irreverent, thought-provoking analysis of the industry.
Challenges: Young Consumers, Michaels Future,
New CEOs, Merchandising ...
... Pricing, and much much more.
By CLN Subscribers (January 12, 2006)
(Note: The 1/02/06 issue of CLN included an article
listing challenges the industry is facing in 2006. CLN sent a
draft of the article to a variety of industry professionals, and
their comments are below.)
CLN wrote: "Whoever is hired as CEO of A.C. Moore and
Jo-Ann's will have a major impact on the industry. If they are
incompetent or ineffective .... Or, can they do for their companies
what Michael Rouleau has done for Michaels?"
1. I can’t see either company hiring someone incompetent.
Maybe someone arrogant who "will come in and show our little
industry how business is done." I hope that they will be as
savvy as [Michaels' CEO Michael] Rouleau and will enjoy being a part
of the industry as he does. – Midsize Manufacturer
2. The Wylys found Rouleau. While I am not sure there is
another one like him out there, there certainly are many great
retail professionals. A.C. Moore has a couple top-notch execs in
Larry Fine and Les Gordon. If they go outside, the danger is if
Larry leaves; if they promote him, it's different story.
Anyway, both A.C. Moore and Jo-Ann's can afford to pay the money;
and with the stock so cheap, options could be great with a
turnaround. There is a big danger if the boards make terrible
choices at one or both chains. I think change can be good in both
cases; both need a new approach. – Industry Consultant
3. This industry needs CEOs who value consumer education and
share that value throughout their organization. All of the
independent retailers highlighted in CLN the last year have
education in common. These retailers focus on it and find that it is
what brings their customers back to the stores and what makes them
competitive with the chains in their area.
The Younger Consumer.
CLN wrote: "We need to understand her: she is more
urban, hip ... Interested in doing her own thing, rather than simply
following directions and copying a project ... Wants to personalize
everything to the point of having a tattoo ... Far more comfortable
with computers than her mother ... She is a post-feminist – not
hesitant to take up "feminine" hobbies, but wants to do
them her own way. And in this post-feminist world, it's not just
women who are potential customers."
1. Speed, authenticity, and technology are top priorities for
the younger consumer. Depending on the age group, many of these
consumers do not know a time without computers in the schools and
homes, cell phones, the Internet, and anyone other than Jay Leno
hosting late night TV. – Major Manufacturer
2. You are 100% right, but we need a chain with real
imagination and money to make dramatic changes. Only things going on
that I see are Michaels Perfect Store Project, Hobby Lobby
continuing efforts to change to meet customer needs and desires,
Target continuing to build its department, and Wall Mart's changes
in layout and mix. – Industry Consultant
CLN wrote: "Is at an interesting point in its growth:
a) The U.S. is pretty well filled with Michaels' stores; b) the
company apparently hasn't figured out the right formula for its
ReCollections stores or it would have opened more than 11 by now; c)
the Star Wholesale concept sounds like a good one, but the
country can't support that many of them; d) Aaron Brothers
continues a very slow growth trend; e) Michaels has lots of
cash. So, where does it go for growth? Simply concentrate on
improving sales per store?"
1. Hopefully Rouleau moves from emphasis totally on
operations and begins redeveloping the merchandising area. If he can
do for merchandising what he has done for operations, look out! – Midsize
2. While it may not be apparent to the industry, be assured
Michaels has a strategy; Rouleau's a genius. The Michaels board of
directors has shown foresight and wisdom, and they have a top-notch
group of executives at every department and a disciplined
organization structure. They manage the business great and have a
great cash flow with no debt. We just are not seeing the strategy,
but you can be sure there is one. They have a plan A, B, and C; we
just do not know what it is. – Industry Consultant
CLN wrote: "Meanwhile, retailers need to lighten up on
pricing so the vendors have some margin to promote the category the
way they did when the categories were flourishing .... Need to
reduce pricing pressure and special allowances on vendors so they
have money for new product development, promotions, and most
importantly, inspiration and education so consumers get even more
out of crafting. And stop the price cutting that reduces everything
to a commodity item of little perceived value."
1. One of the issues that I believe our industry faces is
related to essentially ruining a good item by footballing the price
to the point that the item no longer has value. A case in point is
the Knifty Knitter, set of four looms manufactured by Provo
Craft. This set of four is an excellent product and was originally
sold to retailers at a cost of about $14 with a suggested retail of
$24.99. The price, at some point last year, dropped to just over $11
cost depending on the discounts, etc., that you were able to get.
The cost to purchase the item on import, is $6 or thereabouts –
but this means you order a container load of product.
Michaels (because that is the one I am most familiar with) first
advertised it at $19.99 – a good price with still a good margin
and yet a good value to the consumer. Next, they dropped it to
$14.99. Then this year, we have seen them advertise it at $8.77 (or
something very close to that) to $9.88 or $9.99. I don't know what
the other chains have done with the same item.
The point is, however, that the product has been completely
de-valued. The individual large yellow loom that is in the set of
four is sold pretty much everywhere for $7.99 or $8.99. Yet they
have footballed the price on the set of four so that it now sells
for about the same price as a single loom.
The big question is WHY? Did they really need to do that? What
were they trying to accomplish? The actions they have taken have
made it virtually impossible for anyone who hasn't purchased the
item as part of an "import program" to even offer the item
for sale to the consumer. So, what does this say for the yarn shops,
independent craft stores, etc?
We have seen Michaels and Wal-Mart doing the same with yarn from
Lion Brand -- particularly Fun Fur – did they overbuy, or
what is the reasoning?
Bottom line I guess is, why do the "number crunchers"
have to essentially ruin some very good items that the consumer
perceives have a value and is willing to pay for at a value price?
Why do those same number crunchers beat up the manufacturers on
price, and then turn around and essentially do the same to all of
their fellow retailers? Is it the macho football player attitude of
always having to "win"?
It is really frustrating as a consumer and as a store owner to
see the "big boxes" take a really valuable product that is
used for leisure and creative crafting and destroy it through their
pricing games. – Long-time, Independent Craft Retailer
2. Let’s face it, if the chains think that their
merchandise is only worth 50% or 60% of retail, then why shouldn’t
the customer? They have trained the consumer to believe this, right?
Nice thought, but it isn’t going to happen. Name any industry
that headed down this same road and its retail chains
"lightened up on pricing." – Midsize Manufacturer
3. Sign of the times: weak retail merchants put pressure on
vendors instead of trying harder to sell customers. Of course there
are always exceptions. Funny thing is, the chains that work on the
customer instead of the vendors are the ones that do the best,
because they put pressure on themselves, instead of trying to shift
to others. – Industry Consultant
4. Yes! There is less value placed on crafts than there was
in the past; what does the retailer do to mitigate that? I believe
it's partly caused by the plethora of big-box discounters, but it
leaves the smaller independent designer who is unable to compete
with China/Wal-Mart/Michaels out in the cold unless perceptions and
values are actively addressed. – Needlework Designer
5. Discounts and sales are killing our industry. Why buy at
full price now if you wait less than a month and can buy twice as
much? This in turn makes margins for everyone too small to make a
living. The result? CLOSURE.
When the big chains get back to having a January sale for one
week and may be a sale in August for end of summer, then we may get
back in business with profits for all. But sales every month – I
rarely see product at full price any more. – Sandra Murray http://needleandframe.com
CLN wrote: "Make our stores more interesting. Too many
stores are boring and do not help light a creative fire in the
1. I agree that the stores are boring, but it's hard to
explain that to retailers. Retail is entertainment and show business
– and there isn't much in our industry's stores these days. – Industry
2. I doubt any of our chain stores have visual merchandisers
on staff. Most of our chain stores look like what you would expect
them to look like after seeing their newspaper ads: they look like a
jumbled mess. (Jo-Ann's superstores have certainly taken a step in
the right direction but the knowledge and support at store level is
suspect.) – Midsize Manufacturer
3. It takes a lot of creativity and product knowledge to
create inspiring displays, not to mention staffing. – Major
4. It will take a real wake up call for this to happen. The
driver might be non-craft retailers and chains siphoning off enough
volume that the craft retailers realize they will lose that contest
and need to teach, promote, educate and entertain customers in order
to attract enough of them to keep the volume. – Industry
5. I think display is vital to inspiring customers. I know
Michaels is a huge success story; however I do think there is so
much product on top of product, not to mention the overstock of
boxes on the top of the shelves that it can be overwhelming for
newer craft consumers. – Marketing Consultant
Craft Stores Becoming Specialty Stores.
1. Many chains don't really understand the craft business and
have moved to more "professional" buyers, but they do not
have a great understanding of the basic craft concept. At same time,
the industry is slow to really understand the changes in consumers
and how they really affect the traditional crafts base. This is
going to be the true test of where the rubber meets the road for the
industry in the next five years, and I am not sure everyone is up to
the challenge. Of course, many are and they will prosper. – Industry
2. On the flip side of that coin, some craft stores are
expanding into areas about which they have little or no knowledge
– trying to catch the tail of the latest trends – and are unable
to provide true customer support. There are even knitting stores
whose owners who don't have any knitting experience. How can they
expect to retain a customer if they are unable to sell a product
with little or no knowledge of what they are selling?) – Needlework
1. Leisure time. I see the current situation as one of
increasing competition for decreasing disposable (or entertainment)
income. Disposable income is decreasing due to higher fuel costs,
higher interest rates, mounting consumer debt, flat take-home pay,
etc. Competition for disposable income is ever increasing – more
retail square footage in the marketplace, more consumer choices,
more big ticket electronic must-haves (Xbox 360, computer, iPod,
etc.). The way I see it, our stores and products must be exciting
and focused to capture our share of that decreasing dollar. It is
all about better niche marketing and better niche merchandising.
These points are already touched upon in your #6 where you point out
that Michaels has saturated the market and in #5 about
merchandising. – A Major Distributor
2. China. This is going to be a monster issue in the next
five to ten years. It will be a real balancing act, and I think most
have their heads in the sand on this one. Everyone is talking about
it, but not many want to do anything about it. Be assured there will
be a lot of action – not just talk – in the next few years.
This is the long-term key for the U.S. economy as well as the
craft industry, and I am amazed not more action is going on. You
have written on the Tara and candle situation; wait until the
American public realizes the long term impact of cheap goods on
If I sound like I am on a bandwagon, I think this will be the
biggest issue I have ever seen in my business lifetime. I think this
will be an amazing story over the next decade. For example, if
manufacturing continues to go offshore to places like Asia, and tech
to India and Asia, where will Americans end up making money to pay
for all the goods? And oil prices will keep rising because of the
huge increases in oil needed in Asia and China. Just the increases
needed in Asia and China over the next five years are equal to U. S.
total consumption today. – Industry Consultant
3. Independents. It would be a good idea for companies to
realize how important independents are to the industry. My favorite
example of a large company actually realizing that and working with
it is EK Success. They do not just give all the goodies to the Big
Guys, but work with independent retailers giving them product,
ideas, and looking for input on product development.
Perhaps if more companies gave the small guy something in
comparison to the discounts and terms they give to Michaels, etc.,
we would not have such a stagnant industry. Who is responsible for
the lack of creativity? The majors who get every discount so that
there is no money for development, yet the CEO makes millions of
dollars in salary. – Large Independent Retailer
4. Hispanics. The craft industry, like most industries, is
struggling with this one. On one side, when did you meet any
Hispanics in our stores? On the other side, I think there will be a
big backlash in the next five years over the illegal immigrant
issues. This is an interesting segment with plus and minus
implications and getting very little action, other than a lot of lip
service. – Industry Consultant
5. E-commerce. You need to add something about the Internet.
It's a biggie and has the possibility of beating the living heck out
of the brick and mortar stores. Just a possibility right now, but if
lives get any busier.... – Painting Teacher/Author/Consultant
6. Purchasing. Chains should quit basing purchases of new
products on a twenty-store, six-week test. – Midsize
7. Consolidation. We’re seeing the consolidation and
departures that occurs as a category peaks. Soon there will be two
or three major vendors driving the category. With the strength of
some of the investment groups that have been buying scrapbook
companies, we may have five or six, but it’s going to take large
companies to be able to withstand the pressure and requirements the
chains are implementing. – Major Manufacturer
I was bothered by the comment in the newsletter about A.C.
Moore's and Jo-Ann's same-store sales being hurt by Target’s
presence in the craft business. I feel this remark is way off base.
Target is carrying a very limited number of craft SKU’s
relative to specialty craft retailers. Their assortment is focused
on "kits" versus individual component items. Their
presence in the craft business should actually be helping sales at
all specialty craft retailers, as new consumers "sample"
craft items at Target and then seek specialty retailers for a wider
selection of craft component items.
If Target’s minimal presence in crafts was hurting specialty
craft chains, why aren’t Michaels same-store sales off, too?
While some of the sales increases at Michaels can be attributed
to supply chain improvements, Michaels has taken a very aggressive
stance in merchandising and refreshing merchandise assortments. I
believe their aggressiveness in this area will continue to drive
same-store sales increases after the effect of the supply chain
improvements "comps out."
I work for a company that does business with all four retailers,
and Michaels/Target are each head and shoulders above Jo-Ann's and
A.C. Moore in merchandise selection and keeping their assortments
"fresh" and on trend to attract new consumers.
I think the issues at both Jo-Ann's stores and A.C. Moore are
leadership issues. Bob Ferguson is right on the money when he says
the best thing that can happen to Jo-Ann's is to hire a Mike Rouleau.
I would second that for A.C. Moore. The best thing that can happen
to the craft industry in 2006 is for both leadership positions at
Jo-Ann’s and A.C. Moore to be filled with dynamic, forward
thinking executives of Rouleau’s caliber. – Director of
Supply Chain Planning, Major Manufacturer
(Note: Have any thoughts on these subjects? Email CLN
To read readers' reactions to specific product categories in the
original CLN article, click on "Challenges:
Scrapbooking, Beads, Yarn, Home Dec, & Decorative Painting/Cross
Stitch" in the right-hand column.)