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

 

 


Date: December 4, 2000
Vol. IV, No. 23

Printer Version

TABLE OF CONTENTS

bulletCommentary
bulletChristmas Sales Are So So
bulletMichaels Income Soars
bulletConso Buys Wm. E. Wright
bulletDuncan Buys Artis' Remaining Assets
bulletA CEO Roundtable -- of Independents
bulletHIA Re-Elects Rosskamm, Nominates Others
bulletLeather Factory Buys Tandy Leather
bulletThe State of E-Commerce in Our Industry
bulletEmployees Can Work Too Fast
bulletWhat Happened To Industry Gossip?
bulletMiscellaneous News
bulletRandom Quotes, Random Thoughts
bulletInternet & E-Commerce Update
bulletThe Creative Network: Job Openings
bulletThe CLN Retail Index
bulletPink Slip Memo

COMMENTARY

As usual, there will be two issues of Creative Leisure News in January. In both of them I hope to publish information about new products -- products that couldn't be submitted to the trade magazines in time for their January, trade-show issues. If you have such products that won't be covered by the magazines, feel free to send them to me. The deadlines are the Friday before the first and third Mondays in January. You need not send photos unless they would help me describe the products. The quickest way is email: mike@clnonline.com; or mail to 2677 Ashley Ct., Tremont, IL 61568.

Also, if you want to print a hard copy of this issue, don't just click on the "print" button on your browser. Instead, click on the "Printer-friendly Version" and then click "print". It will give you a hard copy with much better margins.
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SO FAR, XMAS SALES ARE SO-SO

The holiday selling season is not off to a particularly strong start, although many retailers, who had recently lowered their expectations, were pleasantly surprised by the Thanksgiving weekend traffic. There have been some sketchy reports that basics crafts were not selling particularly well, but it's too early to make a generalization about them.

Michaels' sales rose 2.2%. Officials conducted a conference call to discuss the results last Thursday, but you can still listen to a replay anytime until this Thursday at http://www.vcall.com or by phone at 888-888-9543.

Jo-Ann's sales rose only 0.5%. Officials said they expected December and January same-store sales to be "flat to slightly positive" compared to the prior year. As a result, they estimate fourth quarter earnings to be 70-80 cents/share. (That includes the company's minority investment in IdeaForest.com.)

In commenting on Hancock's results, CEO Larry Kirk stated, "Sales in comparable stores were down just over 1% in November, consistent with the general slowing in retail spending that occurred in September and October. However, we are seeing good conversion of seasonal inventories thus far without resorting to unusual price discounting."

Meanwhile Ames continues to struggle. Sales fell 2.1% and for the year, sales have declined 1.6%. Chair/CEO Joseph Ettore said, "We had strong sales in the third and fourth weeks of the month and we look forward to the balance of the holiday season. We were particularly pleased with our Thanksgiving holiday weekend, which met our expectations.... Soft sales in the first two weeks of the month reduced our overall results."

Wal-Mart stores' sales rose 4.7%. On the day after Thanksgiving, the company's sales surpassed $1.1 billion (in one day!). Target's increased 4%, while Kmart's rose 3.3%.

Duckwall-ALCO sales rose 3.0%, but crafts were not listed as one of the strong selling categories. ShopKo sales rose 6.8% but the company did not specify sales in its Pamida division. As we reported earlier, new accounting rules are affecting monthly same-store sales figures. Now retailers count layaway sales only when the items are fully paid for, not when they're "laid away" as was the case a year ago.

Meanwhile, a Goldman Sachs and PC Data Online study reported holiday shoppers spent $1.132 billion online during the week of November 19. The National Retail Federation/Forrester Online Retail Index reports 16+ million households shopped online in October, spending an average of $268/person, and eMarketer's Holiday Shopping Report projects e-tailers will amass a record $12.5 billion this fourth quarter. How much of that will be crafts remains to be seen.
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MICHAELS' INCOME SOARS 53%

For the third quarter ended October 28, net income jumped 53% to a record $16.0 million ($0.44/diluted share), compared to $10.4 million ($0.34/diluted share) a year ago. Total sales for the quarter rose 14% to $526.5 million and same-store sales rose 3%.

For the first nine months, sales increased 19% to $1.437 billion and same-store sales are up 6%. Net income is $31.3 million ($0.90/diluted share), compared to $15.7 million a year ago.

CEO Michael Rouleau said, "We are very pleased with the third quarter and year-to-date results. In view of the prevailing retail climate, we feel that our financial performance has been exceptional."

Key product categories included memory, framing, ribbon, candlemaking, beads, wedding, and seasonal (fall/Halloween) merchandise.

During the quarter, the company opened 25 Michaels stores and relocated 8 others, and opened 9 Aaron Brothers stores and relocated 2. The current store count is 630 Michaels stores, 117 Aaron Brothers stores, and 1 wholesale operation.
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CONSO BUYS WM. E. WRIGHT

The deal has finally been consummated. After months of negotiations and numerous rumors, Conso acquired Wm. E. Wright and its subsidiary, Lending Textile. Wright's President/CEO, Cal Gauss, becomes Conso's Exec. VP in charge of consolidating the companies, and Wright's veteran Mike Fuss will become Wright's COO.

Wrights is a major supplier of ribbon, trims, and notions and had sales of $70 million in the past year. Conso, which also owns Simplicity Pattern, produces decorative trimmings for the home furnishings industry. Formerly a public company, Conso went private earlier this year via a management buyout supported by Citicorp Venture Capital.
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DUNCAN BUYS ARTIS' REMAINING ASSETS

Duncan purchased what was left of Artis from Business Factors Inc., which had foreclosed on the bankrupt company. Those assets include the Aleene's Creative Living television series still running on the Odyssey cable network; the Aleene's Craft Club; the website; product lines such as Shrink-It, Aleene's Fusible Web, and the Boxmaker; and a share in the company formed to license the Aleene's name.

This was the second time Artis had declared bankruptcy in recent years. As part of the previous bankruptcy, Duncan gained the white glue business and the license to use the Aleene's name on craft and ceramic paints and coatings.

Also as part of that previous bankruptcy agreement, Duncan and Artis had formed the licensing company for other products such as the Aleene's glue gun. Duncan now owns all of the licensing company.

In an interview with Creative Leisure News, Duncan Senior VP of New Products & Marketing Mark Peters said Duncan is currently negotiating with a third party who plans to continue Aleene's Creative Living television series and the Aleene's Craft Club, and to re-launch the Aleene's website.

Duncan also plans to re-launch the website and continue the craft club. The company was still gathering information and sales data before determining what direction to take with the newly acquired lines such as the Boxmaker. The licensing operation will continue and hopefully expand, Peters added.

"Aleene's is still a very, very powerful brand name," Peters added. "The Aleene's glue sales continue to grow substantially. Now, with Duncan's resources behind it, Aleene's will become a stronger brand than ever."

Any questions should be referred to Mark Peters at 559-294-3210 or email mpeters@duncanmail.com.
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A CEO ROUNDTABLE -- OF INDEPENDENTS

For the last few years a highlight of the HIA show has been a CEO Roundtable consisting of top execs from the industry's major chains. As we reported earlier, the Roundtable at next month's show will focus on e-commerce retailers. Independents have been left out of the mix -- until now.

CNA magazine and Promotions Unlimited are sponsoring "The State of Retailing: Independents Speak Out", which will be held on Tuesday, January 30th, from 4 to 5:30 p.m. CNA's editor, Karen Ancona, and Creative Leisure News' Mike Hartnett will be the moderators.

"We just thought it was time for the industry to hear from independents," Karen explained. The panelists include:

Dennis Assenzo, a Ben Franklin retailer in Naples, Florida

Bob Ferguson of Ferguson Merchandising, who operates one of the industry's most successful stores in Redmond, Washington. Bob is also a leader in Sierra Pacific Crafts and 1st Vice Chair of ACCI.

Margo Fraisl, who operates two More Than Memory stores (and an e-commerce site, more-than-memories.com) in suburban Chicago with her husband, Mel.
Cindy Kemp, who owns a Ben Franklin store in California.
Tony Simone, owner of Art Cove in New York City and the e-commerce site, artcove.com. Bob Wesselman, who owns a Ben Franklin store in Evansville, Indiana.

"These are bright, outspoken, savvy retailers," Karen said. "It should be a great seminar."
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HIA RE-ELECTS ROSSKAMM, NOMINATES OTHERS

Alan Rosskamm, Chair/CEO of Jo-Ann's, was re-elected president of the HIA board of directors; other board officers will be elected in January. Meanwhile, the Nominating Committee chose Sandra Cashman (Fiskars) and Theodore Hesemann (Herschnerrs) for their first three-year terms and Michael Catan (Darice), Dee Gruenig (Posh Impressions), and Michael Rouleau (Michaels) for second three-year terms. Their election will also be held in January.
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LEATHER FACTORY BUYS TANDY LEATHER

The Leather Factory acquired Tandy Leather for an undisclosed amount of cash. Tandy Leather sells leather and leathercrafting products via mail order, the Internet, and through a network of authorized dealers in 20 countries. Tandy Leather had sales of approximately $7.2 million in the fiscal year ended June 30th. The Leather Factory's sales for the first nine months of the fiscal year were approximately $22.4 million.

Leather Factory Chair/CEO Wray Thompson said, "With the acquisition of Tandy Leather, we expect our market share to increase in the retail and wholesale industries, and as well as in the e-commerce sector. In addition, the proprietary assets developed by Tandy Leather over the past 81 years, their staff of seasoned employees, and the economies of scale inherent in a transaction of this type are major benefits of the acquisition."

The Leather Factory, Inc.is a multi-national marketer and wholesale distributor of a broad product line including do-it-yourself leathercraft kits. Its stock is traded on the American Stock Exchange under TLF. It's currently trading about $1.25. The 52-week range is $0.75-$1.68.
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THE STATE OF E-COMMERCE IN OUR INDUSTRY

A year ago Creative Leisure News was filled with reports of a multitude of e-commerce sites either online or about to become operational. In the past year millions of dollars were spent; many of the industry's most well known names were hired; and grandiose plans -- and promises -- were made. E-commerce was the talk of the HIA 2000 show.

A year later, Craftshop.com, CraftClick.com, Crafts.com, CraftProducts.com, eBookCafe.com, and others are long gone. Others were still seeking funding when Wall Street and private investors soured on e-commerce and never saw the cyber light of day.

The failures apparently prove that just because consumers can buy online, it doesn't mean they will buy online.

So who's left, and why? What do they have in common? We believe the survivors are still here because they are affiliated with profitable operations and/or they've kept their costs low. Either way, they don't need to sell thousands of dollars worth of products each month just to break even, or make a profit right away -- or they have enough ongoing financing.

Chain Sites: Michaels.com and Joann.com are supported by billion dollar brick-and-mortar operations. Any losses would be a drop in the retail bucket, and it's much easier and less expensive for them to build a cyber brand name and attract web surfers.

Independents' Sites: E-commerce sites operated by independent brick-and-mortar retailers (More-Than-Memories.com, ArtCove.com, CraftsGalore.com, and others). These sites are backed by successful stores, don't have to appease impatient investors, and keep their costs down.

Others: QVC.com has the TV marketing blockbuster behind it. Craftopia.com has powerful, seemingly patient investors and a very impressive technical operation. MisterArt.com is part of ArtisanNetwork.com and the company has many other profitable irons in the fire. Plus, the company sells higher-ticket items which makes it easier to pick-pack-and-ship at a profit.

Consumers will eventually buy lots of products via the Internet. We just don't know when. It looks like the players mentioned above are structured in such a way that they can afford to wait.
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EMPLOYEES CAN WORK TOO FAST

Are you using a POS system? If so, the system is helpful ONLY if your checkout clerks scan every single item. For example, if a customer is ready to buy 15 skeins of floss and there's more than one color, you and the vendor will have a mess on your hands if the clerk scans one skein and then punches x15 on the cash register.

If that happens, then the system will tell you and ultimately the vendor that you sold 15 skeins of a particular color. Re-orders will be incorrect and soon you'll have excess inventory in one color and a shortage of others.

Of course you encourage your checkout clerks to work quickly to minimize customers waiting in line. But if they work too quickly and take shortcuts....
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WHAT HAPPENED TO INDUSTRY GOSSIP?

Have you noticed there doesn't seem to be as much gossip as there used to be? The rumors are still out there, as you'll discover when you attend trade shows next month. Here's why you may not be hearing them as often:

1. EDI. Computers are doing much of the talking between vendors and large retailers. The result is less talk between people.

2. Email. If you email someone rather than call, odds are you don't chat as much. And email can leave a cyber paper trail, which may inhibit gossip.

3. Because of companies buying other companies, your friend is now your competitor, so you're not chatting as much.

4. Companies are growing, but becoming more "efficient"; that's a nice way of saying the employees are busier, and there may be fewer of them, and they don't have as much time to talk.
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MISCELLANEOUS NEWS

SALES. Zany Brainy releases its third-quarter report today and hosts a conference call tomorrow at 10:00 am ET. To access the call, dial 800-491-3127. The call will be simultaneously webcast at www.zanybrainy.com and www.streetevents.com. A replay of the call will be available until January 4, and can be accessed at 800-625-5288. The code for the replay is 844341.

RATINGS. First of Michigan rated A.C. Moore stock as Strong Buy ... PMG and Wedbush Morgan reiterated their coverage of Michaels at Buy, while Robertson Stephens labeled Michaels' stock as Long Term Attractive ... Moody's downgraded Ames' debt ratings based on the expectation of higher average debt levels and a sluggish retail environment in 2001, Dow Jones News reported.

RESEARCH. An October HIA survey of 300+ consumers at the association's consumer website, i-craft.com, revealed "large selection" was rated the most important factor when choosing a store by 42% of the respondents. Of the respondents, all avid crafters, 36% shop in chain stores, 19% in independent craft stores, and 18% in "general superstores."

SCRAPBOOKING. The Memories Expo show in New Jersey last month had 90+ booths, 176 trade buyers, and almost 2,100 consumers ... Offinger Management has added another Memories Expo to the 2001 schedule -- Denver, September 28-29. Call Ann Combs at 888-878-8728, ext. 3141 for information.

BROCHURES. HIA released three new publications which are free upon request by calling 291-794-1133, or you can download them at hobby.org: HIA Certified Professional Demonstrators and Teachers: Your Partners in Promotion; Professional Craft Producers: The Creative Resource; and Export to Europe -- Are You Ready?

HARDWARE. Ace Hardware is planning to build Ace stores throughout Japan.

MEDIA. CNN/FN profiled Lion Brand Yarn company last Tuesday.

TAXES. The business mileage rate rises two cents to 34.5 cents/mile.

COPYRIGHTS. The Embroidery Software Protection Coalition was able to shut down a Yahoo club that was illegally sharing embroidery designs. The ESPC is affiliated with the Home Sewing Assn. Call 888-921-5732 or surf to embroideryprotection.org.

MANAGERS WANTED. Exclusive needlework stores, one in the Northeast and one in Toronto, need store managers. Salaries in the $50K+ range. For more information, in complete confidence, call Mike Hartnett at 309-925-5593 or email mike@clnonline.com.
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RANDOM NOTES, RANDOM THOUGHTS

1. A journalist specializing in scrapbooking called the other day. As she described the independent memory retailer, I was struck by how similar her description was to the original mom-and-pop craft retailers: "Missionaries rather than merchants," as Wanda Zeagler of Two Needles and Craftrends once described the independent cross stitch retailers.

My caller thinks we'll see as many as 3,000 more independent scrapbook shops open, but she worries about their long-term future. If they remain missionaries and don't become merchants like so many craft shop retailers, my caller's worries are probably accurate.

2. How high do you stack products on your top shelves? The Inside Edition tv news program reported Home Depot has been sued 68 times in the past 18 months due to merchandise falling on customers, Chain Store Age reported. Three customers have died, including a 79 year-old woman and a three year-old girl. Granted, falling craft supplies probably won't kill anyone, but in this litigation-crazy world....
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INTERNET & E-COMMERCE NEWS

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MICHAELS. The second phase of Michaels.com is functioning -- selling craft books and products now, in addition to the extensive art print inventory. The product sections are Art, Crafts, Decorative Painting, Floral & Home Decor, Hobbies, Kids, Memory Books & Stamping, Needlework, and Wedding. The book selection is quite varied, but limited to higher-ticket books. The products are kits -- no single bottles of paint or glue, no single skeins of floss.

URL'S. VeriSign Global Registry Services, the company in charge of Internet domain names is now accepting Chinese, Japanese, and Korean characters for those suffixes. So instead of 37 characters (26 letters of the alphabet, 10 numerals, and a hyphen), the addition of Asian character sets brings the total of possible characters to, gulp, 40,282.
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THE CREATIVE NETWORK: JOB OPENINGS

For the latest job openings from the only personnel recruitment firm specializing in our industry, click on the "Jobs" button in the column on the left. There you'll find the latest jobs -- and descriptions of "Jobs of the Month".
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THE CLN RETAIL INDEX

A. C. Moore (ACMR). Last*: 6 3/4 ... Change**: +3/8
Ames (AMES). Last*: 2 1/16 ... Change**: -29/32
Hancock Fabrics (HKF). Last*: 3 13/16 ... Change**: -3/4
Jo-Ann Stores (JAS.A) [a]. Last*: 7 1/8 ... Change**: +5/8
Michaels (MIKE). Last*: 25 3/4 ... Change**: -3
Rag Shops (RAGS). Last*: 2 3/8 ... Change**: -3/32
Wal-Mart (WMT). Last*: 51 3/16 ... Change**: +2 13/16
CLN Retail Index. Last*: 116.125 ... Change**: -2.3%
Dow Jones Index. Last*: 10,373.54 ... Change**: -2.5%

* Dec. 1 ** from Nov. 17 [a] voting share Note: Prices are exclusive of dividends
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PINK SLIP MEMO

(Note: This was emailed from an industry friend.)

As a result of the reduction of money budgeted for department areas, we are forced to cut personnel. Under this plan, older employees will be asked to take early retirement, thus permitting the retention of younger people who represent our future. Therefore, a program to phase out older personnel, via retirement, will be placed into effect immediately.

This program will be known as SLAP (Sever Late-Aged Personnel). Employees who are SLAPPED will be given the opportunity to look for jobs outside the company. SLAPPED employees can request a review of their employment records before actual retirement takes place. This review phase of the program is called SCREW (Survey of Capabilities of Retired Early Workers). All employees who have been SLAPPED and SCREWED may file an appeal with upper management.

This appeal is called SHAFT (Study by Higher Authority Following Termination). Under the terms of the new policy, an employee may be SLAPPED once, SCREWED twice, but may be SHAFTED as many times as the company deems appropriate.

If an employee follows the above procedure, he/she will be entitled to get HERPES (Half Earnings for Retired Personnel Early Severance) or CLAP (Combined Lump-sum Assistance Payment) unless he/she already has AIDS (Additional Income from Dependents or Spouse).

As HERPES and CLAP are considered benefit plans, any employee who has received HERPES or CLAP will no longer be SLAPPED or SCREWED by the company.

Once again, thanks for all your years of service with us.

THE MANAGEMENT
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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, December 18th.

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.

xxx
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