Designs, Imaginisce, K.I. Memories, K & Co., Prima, Sizzix, and Xyron. This raises some interesting questions and comments:

1. The general consensus seems to be that scrapbooking is cooling. Yet QVC, which only airs segments on categories that sell well, devoted seven hours to scrapbooking. Perhaps interest is not cooling; rather the market is shifting?

2. QVC's success is a classic example of how demonstrations help sell products.

3. Does QVC's emphasis on scrapbooking help or hurt brick-and-mortar sales? On one hand, the demos and good value may entice novices to try scrapbooking. Once they see they like it, they'll shop in our stores. Or, are retail sales hurt because scrappers can skip a trip to the store (during a time of high gas prices) by ordering these enticing products online.

(Note: Do you think direct sales on television help or hurt retail stores? Email your thoughts, on or off the record, to CLN at mike@clnonline.com.)

CLN received the following statement from Joe McCabe, President/CEO of DMC Inc.

"In recent days, there has been a significant amount of information in the form of press releases, media reports, etc. regarding financial difficulties and operational restructuring plans at the DMC corporate offices in France. Those activities and court filings within the legal system in France are directed towards seeking a formal resolution for two divisions within the DMC corporation (Sportswear fabric and a small chain of retail stores found only in France) that are not related to the embroidery thread and craft activities, which remain the core business of the corporation.

"In addition, the U.S. division of DMC operates as a separate legal and financial entity with its own financing, receivables, payables, etc, and as such, is not included in any legal filing or petitions to the courts that may occur in France.

"We are financially secure and fully prepared to conduct business as usual here in the U.S.

"DMC has been manufacturing needlework threads for 262 years and we remain committed to providing stitchers with the highest quality embroidery floss, specialty threads, needlework fabrics and other supplies they need to continue to enjoy the wonderful art of needlework. We look forward to continuing to serve all of our customers and loyal users of DMC products into the future."

Do consumers want to look at the world through rose-colored glasses? Apparently Sony and Olympus think so. They have released cameras that detect a frown on a subject and turn it into a smile. Wall Street Journal reporter Katherine Boehret thought such a feature "could be helpful for families whose young kids never seem to smile at the right moment." However:

"I found Sony's frown-fixing tool, which is called Happy Face Retouch, to be rather unusual," Boehret added. "It took already captured images of my friends' faces and turned their frowns or ambivalent looks into smiles, but didn't adjust the subjects' eyes. Though this was good for laughs, the eerie-looking grins pasted on faces reminded me of painted-on clowns' mouths."

The Sony is the Cyber-shot DSC-W170, retailing for $299.99 and the Olympus is the FE-340, selling for $199.99.

Meanwhile, Kim Guymon of ScrapBiz describes in the 4/24 entry of her blog how some consumers are "Photoshopping the heck out of their buck-toothed, wrong eye colored, freckled children to make them look perfect. Okay, removing a blemish or braces from a senior photo is fine, but changing eye color or giving your teen-age daughter a photographic breast augmentation or slimming a chunky child is a bit over-the-top in my opinion." (Comment: CLN agrees, Kim.) Read Kim's blog at www.kimguymon.com.

In response to the essay, "What Causes Slow Sales?" in the 4/21 issue of CLN, a distributor wrote an angry email complaining about a particular vendor. The distributor claimed the vendor had drastically reduced his support of the product category while pursuing other industries. Other complaints included poor communication with customers (retailers and distributors), dropping the policy of paying designers who use the product in books and magazine articles, and possibly even a decline in the quality of the product.

There's no point in naming the vendor because there are many vendors looking for a new direction because of our industry's low margins. His margins have been squeezed so badly, the vendor is asking, "What's the point?"

But the vendor is paying a price. Now this distributor, who is wondering how hard to promote the vendor's line is also asking, "What's the point?"

Every business owner or CEO has to do what is best for the business. This vendor's foray into another industry may be successful, but our industry suffers.

1. A new study of 7,400+ consumers by AlixPartners revealed that for the first time in more than a decade, consumers rank low prices as the important determinant of what and where they buy, eclipsing product quality, customer service, and the shopping experience. The 2008 AlixPartners Consumer Sentiment Index also indicated that more consumers are shopping at less expensive stores – Nordstrom customers at J.C. Penney, Penney shoppers at Wal-Mart, and Wal-Mart customers at dollar stores. Consumers are buying more store brands, too.

2. A new Nielsen Co. study shows that more than half of U.S. consumers say they would give up all forms of packaging provided for convenience purposes if it would benefit the environment. ... Buying eco-friendly products and organic food remain important, despite the poor economy and rising prices, according to a recent new survey released by Mambo Sprouts Marketing, Chain Store Age reported.

3. During this slowing economy, women are cutting back on their spending before men, according to a report from TNS Retail Forward. More than a fourth, 29%, of the women claim they will spend either somewhat or much less in the coming month, while 21% of men said the same. Only 12% of women plan to spend somewhat or much more, compared with 14% of men.

4. The Hartford Courant reported on a 2006 study at the University of Virginia's McIntire School of Commerce that showed 92% of in-store consumers prefer to be offered a free sample than a coupon, and 40% buy the product they've sampled. Sales of foods being sampled spike as much as 300% the day samples are offered. (Comment: CLN thinks the results would be comparable in craft stores for demos and make-it/take-its.)

5. According to a new report, State of Retailing Online 2008, conducted by Forrester Research and Shop.org, the online retail division of the National Retail Federation, 92% of the 125 retailers surveyed market to customers via email and 93% plan to make it a higher priority this year, Internet Retailer reported.

6. A new study released by business software supplier iCongo found that one-third of the 2,363 adults surveyed said the gas prices are making them more likely to shop online rather than at a retail store, Information Week reported.

Many businesses die because of reasons beyond management's control. But many other successful companies – retailers, vendors, and others – fail because of critical, strategic mistakes. Here are a few:

1. Not listening. Some new execs from other industries ignore employees who know our industry is different in certain critical ways.

2. Beancounters. They make short-term decisions, often to satisfy investors, with long-term negative consequences.

3. Absentee owners. A salesman on the road or a designer may be able to work effectively away from the home office, but not the boss.

4. Watching costs. Many companies over the years have thrown elaborate parties for the industry. None of them are still in business.

5. The grass is greener. Expanding into other industries can be a valid strategy as long as you don't abandon your base.

6. Changing times. How many specialty shops refused to widen their inventory, then had nothing to offer consumers when interest in the specialty cooled?

7. Forgetting the newcomer. Some retailers and vendors concentrate on providing new products and challenges to the hard-core enthusiast; eventually the category evolves into something that seems to be complicated, difficult, time-consuming, and expensive. That scares away novices.

8. Nepotism. Sometimes the kids don't measure up when placed in an important position.

9. Betraying your loyal customers. Giving a volume discount is one thing. Agreeing to a discount so large that it puts your base customers at a serious price disadvantage often backfires in the long run.

10. Dazzled by big sales. A small manufacturer called to say goodbye because he was going out of business. He said, "It's my own fault. I said yes to Wal-Mart once too often. I moved a lot of product, but I never made any money."

(Note: In the next issue CLN will describe in more detail these business-killing mistakes. Have any comments and examples you'd like to contribute? Send your thoughts to mike@clnonline.com.

The Knitting Guild of America surveyed its 10,000 members in March and learned the following:

1. The average TKGA member is a woman between 42-60, has been knitting for 20+ years, and calls herself an advanced or master knitter. 2. She knits equally for personal use and gifts, followed by charity knitting and selling items. 3. She buys most knitting supplies from independent yarn/knitting stores, followed by online shopping. 4. Her annual income is $49,999+ and she spends $500+ a year on yarn and knitting supplies.

(Note: The writer is responding to "What We Have Here Is a Failure To Communicate!" in the Business-Wise section.)

I just read the article and thought I would drop you a very quick line about the UK's Create and Craft tv shopping channel (www.createandcraft.com). I'm amazed that there doesn't seem to be a similar channel for crafts in the U.S.

This channel is 24/7 crafts and is a mix of both recorded and live programs; it runs its own club, sells online, and visits some of the larger consumer shows to demonstrate. It's hugely popular even with the crafting public who will never buy from a shopping channel. We sell our Flower Soft range on it live about once a month, and for us it's been key in getting our "show and tell" product out there.

All the companies have their own representative demonstrating their product, so it's fun rather than hard sell, and the mix of presenters keeps the audience interested.

This method of communication has driven sales all round, especially through the stores and through our website. The stores don't see it as competition because we let them know when we are appearing and what we will be showing, and they know that the next day they will be busy with our products. As we've just been voted "Most Innovative Product" by the retailers at the Craft Business industry awards, I'm pretty confident in saying it's a win-win for everyone! – Susan Balfour, Katy Sue Designs, www.flower-soft.com.

(Note: The following is in response to recent articles in Memory, Paper & Stamps regarding traditional hard-copy scrapbook retailers adapting to digital photography.)

I think digital WILL be a huge factor in the future of our industry, however, there are still tons of images out there trapped in older or unusable formats that a store can help customers tap into. I wrote an article about it on my blog (www.kimguymon.com/2008/01/hidden-pictures-hidden-profits.html). I don't think a store needs to go completely digital, but would benefit from adding services that most consumers can't access themselves. Things such as scanning historical photos and a slide-scanning service will open up more images to the traditional industry. People with slides (baby boomers) are MORE LIKELY to do the bulk of their scrapping traditionally, so this opens up a potential new revenue stream for a store.

A store can also investigate adding digital book printing and classes to attract the younger generation. Several digital book companies now offer programs that allow retailers to custom-brand digital books and sell them for a profit. Classes on making the books and embellishing them in a hybrid fashion can be offered.

I recently had a conversation with someone in the photo industry who talked about what happened when photographers were forced to choose between digital and analog. At the dawn of digital photography, the equipment to go digital was thousands and thousands of dollars – so much that you really had to believe digital was the future to invest the money in it. She said there were two camps – those who went digital or would go digital as soon as they could afford it, and those who said they would NEVER go digital. She said that those who dug in their heels and refused to adapt are pretty much now all out of business.

I see a similar situation in the scrapbook industry. That doesn't mean traditional retailers have to go digital RIGHT NOW or have to convert completely at some point. But it means that we need to acknowledge that digital scrapping is going to be a big part of the future of the scrapbook industry, and we need to look for ways to incorporate it in order to keep moving forward. Gen X and Gen Y are growing up in a completely digital world; as they have children and memory preservation becomes important to them, they will look for digital solutions. I want to be one who is still around to offer those to them. – Kim Guymon, ScrapBiz, www.scrapbiz.com.

I've been out of the industry for a few years now and I am amazed at the changes that have transpired – and at the same time find that many things remain the same. The email regarding the thriving quilt market in comparison to the excellent "Lack of Margin" example in the 4/21 issue of CLN give a thumbnail sketch of exactly what works and what does not. Too bad so few take heed.

The secret to steadily turning inventory over a long period is not low prices. They only work in the short term. Lasting categories are built by knowledgeable service shared with your customer. The key word here is knowledgeable.

If a sales person can be found in the big-box craft stores, count yourself lucky. If they can direct you to the area in the store where you might find the product you're seeking, count yourself lucky twice. But to tell you the attributes of any product, or why one is better than another for your particular need, forget it! – Shea Szachara

(Note: Shea is a former member of the Delta Force, teachers who taught decorative painting classes throughout the U.S.)

Consider these facts: A) Many vendors have some excellent merchandising ideas. B) Our chains' stores all have one department or another that is producing disappointing sales and profits. So why doesn't a chain approach three or four of its sharpest vendors in the category and give the category three times the space in one store for the vendors to work together to produce a test department. Give the vendors space to experiment, but the vendors have to pay for made-ups, videos, or whatever.

If the experiment works, then roll it out or at least adapt it to the other stores. If it fails, what's the harm? Michaels and Jo-Ann have hundreds of stores and A.C. Moore has 134. So one store has a bad quarter. How much could that affect the overall bottom line?

JEWELRYMAKING. Talk about a long-lasting trend: Anthropologists found a wood and bead necklace in southern Peru. They estimate it is approximately 4,000 years old, the oldest ever found in the Americas, the Associated Press reported.

PAINTING. A new series, Wyland Art Studio, is being broadcast on PBS stations that reach 55+% of the total U.S. market, and the 12th series of Scheewe Art Workshop with Sue Scheewe is also airing.

SCRAPBOOKING. A note from a successful scrapbook store in the Southwest: "January was about average. February was down about 5%, but March was fantastic – up about 15% from last year. So far this month we are going to finish out a little better than last year. We have been pushing the concept of home-made gifts and cards to save money in our emails to customers. We have also been pushing making albums for parents' wedding anniversaries and birthdays. I also see that we are getting better service from all of our vendors, probably because they have more time on their hands."

CLOSING. Reminders of Faith is shutting down as of June 30. Some inventory is still available for the company's religious-themed scrapbook lines. Email Kathy Brundige at kathyb@remindersoffaith.com. Visit www.remindersoffaith.com.

NEEDLEWORK. The National NeedleArts Assn.'s 2008 Retailers Retreat will be Sept. 11-13 at the Embassy Suites Hotel & Spa in St. Charles, Mo., near St. Louis. It’s scheduled just prior to the TNNA Fall Needlecraft Market, Sept. 14-15. Needlearts techniques and business sessions will be offered in small, interactive classes. For more info, visit www.tnna.org.

SEWING. The Arizona Star published an interview with Donny Cathey, president of Cathey's Sewing and Vacuum in Tucson. Cathey, whose father started the business in 1954, has four stores and 40 employees – the sewing-machine business is located in two Jo-Ann stores. The business ranked 4,738 on Inc. magazine's list of the 5,000 fastest-growing private businesses in the U.S. The sewing side of the business generates 65% of the revenue, Cathey said. To read the article, visit www.azstarnet.com/business/236332.

QUILTING. Rosie Gonzalez, owner of Rosie's Calico Cupboard, a quilt shop in San Diego, has a weekly Internet radio show each Wednesday at 1:00 pm EST. To listen to the live broadcast, or to listen to archived segments, visit www.wsradio.com. The show premiered Apr. 23, and guests included author Judy Martin; Linda Arye, President of QuiltsForKids.org; and Ann Olsen, President of Quilt Visions.

HOBBIES. The Hobby Manufacturers Assn. will launch its Hobby University series of business seminars at the iHobby Expo, which is Oct. 16-19 in Rosemont, IL. Courses and university instructors will be listed in the registration brochure for the Expo, to be mailed and online in July. For info visit www.iHobbyExpo.com or call 877-TO-HOBBY.

ADVERTISING. In yesterday's Sunday newspaper supplement, Michaels included a coupon for 50% off any regular-priced item in the Martha Stewart Crafts line. To CLN's knowledge, that's the first time a specific coupon had been offered for Martha's line. ... In Wal-Mart's "Mom's Day" Sunday 20-page newspaper supplement, a page is devoted to scrapbooking, including a Cricut Expression for $289.97.

DISTRIBUTORS. Herr's is closed; the remaining inventory has been trucked to a retail location in Green Bay, WI for liquidation. The company, founded by industry pioneers Doug and Grace Herr, was at one time one of the leading distributors in the industry.

CHAINS. Linens 'n Things filed filed for Chapter 11 bankruptcy protection and will close 120 stores. As reported in the last issue of CLN, the chain has about 590 stores in 46 states and employs 17,000 people. It was bought by the private equity firm Apollo Management LP for $1.3 billion in February 2006. In the last fiscal year it lost $242 million on sales of $2.79 billion, and apparently could not generate enough cash flow to meet its debt payments, similar to what happened to Rag Shop. ... The New York Times reported retailers such as Wal-Mart, Home Depot, Ann Taylor, and Foot Locker are scaling back new store expansion or shuttering stores that are performing poorly.

SHOWS. CHA reports hotels in the Rosemont area are booking over 300+ room nights ahead of last year for the summer show (July 18-20), and some of the nearby hotels are almost completely booked. For more info and to make reservations, visit www.chashow.org.

BEST WISHES. Bob Wessellman has retired and closed his Evansville, IN Ben Franklin store of 30-some years. But the fixtures live on in new BF stores in Detroit Lake, MN and Hopkinsville, KY.

PAPER. Borders opened its second stand-alone Paperchase store, this one in Glendale, CA. Since buying the London-based Paperchase chain in 2004, Borders has added Paperchase departments inside 320+ Borders bookstores.

PEOPLE. Greg Penner, the son-in-law of Wal-Mart board chair Rob Walton, and Arne Sorenson, CFO of Marriott Int., have been nominated for election to replace board members Jack Shewmaker and Roland Hernandez. ... Ranger Industries named Joel Tokash as Director of Sales - North America. Joel had been National Sales Manager for Dimensions/Inkadinkado and previously had been with Plaid/Bucilla.

JOB OPENING. Walnut Hollow® is looking for a Key Accounts Manager to handle developing and managing new, diversified markets. Must have a proven track record of sales growth, be self-motivated, highly energetic, detail oriented, and willing to travel nationally. Prior experience selling to hardware, specialty, chain stores, and mass merchants a definite plus. Prefer position be located at Dodgeville corporate office, but willing to consider satellite arrangement. Send resume with salary requirements in confidence to Human Resources Manager, Walnut Hollow, 1409 State Road 23, Dodgeville, WI 53533, or email myersb@walnuthollow.com.

PROMOTIONS. May is National Photo Month. Retailers who want to help customers take better photos should refer them to www.takegreatpictures.com.

LISTS. Today's issue of Fortune magazine contains its annual 500 listing of the largest companies in the U.S. For the first time Jarden, a conglomerate that owns Loew-Cornell and other industry related companies, made the list for the first time at #492 after last year's sales growth of 21% to $4.7 billion. It's traded on the N.Y. Stock Exchange under the symbol, JAH.

STOCKS. A.C. Moore: $6.75, up $0.15 ... Jo-Ann: $19.63, up $1.16 ... Wal-Mart: $57.50, up $1.19 ... Dow Jones: 13,058.20, up 1.6%. (Note: All changes in price are since 4/18 and are exclusive of dividends.)

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

The graduate with a science degree asks, "Why does it work?" The graduate with an engineering degree asks, "How does it work?" The graduate with an accounting degree asks, "How much will it cost?" The graduate with an arts degree asks, "Do you want fries with that?"

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