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

 

 


Date: August 21, 2000
Vol. IV, No. 16

Printer Version

TABLE OF CONTENTS

bulletCommentary
bulletPerlmutter Gets Jail Time
bulletOut-Of-Stocks Hurt Jo-Ann's Quarter
bulletFire Damages Craft Company
bulletWal-Mart: Good News Now, But...
bulletHancock's Second Quarter Is Strong
bulletTough Quarter For Ames
bulletMore ACCI/INRG Comments
bulletComment On The Copyright Problem
bulletMiscellaneous News
bulletRandom Views, Random Quotes
bulletE-Commerce Update
bulletThe Creative Network: Job Openings
bulletCreative Network: Job Of The Month
bulletThe CLN Retail Index
bulletThings That Took Years To Learn

COMMENTARY

In my last issue I wrote about the problem of the industry being hurt by people posting copyrighted projects online for the world to download. After the issue was published, I pursued the story further for an article that will appear in the September issue of CNA magazine.

The situation is worse than I thought. For example, I found a site where a woman had scanned and posted the complete contents of 88 of our instruction books. 88! And when I emailed her a note, she was furious with me! As if I were violating her constitutional right to steal and share anything she wanted.

The bottom line: there are so many copyrighted projects online now that cross-stitch, crochet, and plastic canvas enthusiasts need never again buy a book from our retailers. They can craft the rest of their lives and never have to spend a dime on another book or chart pack.

Furthermore, there's no reason why this won't spread to painting and craft projects.

I feel for the people and businesses in our industry who are hurt by this, because I am hurt, too. Have you noticed at the top of this and every CLN issue my note, "Reproduction or re-transmission, or forwarding without permission, is prohibited."???

I am constantly amazed at the number of people who email or call me to comment on something they read in Creative Leisure News -- and they're not subscribers.

So I'm in the same boat. If enough people do not subscribe because they receive Creative Leisure News illegally, I'm out of business.

Here's my rule of thumb: You are welcome to distribute this and future issues to anyone in your physical office. You are also encouraged to forward Creative Leisure News to any industry person who has lost his or her job.

If a company already subscribes, any additional email subscriptions, such as for sales people in the field or employees in satellite offices, are only $35.

Be sure to read the complete article in the September CNA. But before we scream too much about consumers violating our copyrights, we ought to follow the law, too.
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PERLMUTTER GETS JAIL TIME

Bob Perlmutter, owner of the Pearl Arts and Crafts stores in Florida and New York, was sentenced to three years in federal prison for skimming money from at least one store. The 71-year-old industry veteran was also fined $75,000 and ordered to serve two years of supervised release after he is freed from prison.

Earlier this month Perlmutter paid $6.4 million to the IRS for back taxes, interest, and penalties. He had pled guilty in late May to conspiring to obstruct an IRS investigation that revealed he skimmed millions from his chain to avoid paying taxes.

Prosecutors claimed Perlmutter was diverting as much as $10,000 a day from his stores and used some of that money for under-the-table payments to contractors building his 12-bedroom, 19-bathroom mansion that is the largest home in Florida's Broward County.

The practice of skimming funds had been going on for a decade, prosecutors claimed, but was discovered when a box filled with $72,000 opened while it was being shipped by UPS from his East Meadows, N.Y., store.
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OUT-OF-STOCKS HURT JO-ANN'S QUARTER

The net loss for the second quarter was $10.2 million ($0.56/diluted share), compared to a net loss of $5.5 million ($0.30/diluted share) in the prior year. The results include an equity loss of $1 million ($0.05/share) related to the company's minority investment in IdeaForest.com, Inc.

The quarter's net sales rose 5.9% to $299 million and same-store sales increased 0.7%. Same-store sales from softlines (fabrics and notions) fell 1.6%, while comparable-store sales for hardlines (crafts, floral, and seasonal) increased 6.1%.

Jo-Ann's reported an operating loss for the quarter of $8.5 million versus a loss of $2 million in the second quarter last year. Net sales for the 26-week period increased 8% to $624.4 million; same-store sales increased 3.2%. Comparable store sales from softlines increased 1.2%, while same-store hardline sales rose 7.7%.

Year-to-date, the operating profit decreased to $3.1 million from $6 million. The year-to-date net loss was $7.3 million ($0.41/diluted share) compared to a net loss of $3.2 million ($0.17/diluted share) for the prior year. Excluding the equity loss, the year-to-date net loss was $6.3 million ($0.35/diluted share).

Chair/CEO Alan Rosskamm said he had expected an even larger loss for the period due to higher expenses for infrastructure investments, softer than anticipated sales, lower margins due to a June clearance sale, and "out-of-stock positions in basic products arising from transitional issues associated with our recent systems conversion."

"Importantly," Rosskamm said, "we have isolated the causes and have taken steps to improve our in-stock position by mid-September. Nevertheless, we have lowered our internal sales estimates for August and September by $5 million, reflecting our best estimate of the negative impact until we have rectified the situation."

Rosskamm concluded, "We ended the quarter with inventory levels down $33 million from a year ago. Although we are pleased with the successful reduction in clearance inventory, some of the reduction resulted from the out-of-stock situation we experienced. As a result of our current inventory position, our debt levels are also below their year-ago levels. We remain committed to achieving our year-end inventory reduction targets."

The partnership with IdeaForest.com will bring on-line selling capability, enriched content, and community features to the joann.com website, which will be re-launched next month. Officials expect the investment to dilute second-half earnings by 25-30 cents/share.

During the first half of fiscal 2001, Jo-Ann Stores opened nine superstores and two traditional stores, relocated four traditional stores, and closed 12 smaller or underperforming traditional stores. For the second half of the year, officials expect to open seven superstores and to relocate one traditional store. The current store count is 974 traditional stores and 51 Jo-Ann etc superstores.
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FIRE DAMAGES CRAFT COMPANY

A four-alarm fire badly damaged Audria's Crafts and ACI Distributing, a well known, long-time craft operation founded in 1963 and known for homecoming supplies and other products. No one was hurt, but the store-showroom received smoke damage and two warehouses were destroyed.

The cause of the fire is believed to be electrical. It apparently ignited in a warehouse behind the main showroom and quickly spread to an adjacent warehouse. The warehouses were filled with highly flammable items such as paint, paper, wicker baskets and candles in cardboard boxes and plastic bags.

Long-time employee Mike Landers told us last Friday the company expects to move into temporary facilities early this week. The company is cancelling all outstanding orders. Regarding the wholesale business, the company does have some inventory and three container-loads coming from overseas.

Computer records were saved. Officials are contacting all companies doing business with Audria's and/or ACI; anyone with any questions should call 800-433-2918 or 817-370-9515. "I can't describe the way I feel," owner Pat Currie told the Ft. Worth Star-Telegram. "You're looking at a $3 million fire."
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WAL-MART: GOOD NEWS NOW, BUT ....

For the quarter ending July 31, income rose 29% to $1.6 billion, or $0.36/share. Sales were $26.1 billion, up 20%. Net income for the first six months jumped 35% to $2.92 billion, or $0.66/share.

CEO/President Lee Scott said, "In a quarter that proved more difficult than expected for most retailers, we are pleased that our associates were able to accomplish both record sales and earnings for this quarter. This is our ninth consecutive quarter of earnings in excess of $1 billion, and during the quarter we added over $7.6 billion in sales and $345 million in net income. All of our retail divisions reported earnings growth in excess of sales growth. We do not anticipate a slowdown in consumer spending and remain confident that we will report record sales and earnings for the year."

However, the stock suffered after company officials warned analysts it might not meet their third-quarter earnings projections of 33 cents/share, because of a sales slow-down toward the end of the second quarter, and because of an accounting shift regarding layaway purchases. Officials said 31 cents was more likely.

The stock dropped almost 8% after the warning, but has since recovered somewhat.
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HANCOCK'S SECOND QUARTER IS STRONG

Sales for the 13 weeks ended July 30, 2000 increased 3.9% to $86 million. Same-store sales rose 4.8%. Net earnings were $582,000 ($.03/diluted share), compared with a net loss of $759,000 ($.04) a year ago.

Sales for the first 26 weeks of 2000 increased 2.8% to $184.2 million, and net earnings were $2.8 million ($.16/share), compared with $345,000 ($.02/share), in the first half of 1999.

CEO Larry Kirk said bank debt is down to $27 million from $37 million a year ago, and gross margins are improving. "Now that the deflationary pricing pressures of 1998 and much of 1999 are past, we are beginning to realize the benefits of extensive store repositioning and remodeling, enhancements to the merchandise mix, and a more effective advertising plan. We are also investing in a company-wide customer service initiative that includes performance incentives for every retail salesperson.

"Today," Kirk continued, "our assortments are even more balanced with increased commitments to growth categories such as home decorating and accessories, which do well when new home building is increasing or when consumers opt to update their existing residences.

"Quilting, children's wear, and bridal/party are also growth areas that attract a broader consumer following," Kirk added. "Apparel piece goods, in decline for several years, are attracting more interest lately, and a good sell-through in spring, 2000 resulted in minimal markdowns at season's end.

"Although our strategy for fashion apparel fabrics is much more narrow and focused than in years past, the new print cycle just ahead will favor the category with new designs and fresh colorations," Kirk predicted.

During the quarter, Hancock opened two stores and closed six. At July 30, 2000, the company operated 448 stores in 42 states and supplied more than 100 independent wholesale customers.
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TOUGH QUARTER FOR AMES

Ames recorded a consolidated net loss of $22.1 million, or $0.75/share for the second quarter which ended July 29. The same period a year ago showed loss of $21.5 million, or $0.78/share. Sales rose 1.4% to $872 million, but same-store sales dropped 2.5%.

For the first half of the year, Ames lost $51.2 million, or $1.74/share. This compares to a net loss of $51.2 million, or $1.98/share, for the same period last year. Last year's loss of $1.98 per share included a negative adjustment of $0.04 which reflected the cumulative effect of the adoption of SAB No. 101 with respect to the method of accounting for layaway sales.

Net sales for the first half, which ended on July 29, 2000, were $1.7 billion, up 1.6%. Same-store sales, however, dropped 0.9%.

Chair/CEO Joseph Ettore blamed unseasonably cool, wet weather but "control over both inventories and overhead during the period thereby cushioning the impact of the sales shortfall. Our current inventory levels, and [our] ability to respond quickly to changes in the marketplace, position us well for the rest of the year."

Ames opened 7 stores in July, including its first in Chicago.

Scott Pederson, founder of the stock site,. Epredict.com, issued a sell recommendation for Ames last Friday and earlier Bank of America Securities downgraded Ames to Market Perform.
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MORE ACCI/INRG COMMENTS

1. "We had a terrific ACCI show. We were up 30% in sales over last year. ACCI is a welcoming show and a comfortable environment to work with our buyers." Christine Meier, DMD Industries

2. "For what it is worth, we had a good INRG show and most of the shops seem to be very positive and optimistic. There was a noticeable absence of large customers, but other than that, things seemed like normal.

"It took a few years to get over seeing that show without Craft World. The smaller distributors seem to be taking up the slack and starting to do a pretty good business.

"I think the cross stitch business has hit bottom and is starting to come back at shop level; my guess is the business will continue to deteriorate at the major chains for the next few years.

"Our new products were well received and we just hope that we can justify these new items by selling them primarily to the shops. With the exception of A.C. Moore and Hobby Lobby, we don't expect any of the other chains to put [out] anything new in in the foreseeable future, although it looks like Michaels may look at some new open stock cross stitch products.

"I am encouraged that one of the smaller distributors currently may become the next Craft World or the next Leisure Arts if the business does rebound as we anticipate." -- Mid-sized Manufacturer

3. "There was a huge increase in theft of product from our [ACCI] booth. We actually called the police because of food service workers stealing handfuls of markers at a time.

"But what was more troubling was the number of retailers who would take product from our displays without asking. I'm talking handfuls of product, one-of-a-kind-samples, and expensive sets (of which we had only one each at the show).

"Often, if we casually confronted them, they would deny taking anything.

"If I were to go in to their stores, take product off the shelves, and put in my handbag, that would be theft. Why do they feel it is OK in a show environment?

"I spoke to other vendors who encountered the same phenomenon.

"On a positive note, this is a show that was crying out to be a 3-day show! And it was great from that perspective. The last day of ACCI had always been a washout. And, this year, we wrote to the last minute. I only wish they would continue with this format, although I understand it will return to 4 days next year." -- Mid-sized Manufacturer
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COMMENT ON THE COPYRIGHT PROBLEM

In reaction to CLN's last issue with the report on illegal posting of copyrighted material on the Internet, an industry observer commented:

"I understand why you focus on how it hurts stores because of your audience, but I believe it's equally important (and more impressive reading) for the industry to realize that SUPPLIERS have already lost several millions of dollars a year in time, technology, research & development, designing, sales, etc., due to this problem.

Now, if suppliers are losing that much money, good retailers will soon calculate how much THEY are losing by not having that audience to pull from."
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MISCELLANEOUS NEWS

FLOWERS. Cuttings, the new floral line from Aldik that mimics the slight imperfections of home-grown garden flowers, was cited by the Wall Street Journal ... Online floral-gift retailer FTD.com posted a 4th-quarter loss of $4.3 million, despite a 93% rise in revenue to $35.6 million. Officials predict the firm will post a profit and positive cash flow by the end of its next fiscal year.

SEWING. The Home Sewing Association's National Sewing Show is September 26-28 in Las Vegas. Classes begin September 25. Highlights include HSA's annual meeting and the Retailer Rap session. Call 516-596-3937 for show info, 888-746-7482 for hotel info.

LAWSUITS. A New Jersey judge ordered Wal-Mart to pay a former cashier more than $2 million in a default judgement of an anti-discrimination lawsuit which claimed the ex-employee was harassed and fired after a boss discovered that he was undergoing a male-to-female sex change, reported Chain Store Age.

GOLF. The HIA Foundation, a non-profit charity arm of HIA, is seeking sponsors for the 10th annual HIA Foundation Golf Outing to be held Wednesday, January 26, 2001, just prior to the trade show. The Foundation gives financial support to non-profit organizations that promote crafts education. Email HIA's Executive Director, Pat Koziol, at pkoziol@hobby.org.

GLASS. The next Art Glass show is June 22-24, 2001 in Orlando. Considering consumers' increasing interest in glass and the number of products-kits at this year's show, craft retailers should consider attending. Contact AGSA at P.O. Box 3388, Zanesville, OH 43702-3388. Call 888-866-AGSA; fax 740-452-2552; email agsa.info@offinger.com; or surf to www.agsa.org.

STORES. During its second quarter, ShopKo opened 12 new Pamida stores. In October, ShopKo will reopen the recently purchased Places stores and another 12 new Pamidas. When that's accomplished, ShopKo will have expanded Pamida's total square footage by 42%.

AUCTION. The inventory of Designer Accents will be auctioned August 29.

RANKINGS. In the annual ranking of specialty stores (by 1999 sales) by the National Retail Federation, Toys R Us was 3rd, Michaels ranked 25th just ahead of Footstar and just behind Musicland. KB Toys was 28th, Jo-Ann's was 38th, and Hobby Lobby was 66th.

BACK TO SCHOOL. According to a new survey by the Macerich Company, by mid-August, 73.8% of students and parents have completed their back-to-school shopping, and 16.2% shop in or before July. The national survey shows spending is up $65 to $394 for clothes and books .. A survey conducted by HIA on its i-craft.com website revealed that families spend an average of $25 per child for kids' craft activities in school. 92% said their kids bring their craft interests from school back home.
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RANDOM VIEWS, RANDOM QUOTES

1. The Audria fire brings to mind other industry fires in the industry. Walnut Hollow had a devastating fire in the 1980's and President Dave Ladd later told me about the support he received from Land's End, the huge mail order company that is Dave's neighbor in Dodgeville, Wisconsin. Until then, I had used Land's End and L.L. Bean pretty interchangeably; after Dave told me about the company offering furniture, etc., I've used Land's End exclusively.

The other story isn't so nice. A small floral accessories business burned down and investigators said it was arson. Apparently when arson is the cause, the police assume the owner is guilty and insurance companies refuse to pay. It was a nightmare for the owners until the police caught the culprit, a disgruntled ex-employee.

2. Here's a sign of the times. Burpee, probably the strongest brand name in vegetable and plant seeds, has expanded into live plants. Why? "Lack of [consumer] time, patience and experience are the most commonly cited reasons, as well as the booming economy," the Associated Press reported, "that has people willing to spend extra for instant blooms."

3. Along those same lines: Jim Scatena, now President of FloraCraft and a former VP at Wilton, described how, over the years, Wilton changed the gingerbread-house kit Wilton sold each fall. Each year the company did more of the work, so the consumer had to do less.

Jim carried that lesson to FloraCraft. The company used to have a Halloween project whereby consumers would make a fun tombstone. It was little more than a project sheet that called for a sheet of Styrofoam brand plastic foam that the crafter cut, painted, etc. Now FloraCraft, not the consumer, cuts it, paints it, and even embosses "Here Lies" on it.

The moral of the story? Consumers want to craft as much as ever, but often they don't have as much time for it. Something to keep in mind when developing new products.

4. During the ACCI show, Michaels' CEO, Michael Rouleau, talked about the industry needing to work together better. For example, when a magazine article or television show highlights a new product, that product is readily available in stores.

He's right. Tom Ware of Bagworks told me sometimes companies ship product to a tv show but aren't told when the products are used. One day Bagworks was deluged with calls when a product was used on Martha Stewart's show. And re-runs: a product might be readily available when it's showcased on tv, but long gone when the show is re-run six months later.
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E-COMMERCE UPDATE

COMPUTERS. GoliathFalls.com, the Chicago-based business-to-business site serving independent retailers, received a $10 million investment from computer giant, Compaq. It's $5 million in cash and $5 million towards the purchase of Compaq's Internet infrastructure and access equipment. The Compaq systems, officials say, "will enable Goliath Falls to empower independent retailers with the use of a new PC to access Goliath Falls' procurement site." The site currently sells a wide variety of variety-store-type supplies, but will soon be adding crafts.

QUOTATION. "Compaq's investment in Goliath Falls is evidence that Chicago is beng recognized as a high-tech leader." -- Richard M. Daley, Mayor of Chicago.

ACQUISITION. Artisan Network acquired iTheo.com, an online marketplace that showcases approximately 10,000 works of original art from member artists. It joined the Artisan Network family which includes ArtAffinity.com, an education-display site for artists; MisterArt.com (an e-commerce site); and Studio Source, which enables other sites to sell the MisterArt inventory at their prices. Those sites utilizing Studio Source will now be able to sell the art exhibited on iTheo.com. Among the other major sites already using Studio Source are IdeaForest.com, ArtMecca.com, and other art-, craft-, and education-related sites.

PREDICTION. J.P. Morgan issued a report predicting that brick-and-mortar retailers will dominate e-commerce, Dow Jones News reported. Strong brand names and lower costs for acquiring customers and purchasing goods (thanks to large volume) are the keys, the report said.

OPEN. HomeDecorShowcase.com is up and running, offering finished pieces by some of the most well known painters and crafters in the industry, including Pat Ciccolella, Dorothy Dent, Doxie Keller, Heidi Ott, and Judy Westegaard. Categories include Carving & Sculpting, Furniture, and Portraits, while Ceramics & Porcelain, Glass, Masters Reproductions, and Textiles & Weaving will be added soon. The site is operated by popular industry veteran Bill Neu.

COPYRIGHTS. The courts seem are siding with artists, publishers, etc., in the Internet copyright wars. A federal judge ruled in favor of Hollywood movie studios in their lawsuit to stop a web site from giving out software that descrambles the code meant to prevent DVDs from being copied. The judge ruled that posting the code violates federal copyright law.

NEW. The popular and well known industry veteran, C Boyd, has a website for his rep firm: http://craftreps.com/index.html.

SURVEY. BizRate.com's Consumer Online Report for the first quarter says online retailing sales rose 12% compared to a year ago. Categories showing above-average growth were Entertainment, Computer Goods, and Gifts and Flowers. The most dramatic losers were Food and Wine and Toys and Hobbies, down 72%. Women comprised 54% of new online orders.
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THE CREATIVE NETWORK: JOB OPENINGS

The only personnel recruitment firm specializing in our industry has the following job openings. Call 360-834-0802; fax 360-834-0702; email jessica@creativenetworkinc.com; or check www.creativenetworkinc.com.

ATLANTIC: Channel Marketing Manager ... Product Manager.
MID ATLANTIC: Administrative Assistant ... Director of Sales & Marketing ... VP Account Executive (sales) ... VP Marketing.
MID CENTRAL: Product Designer.
NORTH CENTRAL: Art Director (3 positions) ... Associate Designer/Product Development ... Buyer/Scheduler ... Copywriter ... Director of Sculptural Team ... Director/General Manager ... Operations Manager ... Oracle Developer/Webmaster ... Product Development/Designers ... Product Manager/Director of Marketing (2 positions) ... VP Product Development (collectibles).
PACIFIC: Director of Product Development ... Marketing Manager ... Media Design Liaison ... Store Merchandising Manager ... Product Manager.
SOUTH EASTERN: Sr. VP of Sales.
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CREATIVE NETWORK: JOB OF THE MONTH

POSITION: Product Manager ... LOCATION: California ... SALARY: to $70K ... DESCRIPTION: Responsible for the conceptualization, development, and execution of lines. The category is stationery/scrapbooking related. Develop product from the concept stage through design, sampling, costing, and packaging ... QUALIFICATIONS: Must have experience in the stationery/scrapbooking industry and possess strong creative abilities and analytical marketing skills. Overseas sourcing experience needed.

For more about these positions, contact The Creative Network at 360-834-0802.
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THE CLN RETAIL INDEX

A. C. Moore (ACMR). Last*: 8 1/2 ... Change**: +1 1/16
Ames (AMES). Last*: 5 3/16 ... Change**: -15/32
Hancock Fabrics (HKF). Last*: 4 1/2 ... Change**: +7/16
Jo-Ann Stores (JAS.A) [a]. Last*: 7 1/16 ... Change**: -1/8
Michaels (MIKE). Last*: 47 ... Change**: +1/16
Rag Shops (RAGS). Last*: 2 5/8 ... Change**: +13/16
Wal-Mart (WMT). Last*: 50 1/2 ... Change**: -2 7/16
CLN Retail Index. Last*: 125.375 ... Change**: -1.6%
Dow Jones Index. Last*: 11,046.48 ... Change**: +2.6%
* August 18 ** from August 4 [a] voting share Note: Prices are exclusive of dividends
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THINGS THAT TOOK YEARS TO LEARN

Words of wisdom emailed from a friend:

1. If you had to identify, in one word, the reason why the human race has not achieved, and never will achieve, its full potential, that word would be "meetings."
2. There is a very fine line between "hobby" and "mental illness."
3. People who want to share their religious views with you almost never want you to share yours with them.
4. You should not confuse your career with your life.
5. No matter what happens, somebody will find a way to take it too seriously.
6. When trouble arises and things look bad, there is always one individual who perceives a solution and is willing to take command. Very often, that individual is crazy.
7. Nobody cares if you can't dance well. Just get up and dance.
8. The most powerful force in the universe is gossip.
9. The one thing that unites all human beings, regardless of age, gender, religion, economic status, or ethnic background, is that, deep down inside, we ALL believe that we are above average drivers.
10. The main accomplishment of almost all organized protests is to annoy people who are not in them.
11. A person who is nice to you, but rude to the waiter, is not a nice person.
12. Your friends love you anyway.
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Note: Creative Leisure News is normally published on the first and third Mondays of each month. Because of Labor Day, your next issue will be Tuesday, September 5th.

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 mike@clnonline.com.

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