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Your Business Commentary

Mike's often irreverent, thought-provoking analysis of the industry-- with an occasional guest columnist.

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Predictions for the New Year

The industry, television, yarn, and more..

by Peter Heinsimer, Kathie Stull, Jan Kahn, and others (January 1, 2007)

Peter Heinsimer, Westlake Associates

Overall Sales and Chains: Last year was not a great year for industry sales at many traditional retail outlets. That could make 2007 somewhat easier regarding same-store sales comparisons. However, with scrapbooking being flat to down, yarn still declining, non-industry retail segments taking larger parts of the seasonal business, and nothing dramatically hot or new in the stores, 2007 might continue to be challenging.

I think 2007 may be a year as much about marketing as product. Some manufacturers are gun-shy about developing new lines because some retailers are more risk adverse than previously, and many in the industry seem more defensive and protective of markdowns, risks, and cost containment.

Those things aren't bad, but we are a creative industry selling products the consumer needs in order to make a finished project. If we are not aggressive at the manufacturing and retail level, providing value added at the point of sale, we might create a self-fulfilling plan that could appeal to a ever diminishing customer base. In other words, a vicious cycle: flat sales discourage vendors from developing and retailers from adding new products, and a lack of new products discourages sales.

At the same time, a trend has reversed itself: for the last 20 years, our chains have siphoned off business from non-industry chains. Now non-traditional chains are siphoning off some of our business. While this is a normal evolutionary process, it might hurt our industry if we do not react aggressively.

The consolidation at both the manufacturing and retail level is likely to continue; however, we do see new opportunities in both segments. What we do not see for 2007 is as many companies, be they manufacturing or investment firms, looking to buy into our industry. We do see retail chains that are not presently in the business or on the fringes seeing opportunities to continue to gain a presence in parts of the industry.

The industry has grown substantially the last 10-15 years. During that time many companies in the retail and supplier ranks have been bought, and in some cases sold, by private equity companies. It is possible, if the industry is flat to down trending, that this could cause changes in the overall strategies of companies looking at the industry, as well as in owners of existing companies.

Independents: The industry may offer more opportunities for independents than it has the last 20 years. The exception might be scrapbooking, unless ideas are developed to change the slowdown in growth the last year or two. Customers need help and independents are the best at this.

With the technology currently available, customers looking for a new way to shop, and with the shake-out of independents the last few years, we may be coming to a most exciting time for start ups.

Product/Category Trends: Licensing might continue to grow. Martha Stewart getting more involved in the industry could provide a great boost and a lot of publicity that on its own could drive increased consumer awareness and demand.

As the chains direct import a greater percentage of their goods, they will need to take more ownership in the product development process. Suppliers will continue to turn to licenses, patents, and other ways they can protect their creations.

The best-of-breed suppliers will continue to constantly develop new products, programs, and concepts some of which will be the next scrapbooking. The biggest deterrent to developing the next winner would be retailers and suppliers not working together to do so. This is not an indictment of either as they do a good job working together; it just may be more important in 2007 for 2008 products than it has been the last five or ten years.

Design Trends: Technology continues to be a huge issue. As I say every year, the industry needs to continue to harness technology in the products, the in-store experience, and the marketing programs, just as it has in the back-office part of the business. The industry has made great strides in sales and supply chain information and customer marketing tracking.

To be successful as an industry, we need to make major strides in the customer education areas. Some of the retailers have successfully stepped up their effort with in-store TV: better demonstrations and project sheets; consumer e-mail blasts; online distribution of ads, specials, and coupons; chat rooms and customer feedback; and online sales.

For more than 10 years I have been saying we needed to look aggressively at the Internet as a means to build the industry and individual companies business. While progress has been made I think in 2006 there was more progress in consumer efforts than perhaps the last 10 years, there is still a tremendous amount more we can do independently and as an industry. It is effective and inexpensive. All we have to do is look at the impact of positive Internet influence in other segments that are ahead of us and tap into best of breed. This is not rocket science.

Trade Shows: CHA needs to continue the great job it's doing to meet the majority of needs in the twice-a-year format. I think last year, the first year with two CHA shows, went well and I assume 2007 will be even better. We have a great cross section of the best in the industry on the board of directors, a management group that has been in place long enough to know what to do, and an accountability program that should lead to great results. There still are a lot of other category-specific shows, and it remains to be seen if they will all survive.

Media: As an industry, we need to better use technology way to get the word out to the world. I do not see the same number of positive press releases and e-mails directed to the media that could help build the industry. Martha Stewart may help as her company does a good job on press releases. This may be a real opportunity for CHA as once the process is in place it is very cost effective. Of course you need the right news at the right time going to the right people; but we are a large, creative industry with a healthy trade group like CHA, so this should be a no brainier.

Kathie Stull, KS Productions

(Note: KS Productions produces a variety of industry-related television series (beads, needlework, scrapbooking, cooking, kids crafts, etc.) for PBS stations.)

Television: Television continues to grow as a resource for crafting information for consumers. The interest in crafting and decorating shows no signs of slowing down, and those with PBS feel that the general consumer interest in homes, redecorating, and crafts is driving viewers to look for education.

Many shows on commercial stations are more for entertainment; PBS has created a niche by being known for education and as the resource for learning how to. At the national conference, the new PBS president reaffirmed the commitment of PBS to education and specifically mentioned how-to as a growth area. At KS Productions, we have seen remarkable growth in carriage and viewers this past year, and the addition of the CREATE network the digital how-to channel from PBS has caused a significant increase in the number of viewers seeing their favorite craft programs.

CREATE focuses on how-to, but features many cooking, baking, etc. entertaining shows. That is an area we are expanding with Bake Decorate Celebrate and hope to continue growing.

So my crystal ball prediction is that we will continue to explore new potential programming for PBS, PBS stations will increase their time slots for craft programs, and PBS will continue to market itself as a prime resource for how-to and lifestyle programming. .

Scrapbooking: Many companies have been questioning if scrapbook has peaked and where the market is going. My take is that scrapbookers have become crafters they just don't know it. There is still the expert or heavy user of scrapbook materials; they tend to be the purist, more concerned with actual albums and photos. But the other side of the market is the "social" scrapbooker who is interested in not only scrapbooking with others at parties such as crops, but also the general crafter who makes a few projects like an album for a special event, maybe a picture frame for a new baby, or even her holiday cards. They are really crafters and are being exposed to painting, decoupage, beading, and many general craft activities under the guise of scrapbooking.

Photos are still important to this customer but they are also "scrapbooking" without photos and making 3-D craft projects and cards. So my prediction: There will be a resurgence in general craft activities, but it may be in our best interest to find a new name for this new side to scrapbooking (unless we can make "crafting" a name in vogue).

Also, we are seeing huge interest on both our website and from consumer mail on digital or computer-based scrapbooking.

Beading and Jewelry: We have just seen the beginning of this trend; it is a bottom-up trend starting with many home-based businesses, designers, and small retailers. I think the chains will make a commitment to the category, too ( most already have). My theory is that for a craft to become successful, there must be an artisan level to it. That way there is intrinsic value to the items the consumer creates; artists can make and sell their creations, museums feature designs, and finished jewelry is all over the marketplace.

Last Prediction: Sewing is on the uptrend, including quilting; and the entire art of embellishing, including threads, fibers, and even beads, is turning this into a new market.

Overall, I feel the interest in crafting is on the uptrend, but I do worry about how our industry will market to the consumers already interested.

Name Withheld

The economy has got to take a hit due to the slowdown in the real estate sector, and that will probably hurt retail. Wal-Mart is struggling and losing its identity. Michaels new buyers are going to squeeze suppliers even further to try and pay down the debt. Jo-Ann's 4th-quarter stock is the surprise of the year, but let's see if the store merchandising improves with the new management. A.C. Moore is in a stage of digestion stemming from their growth and the competition.Rag Shop is progressing but still faces an uphill battle. Hobby Lobby seems to be the exception to the norm with continued growth.

I think sales will be flat in 2007 for many suppliers unless they can find other places to sell their wares. Diversification will be the key to survival but that's always been the case.

Name Withheld

Investment banks are driven by one thing only Return On Investment, and nothing else matters. Since the number is calculated annually and judged by pension funds and institutional investors, they don't think much farther than that. Considering all of the investment banks that are now in the industry, it will be an interesting 2007 indeed!

Jan Kahn, VP of Sales for Caron International

When it comes to a prediction for 2007 concerning hand knitting and crocheting, reports in the media say it best: "Knitting and crocheting are in the mainstream of America." This is certainly no better demonstrated than by the Craft Yarn Council of America's newest member, the DYI Network, which is sponsoring a Super Bowl Knit In on Feb. 4, and by the recent announcement that Julia Roberts will star in and produce The Friday Nights Knitting Club., a new film featuring her favorite activity.

As far as the number of people knitting and crocheting is concerned, the statistics speak for themselves: Since its launch earlier this year, the Save the Children caps program for underweight babies in Third World countries has received more than 50,000 knitted and crocheted caps.

It is true that the yarn industry has undergone some dramatic changes as it has moved from fashion scarves and shrugs to the tried-and-true projects of throws, afghans, sweaters, and items for babies. This has certainly changed the landscape of our business. We believe yarn is still the best game in town and our prediction for 2007 is that the drivers of the business will be basic, basic-plus, and yes, even some fashion-basic yarns, as our consumers move to larger, more traditional projects. We predict growing sales next year in these core yarn categories.

(Note: To read other predictions for the year, click on Memory, Paper & Stamps, Designing Perspectives, and Tech Topics. The previous Business-Wise column, "Predictions for 2007," is also still online. To add your thoughts to the discussion, email CLN at mike@clnonline.com.)

xxx

 

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