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Creative Leisure News
306 Parker Circle
Lawrence, KS 66049
Phone: 785-760-5071
Email: mike@clnonline.com



Date: July 3, 2000
Vol. IV, No. 13

Printer Version


bulletAleene's Creative Living Returns
bulletRag Shops: Sales Up A Little, Profits Up A Lot
bulletAmes: Troubled Waters
bullet2nd Quarter Stocks: Ok, Except...
bulletChanges Planned For Binney & Smith
bulletAnother Dot.Com Biting The Dust?
bulletHIA Promotes Family Crafting
bulletUsing The Web To Boost In-Store Sales
bulletRandom Thoughts, Random Quotes
bulletDot.Com's Problems: An Independent's Perspective
bulletMiscellaneous News
bulletE-Commerce Update
bulletThe Creative Network: Job Openings
bulletCreative Network: Jobs Of The Month
bulletThe CLN Retail Index: 4th Of July Edition
bulletProduct Instructions


Vendors: If you plan to unveil any new products at the ACCI or INRG shows -- and you couldn't get the info to the trade magazines in time for their show issues, send the information to me. There will be one more issue of Creative Leisure News before the shows, and I'll be happy to give a brief description of your product. Remember to include which show and your booth number. Get the info to me (email is fine) by Friday, July 14th.

Buyers: If you're still considering attending INRG or ACCI, consider this: no matter the size of the show and how well the trade magazines and Creative Leisure News may report on new products, you will miss something if you don't attend. You'll miss some products that could make money for your store, products your competitors will find. Plus, you'll learn from talking to vendors, networking with other retailers, watching demonstrators, completing make-it/take-its, and listening to seminar speakers.

Can you really afford to miss all that?
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The industry's longest-running cable television series, Aleene's Creative Living, will begin broadcasting on the Odyssey network July 10th, and will run on selected tv stations beginning July 5th. Odyssey, owned by Hallmark Entertainment and Jim Henson Productions, reaches approximately 30 million homes.

The series will run 7:30-8:30 am EDT and PDT, 6:30 CDT, and 5:30 MDT.

The series had been abruptly cancelled by The Nashville Network; its last show appeared on TNN June 30th. The cancellation was unexpected and another two month's worth of shows had already been filmed.

Tony Hershman, President of Artis, the series' producer, said the company is close to signing deals to have the series broadcast on additional networks and thinks collectively the series will eventually reach about as many households as it had on TNN.

Artis, currently in bankruptcy, filed a suit in bankruptcy court asking the judge to issue a restraining order to stop TNN from cancelling the show. The court hearing is Wednesday.

Hershman also said Artis has presented a reorganization plan and has been negotiating with the creditor's committee for the past month. He expects no resolution of the plan until the television series is stabilized.

Production will resume in about 45 days, although much of it will be done on location rather than in a studio. For info about buying a segment, call Rebecca Wilson at 800-436-7878.
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For the third quarter ending May 27, sales increased only 1.3%, to $22.7 million, but its net income jumped 321% to $250,000 (5 cents/diluted share). A year ago Rag Shops reported a net quarterly loss of $78,000 (2 cents/diluted share). This quarter same-store sales rose 2.4%.

Net income for the first nine months has increased 64% to $1,946,000.

Officials say the increase is due to increases in same-store sales and margins, and the cumulative effect of changes in accounting for merchandise inventories.

The company closed one store and did not open any new outlets during the quarter, and has no plans for new stores in the near future. Current store count is 66.
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Ames revised its profit estimates for its fiscal year because of lower-than-expected sales so far this year. Officials said the disappointing sales are "directly related to the below normal temperatures and above normal rainfall, which has affected its Northeast and mid-Atlantic operating area since mid-March."

Apparently it's still raining, because the company is expecting its same-store sales for June to drop "in the mid single-digit range."

The company now expects earnings for the year to fall in the $1.70 - $1.85 range. As a result of the sales/weather problem, Ames has reduced inventory levels, lowered its planned 2000 capital expenditures program, and reduced Selling, General and Administrative expenses.

Ames currently has 460 stores in 19 states and the District of Columbia. Annual sales are around $4 billion.

The stock has taken a bath, dropping about $16.75/share, or 68%, in the second quarter.
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Most of our industry-related retail stocks performed all right, but collectively were dragged down by Ames' disastrous slide -- most of which occurred before the company's announcement about disappointing sales. (See "Ames: Troubled Waters" above.) Here are the specific changes, in percentages, from the end of March. (Dividends were not included.)

Hancock Fabrics, +47.8% ... Rag Shops, +24.6% ... Michaels, +12.4% ... Wal-Mart, +2.0% ... A.C. Moore, -15.0% ... Jo-Ann Stores, -16.4% ... Ames, -68.4%. Collectively, these stocks, our "CLN Retail Index", dropped 7.9% for the quarter while the Dow fell 4.3%. (Note: Martha Stewart Omnimedia fell 15%.)
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"We're thinking of changes that move us from a company with a more traditional approach ... to starting to think about products in terms of projects," Binney & Smith President Mark Schwab told the Associated Press. The evolution would move towards "Making wonderful great projects instead of just making and selling products."

It would become a source of ideas for adults, too, such as teachers and parents. Some of those ideas can already be seen at the company's award-winning website, crayola.com.

Binney & Smith is also planning to develop a new formula for its Crayola line of crayons. The purpose is to eliminate talc, in which trace amounts of asbestos had been found; the Consumer Product Safety Commission recommended crayons become talc-free, even though the current crayons do not seem to be a health risk.

According to the AP, the goal of the changes is to boost sales of its non-crayon products such as craft kits. Binney & Smith had $611 million in total sales in 1999.

(Note: Prang is also planning to change its crayon formula to remove talc, and Rose Art has already reformulated its now talc-free crayons.)
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In a letter to vendors, Craft.com President Brad Roberts wrote, "The current market climate for funding has severely impacted our ability to operate our business as intended. At this time we are undertaking the due diligence necessary to try to complete an asset sale of a majority of the craft.com business to an interested third party. If this transaction can be completed in the next two weeks, we would have a limited amount of funding to be able to pay back some of our past vendor claims."

CLN has learned the basic problem is the same one that sunk CraftShop.com: inability to gain a second round of funding.

In our last issue we reported Craft.com sent an email to registered users eliminating all membership and customer loyalty programs and was staging a big sale.
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HIA is sponsoring a two-week family crafting promotion from September 9 to the 23rd, incorporating Grandparents Day on September 10th, the Society of Decorative Painters' Paint Out on September 16th, and a Family Craft-In on September 23rd.

It's a followup to HIA's successful Cherish the Moment promotion in March and part of the branding campaign, Crafts. Discover Life's Little Pleasures.

Logos, posters, bumper stickers, buttons, and stickers, and kits with step-by-step specifics for promoting the Family Craft-In are available or will be soon. Call Susan Brandt at 201-794-1133 or email sbrandt@hobby.org.
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A great example of how a vendor's website can help boost interest in a store's inventory is Friendshipwear.com website, launched by DMC in late 1999 to support its Friendship Wear kit line for teenage girls.

The site allows girls to input their hair and eye color, as well as their skin tone, and receive a personalized list of the 10 colors that look best on them. Girls can also find bead colors that match their personality traits, print instructions for free friendship bracelets and other projects, send e-postcards to their friends, and more. Officials say the goal is to give teens a fun online experience, while educating them about color and promoting the Friendship Wear concept.

The line includes eight themed kits -- Glow In The Dark, Smiley Faces, Sports, Flowers, Animals, Music, Hearts, and Friendship. Each Friendship Wear kit contains instructions for making four fashion accessories, like bracelets, rings, zipper pulls, etc.

Does it work? The site tripled its traffic in May, to more than one million hits. "Friendshipwear.com is a great example of creating a new brand name through a combination of strong online content and a unique bricks-and-mortar line of kit products," said DMC's General Manager-Internet Division Yosi Heber.

"By highlighting information about the kit line on the Friendshipwear.com website, and inserting mini brochures about the website into our Friendship Wear kit line, we've been able to successfully cross-promote both together."
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(Note: I receive numerous calls, emails, and faxes about all sorts of things that don't lend themselves to full-blown, fact-verified articles or columns, but hopefully will make interesting reading and food for thought.)

1. I'm hesitant to say industry sales are up, down, or flat until I've heard from a wide enough variety of manufacturers and retailers in a wide enough variety of categories. But I've heard enough lately to say this: sales are pretty flat. One manufacturer said, "Sales were so strong for so many months, there was bound to be a cooling off period."

2. Brick-and-mortar and e-commerce might be different, but consumers are the same. Frustration with service remains a turn-off, no matter where a customer shops. According to eMarketer, 32% of online shopping carts were abandoned because of frustrations with the checkout process and/or the lack of customer service. In a study of 125 e-commerce companies, Jupiter Communications found that 46% took five days or more, did not respond at all to customer emails, or didn't even post an e-mail address. That sounds like customers walking out of a store when they can't get their questions answered.

3. The concept of an all craft-hobby cable tv network is not dead, we're told.

4. A craft manufacturer told me how he'd spent an entire week, and $15,000 in legal fees, dealing with a sexual harassment complaint in his factory. Turned out it was a lovers' quarrel and has been resolved. I wondered if retailers realize all the goofy expenses vendors have, when they pressure vendors for lower prices. Then I realized retailers have the same sort of non-productive, expensive hassles. And THAT was brought home in the July 3rd issue of Business Week which reported that at any given moment, Wal-Mart has 10,000 legal cases pending! (Given Wal-Mart's size, the company probably has 500 customers a week slipping on wet spots in the store.)

5. Sara Nauman from Hot Off The Press writes, "Walking the floor at the National Stationery Show really drove this point home to me: girls are in. Whether it's a journal, notepad, pen set or other accessory, the focus is definitely on girls. Bright pinks and blues; plenty of neon colors; and bold, funky patterns convey girl-powered energy. A big part of this was related to journal-writing, which also leads to scrapbooking. A survey reported by Photo Marketing magazine stated that teen girls consider taking photos to be very important, even ranking it in the top five cool things to do. It beat out dating, which was #6, if you can believe that."

6. Recently some U.S. vendors complained that some retailers are taking their products and having similar items made overseas. Obviously the retailers' goal is lower prices, but isn't there a danger of sacrificing long-term productivity for short-term profits? If such practices drive out of business the original vendor, who created the concept/product in the first place, then who will be here to create new products in the future?

7. Sometimes a retailer can try to say too many things in one message and convey a completely different idea. A friend attended the huge Bentonville/War Eagle craft show and sent us a photo of a sign in front of one of Wal-Mart's new, smaller Neighborhood Market stores. The sign read: "Welcome Crafters ... Slim Fast Six Pack $4.88." Hmmm, does this mean the store manager thinks crafters are overweight?

8. "I get a kick out of some of these retailers," a vendor told me. "They discount the price of my product, then complain to me that their margins are too low. Did I miss a meeting where they decided on the price to customers?"

9. I think it was 1990 when I first starting following Michaels' stock. Then it was about $3 and change. Since then, it's shot past $44 and sunk down to $10. Now it's higher than ever. Think of the money lost and made by investors during that time! Investors should be applauding Michael Rouleau.

10. It seems more and more of our vendors are branching out into other markets -- toys, school, home centers, stationery, gifts, etc. Why? Not enough craft customers, they tell me.

11. Our very best to Greg Davis of Fiberstok who is taking time off due to illness. "I will miss the friendships developed over the past ten years," Greg wrote. "The art and craft industry is the nicest group of people I have had the opportunity to work with, in my thirty-year career. I know I will never find a group as friendly." Charlie Rice replaces Greg as General Manager.

12. A call from a long-time supplier to the chains raised an interesting point: he thinks chains are suffering now because of turf battles among a chain's buyers. A new product with big potential but crosses categories sometimes falls through the cracks because of wrangling by the buyers. Anyone else out there feel that way?

13. A letter from an industry pro in Australia reveals lots of changes in the local knitting market. Coats Paton sold its Australian handknitting business to Country Spinners, better known as Cleckheaton. This follows the news that the Myer Grace department store operation is withdrawing from handknitting. Now a new tax system starts this month.

14. I asked Pete Rutley, the new sales VP at Allstate, for his impressions of his first SILK show: "It was a great show for Allstate, but we did hear that others were a bit disappointed at the traffic. Our showroom was busy from morning to night, every day. It was a great learning experience for me."

15. Pete added, "Also, there is is a bit of a shake-out in the Silk Industry going on." We're heard that same shake-out report-prediction from others, too.
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In our last issue we described the downfall of CraftShop.com, which prompted this (edited) reply from Bob Ferguson, owner of one of the industry's best stores, in Redmond, Washington:

You pointed out that perhaps consumers needed more time to become comfortable with placing orders. Why would they place orders at all? Crafts is in no way a consumables business. There is no demand for craft products. Retailers have to create a demand.

There is little brand recognition. Most craft consumers will buy what they "see" -- if they feel if it's a fair value and will produce the results they see in finished goods or models.

With these things in mind, why would a consumer place an order online? To be motivated to buy craft products, consumers must see the product in its finished form. They must see how easy (or difficult) it will be to make a project or use a product. They need to see the successes of others in order to make a decision to buy.

When purchasing home decor craft components, color is critical to the purchasing decision. Consumers do not believe the color they see on most websites is a true rendition -- and certainly not close enough to know if what they see matches their "treasures."

Nowhere on the Internet can a consumer get this needed "motivation to purchase".

You suggested perhaps prices were not low enough. Today's craft consumer is not motivated by price but first by ideas, then hands-on demo, then color and texture, then availability of enough product to complete a project, then by just good, old fashioned, impulse. THEN, somewhere down the line, the price becomes an issue of normally insignificant proportions.

The fact is, it is impossible to make a dollar selling retail craft components on the Internet. The average craft item retails for about $2.00. The average purchase in most large volume craft stores is around $20.00 -- and that includes the high-volume, high-ticket frame shop and all the high-ticket, home dec products most craft stores specialize in today.

A simple math test explains why a stand-alone craft website, not representing a brick-and-mortar operation, cannot make any money. Fulfillment, which includes receiving orders, pulling stock, processing credit cards, packing, and shipping -- as well as the vast related costs of putting up and maintaining a website, cannot be successful for a $2.00 average unit price or a $20.00 average ticket.

Think of the inventory involved with those 40,000 SKU's. Even when using a contract fulfillment center, someone has to get a return on that inventory.

It is easy to chalk this note up to the rantings of a dyed-in-the-wool, traditional retailer, but in the world of good business practice, it is still traditional to set out with a business plan that is designed to make money the old fashioned way: "buying and selling merchandise at a profit". The value of one's stock then follows.

(Editor's note: Is Bob right? Are the dot.com's a hopeless cause? You're more than welcome to add your opinion to the discussion. Send email to mike@clnonline.com.)
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TRENDS, I. Hot Off The Press reports paper (vellum, tea bag folding, and paper quilting); sophisticated jewelry (wire-wrapping and stretch-cord jewelry); polymer clay; candle making; and rubber stamping continue to grow.

TRENDS, II. In the June 12th edition, Time magazine devoted two pages to the still-growing scrapbook, photo-preservation movenent.

TV. The 5th series of More Than Memories will be sent to PBS stations this month. The series is hoted by Julie McGuffee and Julie Stephani, Editor of Krause Publications' Arts & Crafts magazine. In addition to Krause, sponsors are Accu-cut, EK Success, Fiskars, Hot Off The Press, Jangle.com, Memory Makers, Creating Keepsakes, Xyron, and Pioneer Photo Albums.

LICENSING. Viking signed an agreement with Universal Studios to create embroidery designs for the new movie, The Adventures of Rocky and Bullwinkle, which opened last Friday. The designs will be for use with the Husqvarna Viking sewing and embroidery machines.

STOCK. Southwest Securities and PMG reiterated their coverage of Michaels at Buy, with a price target of $53 ... Robertson Stephens initiated coverage of Wal-Mart at Long-Term Attractive ... Tucker Anthony Clory downgraded Ames to Hold ... Merrill Lynch reiterated its coverage of Wal-Mart at Near Term Buy.

EMPLOYEES. Arthur Andersen's 8th annual Survey of Small and Mid-Sized Businesses found owners believed finding and retaining qualified workers (61%) was by far their most serious challenge, followed by regulations (35%), economic uncertainty (29%) and keeping up with technology (28%).

GERMANY. The government is investigating whether Wal-Mart is selling selected merchandise below cost -- a no-no in Germany, reports Chain Store Age.

NEW BUSINESS. Industry pros Angus Mackie and Lisa Julson have formed UC Digital, a consulting company offering market research, business planning, assistance in securing pre-IPO financing, E-commerce consulting, and online content and community development. Call 607-547-9752.

SHOWS. The Memory Trends show is August 16-17, with educational programs beginning August 14th, at the Riviera Hotel in Las Vegas. It is trade only. The show is sponsored by Craftrends/Primedia. For more info, call Pat Kobishyn at 516-596-3937 or email textileshow@earthlink.net. For discounted hotel rates, call 800-634-6753 by July 14th.

TOYS. Consolidated Stores's board voted to either sell its toy chain, KB Toys, or spin it off to its shareholders in the next 6 to 12 months.

MARTHA. A survey by Illuminations (a candle company) found that 51% of respondents felt stressed watching Martha on tv, New Woman magazine reported.

QUOTATION. "[Wal-Mart has] been turning more to manufacturers than in the past for margin growth." -- Paul Kelly, president of Silvermine Consulting (in Ad Age magazine)
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B2B. Tomorrow, Independence Day, GoliathFalls.com goes live. Affiliated with Promotions Unlimited, it's a business-to-business, e-commerce site specifically for independent retailers. The crafts portion of the site is months away, but some departments are up and running. Much more in future issues.

COMING SOON. HomeDecorShowcase.com will sell finished works by the industry's best, most well known decorative painters. It goes live on August 1st, but for a preview, or to learn how your work can be sold, surf to the site. The project is being led by popular industry veteran, Bill Neu. Call Bill at 815-544-5941 or email bill@homedecorshowcase.com.

MEDIA. CraftClick.com has launched an impressive new "e-zine", Crafting Today. Go to craftingtoday.com.

PHOTOS. Kodak has started an online photo-finishing service, PrintatKodak, which will provide prints for photo-sharing sites and others.

DATA. A study of 2,198 Internet users by PeopleSupport showed 63% of those who shop online more than once a week are women.

CANADA. New e-commerce site for hobbies and toys: Kidstoysplus.com.

TAXES. The European Union has proposed forcing companies based outside the region to charge value-added (VAT) tax on services delivered over the Internet to customers in the 15-nation EU, CNN reported.

LEGISLATION. President Clinton is expected to sign the Electronic Signatures in Global and National Commerce Act this week. The bill will make electronic signatures legally binding. Proponents say it will greatly increase e-commerce; opponents worry about security ... Meanwhile, a coalition of retailers, real estate agents -- and even teachers ard firemen -- are pressuring the Senate to "take the first steps toward a uniform tax system under which Americans would pay for shopping in stores and on the Internet alike," reported the Wall Street Journal.
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The only personnel recruitment firm specializing in our industry has the following job openings. For more information, call 360-834-0802; fax 360-834-0702; email jessica@creativenetworkinc.com; or check www.creativenetworkinc.com.

Atlantic: Product Manager (school, home, office supply) ... Channel Marketing Manager (school, home, office supply).
Mid Atlantic: Buyer (soft crafts) ... Administrative Assistant ... Sales and Marketing Manager (craft).
New England: Assistant Art Director (art-posters) ... Production Manager (understand pre-press) ... Graphics Department Manager ... Product Manager (home dec accessories) ... Production Planning Manager ... Sr. VP Marketing.
North Central: Designer/Product Development - 9 positions (gifts) ... Budget/Staff Accountant ... Marketing Assistants ... Customer Service Supervisor ... Copy Writers (direct marketing materials) ... Product Manager (direct marketing experience.) ... Licensing Coordinator ... National Sales Manager (gifts) ... Distribution Supervisor (2nd shift) ... Database Administrator (Oracle) ... Art Director (catalog/newsletter, etc.) ... Art Director (web/e-commerce) ... Creative Director (gifts) ... Copy writer (gifts) ... Sales & Marketing Manager (quilt-needlework).
Pacific: Dir. Product Development (gifts).
South Atlantic: National Sales Manager (gifts) ... Dir. Product Development (gifts/toys).
South Central: Product Development Director (home dec accessories) ... National Sales Manager (home dec accessories).
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Position: Sales & Marketing Manager ... Location: Illinois ... Description: Increase sales within channels of distribution -- quilting, needlework, books. Facilitate growth with key accounts, distributors, and catalog companies. Creativity will be a key; find new ways to reach customers and to promote new and existing products. Create monthly promotions for key accounts. Travel 15-20%.

Position: Craft Buyer ... Location: NY/NJ ... Description: Plan, evaluate, and purchase merchandise to create a strong product mix and good margins; supply new merchandise and keep basic merchandise flowing; provide effective merchandising programs to attract and retain new customers; consistently improve departmental offerings to achieve long-term growth.

For more about these positions, contact The Creative Network at 360-834-0802.
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A. C. Moore (ACMR). Last*: 6 3/8 ... Change**: -15/16
Ames (AMES). Last*: 7 3/4 ... Change**: -1/16
Hancock Fabrics (HKF). Last*: 4 1/4 ... Change**: -1/8
Jo-Ann Stores (JAS.A) [a]. Last*: 7 ... Change**: -1 11/16
Michaels (MIKE). Last*: 45 13/16 ... Change**: +4
Rag Shops (RAGS). Last*: 2 17/32 ... Change**: +13/16
Wal-Mart (WMT). Last*: 57 5/8 ... Change**: +3 3/4
CLN Retail Index. Last*: 131.344 ... Change**: +3.5%
Dow Jones Index. Last*: 10,447.89 ... Change**: UNC
* June 30 ** from June 16 [a] voting share Note: Prices are exclusive of dividends
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Earlier we talked about manufacturers and retailers being besieged by lawsuits, sometimes ridiculous ones. Below are some silly instructions on products -- probably insisted upon by the manufacturers' lawyers to avoid lawsuits from consumers:

1. On a helmet-mounted mirror used by U.S. cyclists: REMEMBER, OBJECTS IN THE MIRROR ARE ACTUALLY BEHIND YOU.
2. On a bar of Dial soap: DIRECTIONS: USE LIKE REGULAR SOAP.
3. On Marks & Spencer Bread Pudding: PRODUCT WILL BE HOT AFTER HEATING.
4. On Sainsbury's peanuts: WARNING: CONTAINS NUTS.
5. On an American Airlines package of nuts: INSTRUCTIONS: OPEN PACKET, EAT NUTS.
6. In some countries, on the bottom of Coke bottles: OPEN OTHER END.
7. On a Sears hairdryer: DO NOT USE WHILE SLEEPING.
8. On a child's superman costume: WEARING OF THIS GARMENT DOES NOT ENABLE YOU TO FLY.
9. On some frozen dinners: SERVING SUGGESTION: DEFROST.
10. On a hotel provided shower cap in a box: FITS ONE HEAD.
11. On Nytol sleep aid: WARNING: MAY CAUSE DROWSINESS.
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Note: Creative Leisure News is published on the first and third Mondays of each month; your next issue will be Monday, July 17th. Remember: it's the last pre-ACCI and INRG issue, so send us info on new products you couldn't get into the trade magazines' show issues.

Have any rumors you need checked? Company news or comments on industry issues? Call Mike Hartnett, in confidence, at 309-925-5593; fax 309-925-9068; or Email to mike@clnonline.com.

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