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Creative Leisure News
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Date: October 16, 2000
Vol. IV, No. 20

Printer Version

TABLE OF CONTENTS

bulletCommentary
bulletSeptember Sales Are Rocky
bulletRag Shops Hits Sales Record
bulletComputer Snags Hurt Jo-Ann Stores
bulletSales Rise At A.C. Moore
bulletThird Quarter Stock Report
bulletDupey Creditors File Lawsuit
bulletSociety Of Craft Designers' Seminar A Hit
bulletAn Argument For Careful Expansion
bulletMore Predictions For Fall
bulletEthics & Challenges In The Digital World
bulletMiscellaneous News
bulletRandom Quotes, Random Thoughts
bulletInternet & E-Commerce Update
bulletThe Creative Network: Job Openings
bulletCreative Network: Jobs Of The Month
bulletThe CLN Retail Index
bulletSo You Thought You Were Computer-Illiterate

COMMENTARY

We are getting very close to switching Creative Leisure News from an email/fax newsletter to a an Internet/fax newsletter. For email subscribers it will work like this: when a new issue is online, you'll receive an email with a link to the site. Click on the link and it will take you to our home page at http://www.clnonline.com.

You're welcome to visit the site now, although it's still under construction.

There you will see the headlines for the new issue, plus the other features. Click on "Current Issue" and you'll be asked for a username and password. Provide those, and you'll be taken to the issue.

But it will be better than the issues you've received in your email. You can still print a hard copy, but now any website we refer to will be linked. Click on it and you're there. Plus, the last six months worth of issues will be there in the "Archives". We've also gone through every issue in the four-year history of Creative Leisure News and picked every still-relevant letter from the industry, tip, commentary, and even the humor and made them available.

Some subscribers had to receive their issues by fax because their computers couldn't open our attachments. Now that problem is eliminated.

In the next two weeks you'll receive an email explaining how to obtain your username and password.
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SEPTEMBER SALES ARE ROCKY

Chains of all types suffered a disappointing September, according to same-store sales figures. Judging from their explanations, they're expecting a tough fourth quarter, too.

Once exception was Michaels, whose same-store sales rose 4% and overall sales increased 15% to $200.4 million. The store count is up to 616 Michaels stores, 110 Aaron Brothers stores, and 1 wholesale operation.

Wal-Mart's same-store sales rose 4.8% and Target's rose 2.9%. Ames' same-store sales fell 3.9% and blamed a higher amount of layaway sales compared to last year. Chair/CEO Joseph Ettore said, "We are disappointed with our September results." K-mart's same-store sales rose less than 1%, which was "below plan" according to Chair/CEO Chuck Conaway. J.C. Penney's same-store sales fell 4% and warned that earnings would be less than Wall Street estimates.

Hancock's same-store sales rose only 1%, but CEO Larry Kirk said, "Both price promotions and advertising expenditures in September were less than the year-ago period."

Duckwall-Alco sales fell 2.3%, due to shifting its anniversary sale from September to October, the company said. (Question: How can you shift your anniversary sale from one month to another and still call it an anniversary?) Officials did say its craft sales were strong, however.

ShopKo same-store sales dropped (1.0%), too. ShopKo announced it would not meet analysts' estimates for the 4th quarter and will curtail expansion plans, including those for its Pamida division. A few days later, Standard & Poor's revised its outlook on ShopKo to negative from stable for its triple-B-minus corporate credit, bank loan, and senior unsecured debt ratings.
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RAG SHOPS HITS SALES RECORD

Total sales for the fiscal year were $100 million, up 5.7%. Same-store sales rose 4.2%, thanks to an additional week in this calendar year. Without that week, same-store sales rose 2.5%.

Officials are predicting that the year-end audit, to be completed next month, will show the greatest profits in 6 years, thanks to improved operating efficiencies, the additional one week, and improved inventory shrinkage results. This is also the first time since the company went public in June, 1991 that it was debt-free at the end of the fiscal year. The store count in mid-October is 66.

President Michael Aaronson said, "We are moving into the new fiscal year with great momentum and wonderful new opportunities. We have plans to open new stores in N.J., N.Y., New York City, and Conn. The first of which will open on October 15th in New Jersey."

Development is under way for a new 20,000 sq. ft. prototype. The company expects to open 3 prototype stores in the Fall of 2001 and close three older stores in the new fiscal year.
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COMPUTER SNAGS HURT JO-ANN STORES

Jo-Ann's announced its current estimates for its third quarter results ending October 28 will be half of its earlier expected earnings of $0.30/share. Officials blamed lower than anticipated sales due to general economic conditions and out-of-stock issues caused by the company's recent systems conversion.

Comparable store sales for the first nine weeks of the third quarter were flat, compared with a 4.6% increase for the full third quarter a year ago.

Chair/CEO Alan Rosskamm said, "Many of the systems-related, out-of-stock issues we identified in August have been rectified, with most of our seasonal and softlines businesses now in very good shape at the store level. However, our crafts business was the last product category to be addressed, and we still have another 30-45 days before we will be at the proper level of store inventory for these categories.

"The sales shortfall we have experienced to date in the third quarter was larger than our original estimates," Rosskamm added, "and we lowered our October sales estimates to account for the categories still not fully in stock."
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SALES RISE AT A.C. MOORE

A.C. Moore reported sales of $60.9 million for the third quarter ended September 30, an increase of 21%. Same-store sales increased by 4.5%. For the year, sales have risen 17% to $168.9 million and same-store sales have risen 5%.

President/CEO Jack Parker said, "We are pleased to have met our sales projections for the third quarter and we remain on target to meet consensus profit estimates. Our expansion plans have proceeded on schedule and our new stores are performing very well."

During the quarter the company opened stores in Muncy and Langhorne, Penn. and Hickory, N.C. The current store count is 48.

The earnings report will be released this Thursday. Investors can listen to the conference call live over the Internet through Vcall at http://www.vcall.com.
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THIRD QUARTER STOCK REPORT

Wall Street's concern about consumer spending for the holidays is apparent in the third-quarter (July-September) stock figures for retailers, including some who sell craft and sewing supplies.

A.C. Moore was the big winner, increasing 23.5%. Hancock Fabrics also performed well, jumping 17.6%, and Jo-Ann Stores inched upward at 3.6%.

The rest were losers, particularly the discount stores. Ames slid 26.2% and Wal-Mart was down 16.5%. Rag Shops dropped 14.8% and Michaels slid 12.7%. By the end of September, Ames was down 80% for the year while Wal-Mart has dropped 30% for 2000.
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DUPEY CREDITORS FILE LAWSUIT

The creditors committee in the bankruptcy of the old MJDesigns filed suit against Mike Dupey, regarding alleged transfer of assets and extravagant expenses in the months prior to the bankruptcy filing, the Dallas Morning News reported.

The chain, founded by Dupey in the late 1970's, had grown to 57 stores with total sales of about $250 million. It filed for bankruptcy in February, 1999 listing almost $50 million in debts.

Since then eight stores have reopened under the same name but with new ownership -- former employees and a Dallas investment company. That operation is not affected by the lawsuit.

The suit charges that Dupey's spending habits in the 10 months prior to, and after, the bankruptcy filing cost creditors and the company about $2 million, the Morning News reported.

According to court documents and a Dupey lawyer, before this lawsuit it appeared that non-secured creditors would receive about 8 cents on the dollar. If this lawsuit is successful, it would raise the recovery rate about a penny.

Dupey attorney Rob Yaquinto said the suit was drafted almost two years ago, and a closer examination of the documents will show a business reason for the expenses.

"We think almost every allegation is false and incorrect and based on a very superficial effort by the creditors' committee to put these allegations together," said another Dupey attorney, Eldon Vaughan. "Most of these allegations are about how Mike ran the company. He lives on the road at vendor shows and buying trips in New York, Las Vegas, the Orient. That's his life. It wasn't fraud or stealing or taking advantage of anyone."

The allegations include seemingly excessive travel expenses and costs.

Dupey is to answer the allegations by this Thursday, then there will be a round of discoveries by both sides. The case is set for trial in January, but there's an excellent chance a settlement will be reached, a Dupey lawyer told us.
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SOCIETY OF CRAFT DESIGNERS' SEMINAR A HIT

The theme of the Society of Craft Designers' annual Educational Seminar was Partners in the Creative Life. Registered attendance was over 200. Membership in SCD is now close to 600 with corporate members showing the largest increase.

The following is a review from Michelle Temares, one of the featured speakers and attendees. Michelle also writes a column for the quarterly art materials section in CNA.

"My impressions were very favorable. The Seminar was well organized and ran very smoothly. SCD is a tremendously diverse organization (designers from every craft arena: quilt, sewing, decorative painting, scrapbooking, wearable art, general crafts, etc), but the Seminar still managed to have events and seminars to appeal to almost everyone.

"Attendance at educational seminars was up. My own sessions, 'Color Secrets' and 'In Search Of The Big Idea', were very well attended, as were the other events I attended.

"SCD is doing a tremendous job training new designers in business skills and professionalism. In the First Timers seminar, members learned, among other things, how to put together a portfolio, query an editor, write instructions, approach a book editor, handle endorsement fees, etc.

"The designer showcases showed creativity and professionalism and many corporate members said they were impressed with the quality of the designs and presentations.

"Of equal importance is the networking that takes place at the Seminar, both among the designers themselves and between the designers and manufacturers, and publishers and editors.

"Very well attended was a late night series, 'Seminar Connections', where corporate members and designers shared information and asked questions. A very healthy, positive and informative dialog was the highlight of these meetings.

"The only 'negative' I heard was that, with all the focus on new designers, the needs of more advanced designers may not have been completely met.

"Special kudos to Chris Wallace and Renee Sparks, the seminar co-chairs, for putting together a diverse and high quality series of events."
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AN ARGUMENT FOR CAREFUL EXPANSION

We received the following note from a very successful independent retailer. He named names, but we're not interested in embarrassing anyone. We are publishing this, however, because we have often witnessed the same process the retailer describes here. In fact, over the years we have seen almost as many companies die from too much success as from failure. Here's his story:

"Category X has had a huge year again after being off last year. Company A's products have carried the load and their new intros are just getting bigger.

"Typical, however, is their marketing efforts. They cannot fill the pipeline to the independents, and we have all had out-of-stocks from them for months; but just recently they could not resist the allure of the big boys' orders and started selling to [two large chains] and now both chains are running ads at 25% off.

"This while they could sell their goods to independents at much higher margins for themselves. Guess I would not feel bad if they were filling our orders (the people who got them where they are today), but they are shipping about 50% -- and declining because they have tried to expand their market too quickly.

"All this usually ends up with the demise of the vendor because now the independents are looking elsewhere to fill the gap, and the chains will have them knocked off with goods directly from China by early next year."

The moral of the story for small companies is not to avoid selling to chains. Instead, it's this: 1. Don't expand until you're confident you can cover your base solidly during the expansion. 2. If/when you want to make the jump to selling to the chains, start with one chain. 3. Don't get in the position where you're short-changing your traditional customers to service new customers who may not be as loyal. 4. Remember, every time you expand your facilities, buy more machinery, and hire full-timers, you have to sell that much more just to break even.

The maxim is, if you don't grow, you die. But if you grow too fast....
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MORE PREDICTIONS FOR FALL

1. "From a vendor's perspective, our orders for fourth-quarter delivery are very good. We have a strong December planned, due to excellent Spring orders [that are] shipping year end. We expect good Christmas reorders during October and November, even early December, as many consumers will delay purchases until the last minute. September is up over last year, nearly 10%.

"With a strong U.S. dollar, and weaker Euro Dollar, I believe our goods will be too expensive overseas. However, Canada looks good as their economy has improved considerably." -- Large craft/sewing manufacturer

2. "We have high hopes for fourth quarter. Scrapbooking remains a strong (and growing) force. We're working hard to grow it into international markets and our efforts have been met with only enthusiastic response. The launch of our new 2001 line has the potential to repeat the success of our scrapbooking papers. We're looking ahead with anticipation -- we've got a lot to be excited about!" -- Paulette Jarvey, President, Hot Off The Press

3. "The Northwest is entering a difficult economic period. Boeing continues to reduce its workforce and has laid off over 10,000 already this year. Dot.coms are having troubles and we're feeling the fallout somewhat. Microsoft's anti-trust troubles have dramatically affected us, as those new-found millionaires are downsizing from their BMW 740's to the cheaper models. Ha!

"This suggests big troubles for most retail in our area, BUT I am not so sure in the craft areas. We have not had a stellar summer and sales have been flat for over 5 months now, but show some signs of picking up.

"September was good with a small increase for the first time since March. While much feels like doom and gloom, the craft business seems to thrive in a flat or even down economy, so we have the feeling that our Fall season might just surprise us and be up by as much as 6-8%. "I feel like the industry as a whole is going to have a good 4th quarter. Our Sierra Pacific Craft stores are optimistic and with the exception of some small pockets, stores are seeing pretty big increases in sales. They may not be typical, as we all continue to delve deeper into alternative merchandising while staying with the concept of components as our major business. Traditional crafts are generally not robust, but again, pockets are strong.

"Beads have had a huge year again. Floral accessories, candles, tabletop water fountain components, fall seasonal floral, scrapbooking, rubber stamping, quilting fabrics, accessories, and even good quality yarn are the hot lines for us right now." -- Independent retailer in the Northwest, and an Sierra Pacific Craft member.

4. "Our two stores have had slow but steady growth throughout the year, from flat at the start of the year to each store increasing 6% for September. Year-to-date (through Oct. 1) growth for both stores is 4%. The last couple weeks have shown good growth.

"Regarding the 4th quarter, I expect my sales to be up about 7-8% from last year. We in Sierra Pacific Crafts are also doing a special quality 'catalog' with presentation of quality home dec and craft products. This may increase sales to possibly 10%." -- Sierra Pacific member.

5. "Consumer debt, business debt, and fuel for travel, transportation, and heat are at all-time highs. It's an election year. Unemployment is virtually nonexistent. The market looks like it's, at best, uncertain and, at worst, in decline.

"Back to school, in our industry, was weak. The shelves are full of imports, mostly finished items in floral and seasonal. The number of women using computers is growing rapidly. Theaters are closing. Restaurants are opening. The new housing market is booming.

"Sounds kind of like a country western song to this point.

"However, consumers don't seem to give a damn, and will keep spending until they run out of money and debt. I don't think they will run out of either this Fall. People are going to party and partying is good for our business. People are going to give and giving is good for our business. People are trying to make things meaningful and personal. That's good for business.

"All in all, I think we will have a pretty good Fall, and Christmas will be merry after all. Now, that is a song I'd like to sing.

"I am somewhat concerned about the preparedness of suppliers to compensate for the [retailers'] low inventory levels of continuity merchandise. Someone must commit to a reserve to supply a surge in consumption of essentials if POS systems are going to demand a "just in time" strategy of inventory control.

"There is also the possibility that there could develop liquidity situations caused by slow payment to continuity suppliers. There is always that risk.

"So everybody better watch their receivables whether you are a manufacturer, a converter, a distributor, a service supplier or an independent manufacturers' representative." -- Manufacturers' rep
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ETHICS & CHALLENGES IN THE DIGITAL WORLD

Thoughts from Jim Hedgepath of Pegasus Originals, on the ongoing battle against copyright piracy on the Internet and the challenges of the new digital world:

"Too many people seem resigned to a future in which criminal behavior will be tolerated by rewriting the laws to accommodate it, rather than prosecuting it. It is going to be very difficult to move from a printed to a digital world if people place no value on digital information or the creator of that information. We have already seen the damage done by having copyrighted patterns in digital format.

"We are looking at every option that comes across my desk. The 21st century has arrived COD -- Change or Die! There are many challenges that face us and there are many positive things in the changes that will come. Some people will just see problems and others will see opportunities. This is a time of not only great opportunities, but careful thinking about everything we do and how it affects the industry. This is a time when we could easily shoot off our foot."

Note: Jim has been interviewed by numerous members of the national media. The Time article is available at http://www.time.com/time/magazine/articles/0,3266,55700,00.html.
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MISCELLANEOUS NEWS

ADS. Hancock Fabrics ran a full-page ad in the November issue of O, Oprah Winfrey's magazine.

CLOSING. Cindy Wiggins, of Syndees Crafts, announced the company will close some time after December 1st. Ms. Wiggins will retire "to the good life," she says. Sons Chris and Jeff will seek business ventures outside the industry. Orders were still being accepted at the time of this writing. Anyone interested in purchasing rights to the name should contact Jeff Wiggins at 702-457-1985 or Chris Wiggins at 702-564-8118.

LAWSUIT. A discrimination complaint against Wal-Mart for barring a female employee from playing Santa Claus was thrown out by a Kentucky state panel that said the woman wasn't convincing, the Associated Press reported. Managers at the Morganfield, store switched to a male Santa after a customer said her child asked about Santa's breasts. The female employee, who quit her job, was seeking $67,000 in lost wages and pain and suffering.

STORES. Pamida, a division of Shopko, opened 56 stores in early October in rural communities in the South and Midwest. The store count is 390, with 4 more to open this month.

AWARD. CPE was named the 2000 South Carolina Manufacturer of the Year by the S.C. Chamber of Commerce. CPE is a felt manufacturer whose industry-related products are marketed under the brands EAZY FELT (stiffened felt); QUICK STICK (peel 'n stick adhesive-backed felt), and a new educational line, FIRST STEPS.

TV. Aleene and her daughters are working on the pilot for a new craft tv series.
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RANDOM QUOTES, RANDOM THOUGHTS

1. Question: I was checking a website for a CNA article and came across a how-to posted by a consumer on the site's bulletin board. The instructions told crafters to fill a large pickle jar with potpourri and Christmas lights, then plug in the lights. Someone responded, saying that could start a fire. I don't know if it would or not, but it got me wondering: If someone is injured in some way because of a project or advice posted by a consumer on your craft site, are you liable?

2. Attention manufacturers: looking for fresh new designs for project sheets, madeups for your booth, perhaps even new uses for your products? That's why so many manufacturers are members of the Society of Craft Designers. The members are immensely talented, and many are freelancers who would love to do work for you. Email scd@offinger.com for more info.
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INTERNET & E-COMMERCE UPDATE

TIME OUT. On October 2nd Wal-Mart posted a message on its web site saying it was closed for remodeling. It's expected to be closed for a few weeks.

TV. QVC had another apparently successful craft day October 10th. To see the numerous kits and items QVC sells on its website, go to www.qvc.com, click on Arts & Leisure, and click on Crafts and other appropriate sections. Sign up for the site's craft newsletter, too.

STRATEGY. The Los Angeles Times published an article by Karen Klein, owner of a successful Beverly Hills florist shop, Floral and Hardy, and a successful e-commerce site, Florist.com. The keys to her online success, Klein says, are keeping costs low, customer service and, "my biggest lesson is that an online business has to be run by people who know something about the industry, whatever it is." Klein expects Florist.com to receive 45,000 online transactions totaling $5 million this year.
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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.

CENTRAL: Product Mgr. (floral, wedding).
MID ATLANTIC: VP Account Executive (soft goods/crafts) ... VP Marketing (soft goods/crafts).
NEW ENGLAND: Asst. Art Director (art background) ... Dir. of Sales & Marketing (novelty/impulse items).
NORTH CENTRAL: Dir. of 3D Product Development/Design (gifts/collectibles) ... Jr. Designer w/ licensing (gifts/collectibles) ... Sr. Designer w/ licensing (gifts/collectibles) ... Designer/Product Developers (gifts/collectibles) ... VP Product Development/Design (gifts/collectibles).
PACIFIC: Dir. of Product Development (gifts/collectibles) ... National Account Mgr. (gifts/specialty accts) ... Production Mgr. (overseas experience) ... Dir.of Product Management (overseas exp) ... Product Mgr. (craft experience).
SOUTH CENTRAL: VP Customer & Employee Product Education (craft experience) ... Marketing Communications Manager (retail experience).
SOUTHERN MIDWEST: Design Dept. Mgr. (crafts) ... Marketing Mgr. (crafts).
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CREATIVE NETWORK: JOBS OF THE MONTH

Position: National Account Manager - Gift & Specialty Accounts ... Compensation: $65-75K + 20% bonus ... Location: Southern California ... Description: Open new markets in gift channels, while expanding business with the existing account base; work with reps selling the key accounts; travel; P&L responsibilities ... Qualifications: 5-7 years experience with gift and specialty accounts, chains, and department stores; management experience; and analytical abilities.

Position: Product Development/Designer with Licensing ... Salary: $45-75K, + profit sharing ... Location: Chicago area ... Description: Identify, develop, and evaluate ideas and themes for new lines; manage the development process ... Qualifications: 3-5 years product development experience, preferably in collectibles; some hands-on experience is required as are experience working with licensors and effective communication and interpersonal skills.

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*: 7 3/4 ... Change**: -1/8
Ames (AMES). Last*: 3 7/8 ... Change**: -1 27/32
Hancock Fabrics (HKF). Last*: 4.5 ... Change**: -1/2
Jo-Ann Stores (JAS.A) [a]. Last*: 7 1/16 ... Change**: -3/16
Michaels (MIKE). Last*: 35 15/16 ... Change**: -4 1/16
Rag Shops (RAGS). Last*: 2 7/32 ... Change**: +1/16
Wal-Mart (WMT). Last*: 45 ... Change**: -3 1/8
CLN Retail Index. Last*: 106.344 ... Change**: -8.4%
Dow Jones Index. Last*: 10,192.18 ... Change**: -4.3%
     *Oct. 13 ** from Sept. 29 [a] voting share Note: Prices are exclusive of dividends
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SO YOU THOUGHT YOU WERE COMPUTER-ILLITERATE

"Take heart, anyone among you who believes you are technologically challenged," writes Tom Ware of Bagworks, and sends along this excerpt from a Wall Street Journal article:

1. Compaq is considering changing the command, "Press Any Key" to "Press Return Key" because of the calls asking where the "Any" key is.

2. A caller complained to AST technical support that her mouse was hard to control with the dust cover on. The cover was the plastic bag the mouse was packaged in.

3. A Dell technician advised his customer to put his floppy back in the drive and close the door. He then heard the customer put down the phone, cross the room, and close the door.

4. A Dell customer was angry because his computer said he was "bad and an invalid." The technician said the computer didn't mean him personally.

5. An IBM user complained his computer said it "couldn't find the printer." The user had turned the monitor to face the printer, but the computer still couldn't "see" the printer.

6. A caller said her new Dell computer didn't work, even though she "pushed and pushed on this foot pedal." The "foot pedal" was the computer's mouse.

7. A woman called Canon with a problem with her printer. When asked if she was running it under "Windows," she said "No, my desk is next to the door. But that is a good point. The man sitting in the cubicle next to me is under a window and his printer is working fine."
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Note: Creative Leisure News is published on the first and third Mondays of each month. Because there are five Mondays in October, your next issue will be Monday, November 6th.

Need any rumors 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.

xxx

 

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