Date: September 7, 2009
Vol. XII, No. 17

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TABLE OF CONTENTS

COMMENTARY: SO WHAT HAVE WE LEARNED? 

Some conclusions about the state of the industry – and its immediate future – based on the recent second-quarter reports by the industry's major chain stores:

1. The industry is doing much better than most retail industries – just check the August sales report below. Traffic – the number of purchases made – is up, although the average purchase is down. The consumer's increased interest in making things that started when the economy tanked last fall has continued.

2. The largest drag on retail profits are products that don't seriously affect CLN vendor/subscribers – custom framing, seasonal goods, and high-end products such as relatively expensive home dec fabrics.

3. The second largest drag is the hard-core enthusiasts – scrappers, knitters, beaders, etc. – are using more of their stash and spending less. Surely their previously purchased supplies are beginning to dwindle. When that happens, their purchases should increase.

The major question for large independent and chain stores is seasonal goods. Fall, Thanksgiving, and Christmas seasonal products are a major source of sales in the third and fourth quarter. If the consumer's declining interest in such things continues, that will be a problem. 

NEW COLUMN! The N Files. During her long industry career, Maria Nerius has been a designer, professional crafter, magazine columnist and.... the list goes on. In her premiere column for CLN, Maria evaluates the new Michaels store that opened near her Florida home.

Newsbriefs. The 8/25 newsbrief on Michaels' second-quarter report and the Vendor and Carrier of the Year awards ... The 8/29 newsbrief detailing Jo-Ann's and Hancock's second-quarter reports and the Consumer Product Safety Commission's vote to exempt yarn from the new CPSIA testing requirements. The complete quarterly reports are available on the companies' websites.

Kizer & Bender. Men and women shop differently. Knowing how to deal with each group can make a big difference in sales.

Kate's Collage. There are many more health benefits to crafting, beyond feeling a sense of accomplishment, and now there's a new website dealing specifically with the subject.

(Note: To read the columns, click on the column title in the left-hand column. If it's not the column you expected, click on the Reload or Refresh button of your browser.) 

It's time to think about next year's budget, which includes trade shows/travel plans. Will you be exhibiting at, or attending, more trade shows such as CHA, TNNA, NAMTA, and Quilt Market? Or fewer? To vote, click on Industry Polls in the right-hand column or click HERE. 

Due to a computer glitch, the final statistics were lost, but the initial responses from readers who voted in the first week after the previous issue was published were fairly negative. More than half of the votes in CLN's unscientific poll believe the worst is yet to come, that the recovery has not yet begun.

It seems ironic: our industry is clearly performing better than many retail industries, yet CLN voters were more pessimistic than respondents in a recent survey conducted by KPMG, an audit, tax, and advisory firm. Two-thirds of senior execs in the overall retail industry expect to see better revenue, profitability, and an improving jobs picture in 2010, according to KPMG's survey. In the survey, 70% of the execs expect business conditions to improve in 2010; 68% expect stronger revenue and 66% expect improved profitability; and 84% see an improving jobs picture in their industry in 2010.

The jobs picture hasn't improved much thus far. For example, the new Hobby Lobby in Prescott Valley, AZ had 800 applicants for 45 jobs, the Prescott Daily Courier reported. 

A monthly compilation of 31 retailers' results by the Int. Council of Shopping Centers and Goldman Sachs showed sales in established stores fell 2.1% compared to a year ago. That was better than the 3.5%-4% drop expected, the Associated Press reported. August is the traditional month for back-to-school and end-of-season clearance sales, but some sales may occur this month since Labor Day is later than usual. Clothing and department stores were hit the worst.

Some same-store August sales: TJX Cos. (TJMaxx and Marshall's), +5.0% ... Costco, -2.0% ... Target, -2.9% ... Gap, -3.0% ... Limited Brands (Bath and Body Works and Victoria's Secret), -4.0% ... Nordstrom, -7.6% ... JC Penney, -7.9% ... Macy's, -8.1% ... Dillard's, -12.0% ... Saks, -19.6% ... Abercrombie & Fitch, -29.0%. 

After Michaels, Jo-Ann, and Hancock issued their second-quarter reports, the following related news occurred:

1. Michaels' President/COO Shelley Broader has resigned "to pursue other opportunities." The company press release did not mention if there will be a search for a replacement.

2. Moody's Investors Service upgraded its rating of Jo-Ann's probability of default and corporate family rating to B1 from B2 and upgraded its rating on the company's senior subordinated notes to B2 from B3. The outlook is stable, the Associated Press reported. Moody's said it expects the company to continue to generate cash flow and build up its cash on hand. It's the second Moody's upgrade of the company in less than a year.

3. In a conference call with analysts, Hancock CEO Jane Aggers said she was "not pleased" with the second-quarter results. She added that sales of high-ticket items are down, and pointed to a 14% sales drop by the home dec department in the second quarter, the Northeast Mississippi Daily Journal reported.

4. Michaels reported that its energy management system, Site-Command EMS, has lowered its electricity usage by 25+%. The system was installed in 2006. By lowering electricity usage by 137 million kilowatt hours annually, Michaels has reduced CO2 emissions by approximately 192 million lbs, the equivalent of removing 17,400 cars from the road.

5. In his conference call with analysts, Jo-Ann CEO Darrell Webb said, "We saw a consistent pattern of strong sales in the basic categories I’ve mentioned over the past few quarters including quilting, yarn, food crafting and kids’ crafts. The new product assortment and planogram in our jewelry making category is also performing very well. On the other hand, seasonal categories continue to struggle with double digit decreases..... But, I also want to remind everyone that roughly 55% of our annual sales and the vast majority of our annual earnings are generated during the second half of each fiscal year when seasonal category sales represent a greater percentage of the business so I’d like to add a note of caution about extrapolating our current results through the second half of the year when it’s still not clear what the economy and the retail operating environment will bring."

6. According to Jo-Ann's count, Wal-Mart has removed fabric from 1,300+ stores. Execs estimate that 2,000+ stores still have fabric – at least for now.

7. Michaels amended its credit facility so it can issue secured or unsecured debt to refinance its current senior secured debt. Standard & Poor's announced the move had no immediate impact on its ratings or its outlook on the company. "The amendment does not affect the interest costs or the amount of debt of the company," S&P said. "If the company moves forward and issues debt to refinance its existing term loan, we would examine the terms of the new debt instruments and take any appropriate rating actions at that point. We would expect that the new debt would have higher interest costs than the company's current debt." 

The Canadian Craft and Hobby Assn. is coming back. It named Paula Jones as Director of Operations, relocated its headquarters, and announced dates for general meetings in Toronto and Calgary. The revamped website is up and running at www.cchacanada.org.

Paula is the Co-founder and former Director of Education and Marketing for Canadian scrapbook distributor Open Page Wholesalers. "My paper crafting industry background has helped me develop many essential business skills and connections that I am eager to apply in other areas of the craft and hobby industry. I see my appointment as Director of Operations as a great opportunity to bring the various categories of the association together as a force to excite, energize and engage all levels of the Canadian crafting industry; from manufactures and retailers right through to the consumer."

Details of the restructured CCHA, founded in 1978, will be announced soon. There will be a new website, and general meetings will be Oct. 19 in Toronto and Oct. 26 in Calgary. Current and prospective members and other interested industry-related businesses are invited to attend. Confirmation of attendance is required.

The new CCHA headquarters is at 633419 Hwy 10 N, Mono Plaza, PO Box 101, Orangeville, Ontario, L9W 2Z5. Call 519-940-5969. To sign up for the free newsletter, email info@cdncraft.org. 

New and reelected members of the TNNA board of directors include Beth Casey, Lorna Laces; Pete Poitras (Needlepoint Group Chair), JP Needlepoint; Kathy Rumpza, Needlework Unlimited Presents; and Dave Stott, Norden Crafts.

Retiring from the board are Amy Bunger, Amy’s Golden Strand; Marilyn Murphy, Interweave Press; and Emily Pannier, Chandail Needlework.

Karen Aho, Acorn Street Shop, and Penny Franz, Ewe Count were re-elected to the Retail Council. 

1. The Conference Board said its consumer confidence index rose to 54.1, higher than expected and much higher than the recent low of 25.3 in February. So consumers are feeling better – or at least not so gloomy. Ninety is the minimum level economists associate with a healthy economy, the Associated Press reported. But women are less optimistic than men. Only 38% of men say they are worse off financially today than they were a year ago, but 53% of women believe they are, according to a new study by Performics, a market research firm, Ad Age reported.

2. A survey of about 60 health insurers by Aon Consulting found that costs for employer-provided health plans are expected to rise 10.5% within the next 12 months, the Associated Press reported.

3. A new survey conducted for Robert Half Int., a staffing company, and CareerBuilder.com, an online career site, revealed that 53% employers expect to hire full-time employees in the next year, Reuters reported.

4. A study by Grant Thornton LLP predicted as many as 10,000 retail stores will close nationwide this year, led by clothing stores, electronics and food-and-beverage stores, and department stores, in that order, the Chicago Sun Times reported. 

Here's what we do when a customer comes in with children between the ages of 5 and

12. As you can imagine, Mom would like to shop, but the kids keep bothering her with, "Can we go now?" or they are doing something Mom doesn't like. So she has to focus on the kids rather than shopping.

We invite the kids to play the "Scrapbook 911 I Spy" game. I Spy is a popular series of children's books that have lots of different objects in a picture, and the kids need to find them. Our version is the same, except they have to find a certain thing in the store. We have two rules: no running and no touching. We have a list of things the kids have to find, such as a panda bear, cow, plane, train, truck, etc.

The kids have a great time, and Mom gets to shop for about 20 minutes without interruption, which means she buys more. We have some customers tell us that when they say they are going to the scrapbook store, the kids want to come so they can play the game. – Mike Dolan, Scrapbook 911, San Antonio 

1. Lisa Baldwin and Rose Sapp opened Scrap Paper Scissors, a 900-sq.-ft. store in Lake Placid, FL in 2007, moved to a nearby larger space a year later, and are now looking for an even larger space for classes, the Tampa Bay Tribune reported. They have expanded the scope of their inventory, too. Now the store offers custom embroidery and glass etching. The store has a heat press for T-shirt designs, and plans call for adding custom invitations. The store also rents 60+ Cricut cartridges.

2. Sales at the Scrapbook Studio in Wausau, WI declined 50-60%, so owner Jeanne Ramsey launched a promotion called Operation Save Our Studio. It works like this: customers who pledge to spend at least $20/month receive a 10% discount on all purchases the following month, the Wausau Daily Herald reported. More than 150 customers have signed up. Business has picked up and Ramsey plans to keep the promotion running indefinitely. 

Buyers are often looking for lower prices or rollbacks on price increases. It's their job. What's a vendor to do when a buyer asks/demands a lower price? Some elements to consider:

1. If the proposed deal would result in you losing money.

2. If the proposed deal would result in you becoming so dependent on that retailer's business that you'd have to agree to any future price cuts and/or new entitlements.

3. Does your product have a truly strong brand name?

4. Would it be difficult/expensive for the retailer to have a version of it made overseas?

Michael Rouleau, then CEO of Michaels, was reported to have said, "Hey, it's our job to ask. It's your job to do what's best for your company."

Years ago when a vendor was declaring bankruptcy and shutting down, he told CLN, "It's my own fault. I said yes to Wal-Mart once too often." 

CLN periodically receives calls from companies looking for various services, so CLN will launch a "Service Providers" section. If you're a CLN subscriber and offer services such as public relations, personnel recruitment, product and/or project design, sales representation, marketing consultations, graphic design, licensing, etc., you're eligible to be included.

Send CLN a short paragraph listing your services, contact info, and a url if you have a website. Send the material to mike@clnonline.com. 

Trade associations and show managers face an interesting dilemma when choosing the site for future shows. Too many cities have built too many, too large convention centers for the number of U.S. shows. The result is many cities are offering deals to lure shows to their sites, but those deals may come with a price. The rental for the hall may be reduced, but if the center doesn't have hotels within walking distance, the association's cost for shuttle busses increases. Moving a show to a new location may also require making and paying for new signage.

On the other hand, keeping a show in the same location year after year drastically reduces the association's bargaining power. Less power, but more leverage to reserve the prime dates. 

As the health reform debate rages in Congress and town hall meetings, here's an example of the status quo: Bob Fisher, a long-time industry veteran in art materials, passed away after a 15-month battle with Amyloidosis. Bob was an amateur artist when he was hired by Taylor's Art Center in 1971; he later worked for ColArt Americas, eventually becoming Western Regional Manager, and later managed a University Art store.

Bob's death is tragic under any circumstances, but what made it worse was apparently there wasn't enough insurance, and now Bob's wife Jennifer may lose her home.

In response, the NAMTA Foundation has set up a web page where you can make donations using your credit card. All of the money will go directly to Jennifer Fisher. To donate visit https://www.namta.org/i4a/forms/form.cfm?id=38. Checks can be sent to NAMTA Foundation, Attn: Sid Smith, "Bob Fisher Fund," 15806 Brookway Dr., Ste. 300, Huntersville, NC 28078.

A memorial to celebrate Bob’s life will be held on Sat., Oct. 10, at 3:00 pm at the Fair Oaks Presbyterian Church, 11427 Fair Oaks Blvd., Fair Oaks, CA 95628. 

(Note: This email is in response to "Working in a Home Office," which is still available at Kate's Collage.)

"I loved your advice article on working from home. I’m celebrating my sixth year as a work-from-home publicist for Interweave and I’m thankful for every day. I would add to your advice:

"Establish a morning routine. For me, that means starting off the day with a shower, getting dressed, saying goodbye to the kids when the babysitter arrives, and taking my coffee into my office. Some people think working from home means you get to stay in your pajamas all day, but I find that I can never really start my day without 'getting ready' – even if that’s just slipping on a T-shirt and yoga pants.

"For work-from-home moms, it’s also important to set boundaries for your kids. I go into my office in the morning, shut the door, and try not to come out again until lunch to reinforce to the kids that it’s the babysitter or grandparent who is in charge. I keep a separate business phone and the babysitters know to call me if they have a question, or knock on my door. When I’m on conference calls, I lock the door and put a 'do not disturb' sign outside.

"Inevitably there are times when the sitter calls in sick or has to leave early, so I’ll keep my kids’ favorite websites like PBSKids.org on a spare computer, or a box of art supplies in my office, and give them time with me in the office when I have to get something done.

"I should add that my only major problem with working from home is that I want to eat all day!" – Jaime Guthals, Interweave Press 

The tragic case of Bob and Jennifer Fisher is an example of changing times. Once upon a time, what you left to your heirs was a function of how hard you worked and how wisely you saved and invested. Today, it's a function of how you died. Hit by a bus or have a fatal heart attack, there will be an estate for your heirs. Have a long illness, and it's a different story. 

SHOWS. CHA is offering an early-bird discount on booth space for the winter show (Anaheim, Jan. 24-27 with education beginning Jan. 23) for vendors reserving space by Sept. 18. There's also free first-year membership to any new exhibitor who is currently a non-member and did not participate in the 2009 winter show. The show's theme is "The Global Marketplace: Inspiration and Resources from Around the World." For details, visit www.chashow.org. ... The Photo Marketing Assn. show is Feb. 21-23, also in Anaheim. Visit www.pmai.org/pma2010_home.aspx. ... The Memory trade show scheduled for this fall in Sandy, UT has been postponed until next summer/fall.

LOOKING TO BUY. The Creative Network has a client interested in purchasing companies with at least $15 million in sales and an EBITDA of $3 million. Complete confidentiality is assured. Call Gail Czech at 360-604-0802, or email gail@creativenetworkinc.com.

CROCHET. The Crochet Guild of America announced the winners of the second annual Crochet Design Contest. The $1,000 grand prize went to Renee Barnes of Bruno, AR. Awards also went to winners in five categories. Coats & Clark provided the prize money for the awards. Photos of the Contest can be viewed at www.cgoanow.blogspot.com and at www.crochet.org.

CPSIA. The PowerPoint presentation of Craig Leslie's excellent seminar at the Orlando show is online: www.craftandhobby.org/pdfs/protected/CPSIA_SummerSeminar.pdf. ... The U.S. Senate confirmed the appointment of Anne Northup and Robert Adler as Commissioners of the CPSC, bringing the agency up to its full five-member complement.

PEOPLE. Greg Hatfield was promoted to the position of Sr. Marketing Manager for the Trade Books division of F+W Media, including the North Light, Impact, David & Charles, and Krause Publications divisions. ... Interweave named Sara Dumford VP of Events and Education, in charge of the four annual Bead Fest events, American Artist Weekend with the Masters, Spin-Off Autumn Retreat (SOAR), and Interweave online education events. She had been Director of Events at F+W Media.

RECOMMENDED READING. Cheap: The High Cost of Discount Culture, by Ruppel Shell. Excerpt: "Cheap fuel, cheap loans, cheap consumer goods do not pave the road to salvation. The economics of cheap cramps innovation, contributes to the decline of once flourishing industries, and threatens our proud heritage of craftsmanship."

MEDIA. A recent study by MORI Research and sponsored by the Newspaper Assn. of America found 59% of adults identify newspapers as the medium they use for planning, shopping, and purchasing decisions, MediaPost.com reported. That made newspapers the leading ad medium cited by consumers for these activities. The study revealed 73% of adults regularly or occasionally read newspaper inserts.

MAGAZINES. The Audit Bureau of Circulations, the organization that counts such things, reported newsstand sales of magazines in the U.S. were down 12% in the first half of 2009, the Associated Press reported. An industry publisher told CLN, "enthusiasts are cutting back on the number of magazines they purchase. They're still buying or subscribing to their favorite one or two magazines, but they won't buy three or four."

CONTEST. If some Jo-Ann employees look thinner, it's because they are. A five-member team of employees who called their team "Crafting Losers" won the "Move It To Lose It" contest sponsored by the Hudson, OH Chamber of Commerce. The team won by losing 157 pounds, 15.45% of their total body weight, in six months.

WAL-MART. The company is pressuring vendors to give more money to the discounter's growing ad budget and in-store and online marketing programs, Ad Age reported. Since Wal-Mart has announced plans to reduce the number of SKU's and brands, "The implied threat for marketers that don't go along with demands for more marketing funds is an increased risk of de-listing."

TECHNOLOGY. Lucidiom has a free application, Pocket Pics, that allows you to synchronize online photos with an iPhone. It's free on Apple's iTunes Store to all Photo Finale Web account holders.

HOBBIES. The Hobby Manufacturers Assn. board of directors elected Michael Bass (Stevens Int./Trumpeter Models) as President, Mark Schwing (Electronic Model Systems) as VP, and Hal Miller (Kalmbach Publishing/Model Retailer) as Secretary/Treasurer. For more info on the HMA, visit www.hmahobby.org.

CLOSING. Kim Guymon is closing Scrapbiz (www.scrapbiz.com). As of Dec.1, the ScrapBiz member support program will be discontinued. But Kim will continue her PhotoBookBiz and PhotoBooks{etc} programs.

GREEN. Wal-Mart has stopped giving paper payroll checks to employees. If they won't opt for direct deposit, they will be paid with a debit card. The company estimates it will save 257,572 pounds of paper each year, the Wall Street Journal reported.

TOYS. U.S. industry sales were off 2% for the first half of 2009, according to The NPD Group. Sales were $7.8 billion, down from $7.95 billion.

INCOME. Stephen Schwarzman, head of financial firm The Blackstone Group, which is co-owner of Michaels, made $702+ million in 2008 based on data from The Corporate Library. Schwarzman made almost all of the money on the vesting of shares in Blackstone which he received when the company went public. He didn't make it on selling his Blackstone stock; it's declined about 40% in two years.

MARKETING. TNNA members are now eligible for a free series of short videos by marketing consultant Steve Miller, "Steve Miller's Marketing Stimulus Package." 

THE JOYS OF RETAILING. The manager of a Hobby Lobby in Springfield, MO tried to stop a 40-year-old shoplifter. The woman assaulted the manager, then ran out of the store, jumped into a waiting car, and sped off, station KTTS reported.

BOOKS. The Decorative Arts Collection has released a new book, The Book of Painted Quilts with contributions from many of the industry's top painters. The 180 pages include photos and instructions on fabric painting and quilting. Visit www.decorativeartscollection.org.

IMPORTS. Cargo volume at the nation's major retail container ports is expected to total 12.3 million containers for 2009, a drop of 18.8% since last year and the lowest level in seven years, according to the Port Tracker report released by the National Retail Federation.

CORRECTION. Industry veteran Julie McGuffee's blog, www.juliemcguffee.blogspot.com, has photos and comments about the Orlando show. Julie is host of the PBS series, Scrapbook Memories, and the blog contains photos and comments about filming the next series. Scroll to the Aug. 2 entry. (The URL was incorrect in the previous issue.)

STOCKS. A.C. Moore: $3.52, up $0.27 ... Hancock: $1.12, up $0.06 ... Jo-Ann: $26.26, up $2.07 ... Wal-Mart: $51.68, down $0.11 ... Dow Jones: 9,441.27, up 1.3%. (Note: All changes in price are since 8/14 and are exclusive of dividends.) 

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. 

Emailed from a subscriber:

If my body were a car, I would be thinking about trading it in for a newer model. I've got bumps and dents and scratches in my finish, and my paint job is getting a little dull. But that's not the worst of it. My headlights are out of focus, and it's especially hard to see things up close.

My traction is not as graceful as it once was. I slip and slide and skid and bump into things even in the best of weather. My whitewalls are stained with varicose veins. It takes me hours to reach my maximum speed. My fuel rate burns inefficiently.

But here's the worst of it: Almost every time I sneeze, cough or laugh, either my radiator leaks or my exhaust backfires. 

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