Date: August 18, 2008
Vol. XII, No. 16

Printer Version

TABLE OF CONTENTS

COMMENTARY: WRITING TO CLN 

This issue contains a particularly large number of comments from readers. (The retailers' thoughts are in "Benny Da Buyer.") I am delighted with that. I'm in my 11th year publishing CLN and my favorite compliment was a reader describing CLN as "the village green of the industry, where everyone can come together to discuss the issues of the day."

That's exactly what I want CLN to be. The more the merrier. Here's my unofficial guidelines for publishing comments: 1. Everyone is welcome to comment. 2. I won't print rumors until I have checked their veracity. 3. A reader's comment does not have to agree with me; CLN would be really boring if everything came from a single point of view. A reader's note just has to be interesting or thought-provoking (or funny). 4. Don't worry about punctuation, spelling grammar, etc.; I'll fix it. 5. Regarding "Name Withheld": I'll sign your comment that way as long as I know who you are. (I have received unsigned emails from mysterious addresses.) I never want to get a reader in trouble because I published his or her name.

So, have a question or comment about an industry issue? Let me know; the email is mike@clnonline.com.

Business-Wise. Craftrends published its last hard-copy issue, following by a few months the demise of CNA. What happened to the industry's craft trade magazines? Here's a brief history and what it may mean for trade shows, and what it says about the state of independent retailers.

"Benny Da Buyer". Retailers speak out on chain stores' coupons, individual paper vs. pads, offering a slide-scanning service, investing in technology, and the younger generation.

"Vinny Da Vendor". How one vendor scammed a scammer – and an important lesson to prevent companies from being the victim of high-tech fraud.

Category Reports. "Reborning" is a new form of dollmaking with results that are astonishingly realistic.

(Note: If a column appears "old," click the Reload or Refresh button on your browser.)

Gas prices are declining, although still higher than a year ago, and consumers have spent or saved their economic stimulus checks. How does the upcoming Fall/Christmas season look for your business? Better than last year? Worse? To vote, click on Industry Polls in the right-hand column or click HERE.

Exhibitors were a bit more positive about the show than attendees, but both groups essentially graded the show a C. Only 7.1% of exhibitors thought the show deserved an A, while 25.0% gave it a B. More than half, 53.62% rated the show a C, while 10.7% give it a D and 3.6% flunked it. If the show was a college student, the GPA would be 2.21.

Only 11.1% of the attendees gave the show an A, and 22.2% gave it a B. Slightly more than a third, 37.0%, thought the show deserved a C, while 22.2% give it a D and 7.4% flunked it. That's a GPA of 2.07.

Sales for the second quarter ended June 30 were $126.4 million, up 1.6% but same-store sales decreased by 4.8%. There was a net loss of $4.3 million ($0.21/share), compared with a net loss of $0.6 million ($0.03) a year ago. This year's results include charges related to the non-cash fixed asset impairment of $0.07 and store closing costs of $0.02 per share. Last year's results include a charge of $0.03 related to a one-time legal settlement.

Sales for the first two quarters were $253.0 million, down 2.6%, and same-store sales fell 8.4%. There was a net loss of $6.0 million ($0.30) versus a net loss of $0.2 million ($0.01) a year ago. The accounting charges for the six month period were $0.13, compared to $0.01 a year ago.

CEO Rick Lepley stated, "During the quarter we continued work at the store and corporate level on improving our overall execution and installing state-of-the-art information systems. We remain focused on the areas that will have a favorable long-term impact on our company."

Jo-Ann reported its second-quarter sales rose 3.7% to $403 million, and same-store sales rose 3.3%, but analysts polled by Thomson Financial expected $410 million.

For the first two quarters, net sales rose 4.5% to $849.1 million and same-store sales have increased 3.9%.

The company said its second-quarter earnings report will be released Aug. 27. (Comment: Put this in the "You Can't Win" file: Jo-Ann is clearly performing better than many other retailers – see the "July Retail Sales Report" below but the stock dropped 5% because sales didn't match analysts' expectations.)

Net sales for the second quarter rose 10.4% to $101.6 billion. Sales in U.S. stores rose 8.5% to $64.1 billion. Same-store sales, not counting fuel, rose 4.6%. Income from continuing operations rose 9.3% to $3.385 billion ($0.86 diluted earnings/share) – a record.

The company expects same-store sales to increase 1-2% in the third quarter, and raised its guidance on earnings/share to $0.73 - $0.76 for the quarter and $3.43 - $3.50 for the year.

Inque Boutique's John McDonald said, "We are pleased to make this announcement as Darice is one of the largest and very best companies in our industry and their resources, distribution systems, and merchandising programs will bring added benefits to Inque Boutique's customers and products."

Darice's Mike Catan added, "Inque Boutique's innovative rubber stamping and paper crafting product lines are a natural fit to augment our already extensive paper crafting offering, and we look forward to working with Inque Boutique customers in the future."

Forty-three years ago a teenage John McDonald was driving a van around Florida selling resin and other products for his father's wholesale business. (Making resin grapes was the industry's first trend.) There weren't any craft stores per se in 1965, but that was the start of John's career in our industry.

And what a career it's been.

Since John was visiting any Florida store remotely interested in this fledgling craft concept, he thought he could rep other companies, too, and applied to Crest Art which at the time was the largest art material distributor in the southeast. Crest Art's sales manager was a guy named David Cunningham.

That began a decades-long relationship through Cunningham Art Products and Plaid. The two of them, along with CFO George Boehm, helped Plaid become one of the most successful companies in the industry's history. Later, after David sold Plaid, they joined forces again with Tom Beckman and bought Back Street, which was later sold. So John started yet another business, Sugarloaf, and later reinvented it as Inque Boutique.

Among John's accomplishments: 1. Instrumental in founding one of the industry's first chains, a franchise operation based in Atlanta called Craft Shack. 2. Changed Craftrends from a Plaid company catalog into a trade magazine that pioneered the use of color. (For more on Craftrends' history, read Business-Wise.) 3. Produced the first craft series on the Lifetime network. 4. Produced the first craft infomercial with Amazing Discoveries and went on to do many more. 5. Was the first ever to have craft products sold on QVC.

The Mar. 3 edition of CLN reported on the Internet following of Kathy Cano-Murillo, the Crafty Chica as an example of the new wave of marketing techniques: "Consider these statistics: by the time the Crafty Chica line was introduced [by Duncan] at the CHA show, Kathy had 10,139 friends on her MySpace page, and her website, craftychica.com, receives 1 to 3 million hits per month. Her October stats were slightly under 3 million hits, and February has averaged 59,000 hits per day."

The line is now in 140 Michaels stores in TX, CA, AR, CO, CN, FL, IL, MA, NY, NJ, NM, NE, NY, OR, WA, and WI. Kathy is touring Michaels stores in Arizona and California in support of the Crafty Chica line of products and writes often about the line on her website and MySpace page. Meanwhile, Michaels issued a press release about the line – highly unusual – which has generated press coverage in a variety of newspapers. The coverage was so extensive that a profile of Kathy in the Arizona Republic was picked up by the Louisville Journal, even though Michaels stores in Kentucky are not (yet) offering the line.

(Comment: In addition to being a good lesson in Internet marketing, it's an example of what can be done when a designer, manufacturer, and retailer work together in a true partnership.)

A consumer show designed to help scrapbook and stamp vendors and retailers sell excess inventory will be held at the Hort/Ag building at the Indianapolis State Fairgrounds Oct. 17-18. This first-of-its-kind show has unique features: A) Companies need not exhibit; the show sponsor, Latte Da Productions, will sell the products for them, at the show and online. B) At least 80% of the products in a booth must be "old" inventory.

"I feel that the overstock/outlet-type show is needed for both the consumers and manufacturers and retailers," said Chris Dunrud, former of head of Midwest Scrapbook Conventions and now president of Latte Da Productions. "The manufacturers were generating new product so fast that the stores could no longer keep up, and now that the consumer spending has slowed considerably, both stores and manufacturers have inventory they need to move."

No figures have been released regarding the number of vendors and retailers who are scheduled to exhibit. For more info, visit www.lattedaproductions.com/save-a-latte.htm; see the vendor paperwork at www.lattedaproductions.com/vendorpaperwork.pdf and the bulk selling program option at www.lattedaproductions.com/bulksellingpackage.pdf. The e-commerce site is www.scrappinoutlet.com and the email is chris@lattedaproductions.com.

A lousy month for most retailers. The effect of the economic stimulus checks has faded, replaced by a six year high in jobless claims. Consumers spent their money on basics such as food and gasoline and shopped at one-stop shopping outlets such as Wal-Mart supercenters and wholesale clubs. According to a preliminary sales tally by Thomson Financial, 12 of the retailers it tracks beat estimates while 19 missed expectations, the Associated Press reported.

Wal-Mart's same-store sales rose 3.0%, lower than analysts' predictions of 3.4%. "With the end of the stimulus checks, we know consumers are spending more cautiously, and we continue to see a pronounced paycheck cycle at the end of the month," Eduardo Castro-Wright, president of Wal-Mart's U.S division, said in a statement. Strong departments were grocery, entertainment, and health/wellness; weak departments were home and apparel. The company forecast only a 1-2% same-store sales gain for August.

Other retailers' same-store sales: BJ's Wholesale Club, +16.7% ... Costco, +10.0% ... Target, -1.2% ... Limited, -5.0% ... Sakes, -5.3% ... Nordstrom, -6.1% ... J.C. Penney, -6.5% ... Kohl's, -10.4% ... Gap, -11.0%.

"While discounters were the biggest beneficiaries of rebate checks, consumers were still spreading the wealth among other retailers," said Rosalind Wells, Chief Economist for the National Retail Federation. "Because most of the rebate checks have already been distributed, retailers will face increased challenges generating sales in the months ahead."

Analysts were not expecting the currently underway back-to-school season to be strong, and location may have a strong influence on the season's success or failure. A new study by the retail consulting company TNS Retail Forward said the only locations seeing an increase in customer traffic are strip shopping centers with at least one discount department store or category superstore or strip malls with supermarket anchors, Marketing Daily reported. Online sales are up, too, as consumers combine/condense shopping trips or shop online.

Hancock has emerged from the long dark tunnel of Chapter 11, and all the creditors are being paid in full, something almost unheard of in modern bankruptcy proceedings. Hancock also secured a $100 million exit financing facility provided by GE Commercial Finance Corporate Lending, and has issued $20 million of secured notes and warrants in connection with a rights offering to certain of its shareholders.

"This is a huge milestone and a very happy day for Hancock Fabrics and all of our associates, customers, business partners, and shareholders," said President/CEO Jane Aggers. "We are extremely pleased to have confirmed a plan of reorganization that provides for the payment in full of all of our creditors. Through this restructuring process we have effectively addressed our real estate portfolio, as well as financial and operational challenges, creating a strong foundation for the future success of Hancock Fabrics. The company now has a stronger balance sheet, cash to fund operations, and a streamlined store portfolio that will allow us to compete successfully in our industry. The rapid and successful restructuring of Hancock Fabrics is a testament to our outstanding associates, supportive suppliers, and professional partners, and we appreciate their hard work and dedication throughout this process."

During the 16-month restructuring process, the company said it designed and implemented a new store prototype and completed 57 store remodels; improved its financial and technology infrastructure; centralized its merchandising, marketing, inventory management, and distribution functions; launched the new www.hancockfabrics.com website, which now provides a platform to increase data-driven marketing/ad programs and to expand the online product offering by 50,000 new products; and has strengthened the management team.

"We are beginning to experience traction in our initiatives and believe that these early successes in conjunction with the ongoing efforts of our associates and management will enable the company to be a competitive player in the specialty retail space," said Sr. VP/CFO Robert Driskell. "Although we still have significant opportunities for improvement, we are emerging as a financially stable company with an improved operational focus which should position us well for future profitable growth."

Hancock's stock continues to be traded "over the counter"; the symbol is HKFI.

EMAIL: CONSUMER SHOWS AND MANUFACTURERS

There's another side to the story of consumers shows doing poorly. ("The recent Rubber Stamp and Scrapbook Expo in Riverside had such a low attendance that it won't return next year.") We did the Original Rubber Stamp Convention (now 27 years old) in Carson, CA (about an hour from Riverside) last month (one week before the Expo). Almost all of the vendors I spoke to did very well. As for JudiKins, we did very well, better than our average over the last 13 years.

Consumer shows are doing fine. Enthusiasts are still attending (but maybe now via carpools). The biggest problem has been rogue promoters creating new shows and holding them on top of existing shows. When JudiKins started 20 years ago, there were four shows nationwide. There are now over 90 that bill themselves as stamp shows. (I can't even count the number of scrapbook shows.)

Next weekend I will be in Cincinnati for Stamp-away (now in its 16th year). It was the first show east of the Mississippi and now we do it every year. The show is put on by a stamp store owner who started it as a promotion for her store. She has classes in her store for several days before and after the show. The show weekend is her best weekend of the year.

Interestingly, when we are one of the top selling companies at the show, we are also one of the top selling stamp companies in her store that weekend. One year early on, the owner decided to make extra money by having her own booth at the show. She bought lots of new stamps from Rubber Stampede (now owned by Delta) for her booth. She set up some tables and put out the stamps with no samples, no make-it take-its and no demos. It flopped.

When done correctly, manufacturers doing retail shows drives traffic to stores. It is the old Hollywood saying, "There is no such thing as negative publicity." One year we made a deal with three stores in Dallas. If we stopped doing the local stamp show they would make up our loss in sales with orders. We stayed away for two years. Not only did we lose all our retail sales, but our wholesale sales in all three stores fell to almost nothing. Out of sight, out of mind! – Rob Bostick, JudiKins

As I read your newsletter, I was thinking about your comments about a simultaneous recession and a fallow period between trends making this period different than past industry downturns.

Another big potential difference between previous downturns is the effect of technology. There are many things people do on the Internet, for no or relatively little cost, that are huge and growing every day: email, researching, studying, job-related work, checking investments, playing games, chatting with friends, etc. Plus, there are DVD's, On Demand tv and movies, and game consuls. The other day I saw a retired gentleman texting a kid in his 20's.

The use of technology is spreading whether anyone likes it or not.

The craft industry is part of the relatively inexpensive leisure-time business segment. But there are other parts of this segment that are not in a fallow period. Just look at the Nintendo Wii sales. I bet a Wii or Play Station, accessories, and a dozen games are about the same amount as many consumers might spend to be involved in painting, scrapbooking, jewelry making, etc.

We are in uncharted waters and, as I have said repeatedly the last few years, retailers and suppliers have not maximized technology on the front end with consumers like we have on the back end with financial data, supply chain communication, etc. – Peter Heinsimer, Westlake Associates/GreenWorks Technology and Design, Inc.

In the previous issue CLN asked why there are fewer and fewer 16-page project books, hundreds of which were once sold in every craft store.

I certainly have noticed the absence. It also seems to me that in the chains, there is less and less emphasis on books of all kinds. This should be a natural market for this kind of book. Did it dry up in the chains because books weren't performing well?

I think this is a shame because books like this spark creativity, which, in turn, get people to buy more product. I think of it as the equivalent of the recipes on the back of the cake mix box. I may not make them, but they do give me ideas.

I would suspect that other people like them as well. So what is the manufacturer to do? They have a good marketing tool in books, but they aren't getting into the consumers' hands.

Would eBooks or even single eProjects sold directly from the manufacturer's site work? Enticing pictures of the projects could be on the website, fulfillment could be automatic, and the customer pays the production cost. For the manufacturer the main cost would be whatever fees are spent on development (i.e., designers) and not on actual production.

If these were eBooks, they could also be sold through other distribution channels, such as independents, or Amazon.

It seems to me that this could be a solution to the problem. – Janet M. Perry, Napa Needlepoint, napaneedlepoint@gmail.com

(Note: An example of downloading – and paying for – a project rather than a book, www.beadingdaily.com offers individual projects for $4.)

1. John McDonald's wife, Dixie, was the ad director at Craftrends when I was editor. Without question, they have better marketing instincts than any other couple I've ever met in the industry. Pretty darn nice folks, too.

2. Kudos to Jane Aggers, CEO of Hancock, and her team for guiding the company out of bankruptcy. Years ago when House of Fabrics emerged from bankruptcy, the CEO vented to me for a half hour about how hard it was to run a business while in bankruptcy. And to my knowledge, Hancock is the only retail chain to emerge from bankruptcy since the bankruptcy law was changed a few years ago. Bombay and Sharper Image couldn't do it.

3. Recently I mentioned that a particular category was up, and a publisher asked me for my source because he wasn't seeing it in his sales. That got me thinking. First, I should have said interest in the category was up. But it might not be reflected in book sales. Most craft enthusiasts have a stash of products – and of books with projects they hope to do some day. When times get tough, rather than buy yet more project books, they use those they already own. Perhaps publishers of hardcover books might feel the pinch of tough economic times more than other types of companies. Maybe it's time for the return of the 16-page, lower-priced project book?

OLYMPICS. Todd Bachman, 62, the U.S. tourist who was murdered in Beijing as the Olympics were opening, was Chair/CEO of Bachman's Floral, Home & Garden in Minneapolis, a 123-year-old gift/floral/garden shop. He was a customer of many industry-related vendors. His wife, Barbara, was stabbed repeatedly and underwent eight hours of surgery. As of CLN's deadline she was in critical but stable condition. The company has a website with the latest info: www.visionsweb.com/ToddBachman/index.asp.

RESEARCH. To help members understand its research and how it applies to their businesses, CHA will host a free research presentation conference call Wed., Sept. 10 from 3-4:30 pm EDT. Participation is limited – first come, first served. To reserve space, email Tara Smith at tsmith@craftandhobby.org and include "Research presentation" in the subject line.

JOB OPENING. Polyform is looking for a Sr. New Products Manager who will identify, develop, and commercialize new programs and products to increase the market in the modeling clay category. For info and sending resumes, email Robbin Bedard at rbedard@polyformproducts.com.

REPS NEEDED. A manufacturer of embellishments for paper crafting needs reps in Northern CA, UT, AZ, CO, WY, KS, Northeast U.S. Email mchiu@creativecharms.com.

PAINTING. Plaid has 12 new instructional two-to-three-minute videos at www.plaidonline.com. Plaid's consumer research indicated that 94% of respondents said videos were important as a means to learn techniques and find inspiration – and nearly 750,000 viewers have watched One Stroke™ learn-to-paint videos with Donna Dewberry on YouTube.

OLYMPICS. CLN reported that marine-life artist Wyland had, with children, painted incredible murals in Beijing to promote environmental awareness. Fredrixฎ Artist Canvas by Tara Materials supplied the canvas, and photos can be found at web.mac.com/barry_diamond/Site_2/Welcome.html.

YARN. Attendance at the recent Knit & Crochet Show in Manchester, NH was surprisingly good, given the higher gas and airline prices, plus horrible weather. Pre-registration was 108% above last year, and 1,000+ registered onsite. The next Knit & Crochet Show is Sept. 12-14 in Portland. Visit www.knitandcrochetshow.com.

SEWING. The new season (#2700) of America Sews with Sue Hausmann will highlight projects to give homes a fresh new look. (Comment: Given the housing/credit slump, consumers should be looking to update their current homes.) The series is produced by Husqvarna Viking and KS Inc. Productions. It uplinks with PBS stations Sept. 28.

NEEDLEPOINT. At the National NeedleArts Assn.'s recent NeedleArts Market in Columbus, OH, the association's Needlepoint Group hosted its traditional Galleria reception, a display of the latest new designs for home decor and fashion – and now the exhibit is online at www.tnna.org.

SIGN OF THE TIMES. China is expected to surpass the U.S. as the world's largest manufacturer this coming year, according to U.S. research firm Global Insight and reported by the Financial Times. China will account for 17% of manufactured products ($11.8 trillion) and the U.S. will make 16%.

MAGAZINES. The Associated Press reported on studies which indicate cash-strapped consumers are cutting back on buying magazines. Newsstand sales of U.S. magazines fell 6.3% in the first half of the year, the Audit Bureau of Circulations told the AP. Overall magazine circulation, including subscription and newsstand sales, was flat at 349.9 million copies. In the second quarter, magazines' ad pages fell 8.2%, according to the Publishers Information Bureau.

SHOWS, I. Although it's only August, hotel rooms for the CHA Winter Show (Jan. 25-28 in Anaheim) are going fast. As of Aug. 6, 2007, 5,046 room nights had been booked. As of Aug. 6, 2008 7,542 room nights had been booked, an increase of 49.5%. Granted, the show is earlier in '09, but the Marriott Courtyard, for example, is already sold out. To reserve rooms, visit www.chashow.org and click on Show Info. ... CHA extended the deadline for sponsoring a workshop at the Winter Show until Aug. 22. To download the form, visit www.chashow.org.

SHOWS. II. The exhibitor prospectus for the NAMTA show (May 7-9 in Louisville) is available. Call 704-892-6244 or visit www.namta.org.

SHOWS, III. CHA has sponsored teleconference calls with members regarding moving the summer show to Orlando and adding a consumer show. To hear a recording of the first call, visit www.craftandhobby.org/_audioconferencecall.

CONGRATS. To Arnold and Mabel Grummer of Arnold Grummer's Paper Making on their 60th wedding anniversary – and Arnold's 85th birthday. Visit www.arnoldgrummer.com and the story of how the company started is at www.arnoldgrummer.com/blog/index.cfm.

CONDOLENCES. To the family of Jean Bourges of Bourges Color. She was very active in NAMTA and a recipient of its Lifetime Achievement award.

QUOTATION. "The level of requests that we're getting right now for price increases is at the highest level that I can remember. We've had to pass along price increases as we've received them, but what's most important is the gap in price between us and our competitors, whether that's Target or Costco or others." – Tom Schoewe, Wal-Mart CEO (Reuters)

DUMB CROOK OF THE MONTH. Police in Niles, OH charged a truck driver for JB Hunt Trucking with stealing merchandise he was to deliver to area Jo-Ann stores, Vindy.com reported. The driver and his wife and parents then proceeded to hold a yard sale with the stolen merchandise. Police found product ID numbers on sewing machines, fabric, and seasonal items that matched those missing from the stores’ inventories. The entire family has been arrested.

STORES. Hobby Lobby expands to another state. It will open its first store in New York state on Sept. 8 in Webster.

PEOPLE Brian Maciak, former VP/Assistant General Counsel for Michaels, was named VP/General Counsel for Pinnacle, an international real estate firm. ... Jeff Nerland resigned as Hancock's interim Exec VP. He had been hired to help guide the company through the bankruptcy. Robert Driskell was later hired as CFO.

STOCKS. A.C. Moore: $8.08, up $0.01 ... Jo-Ann: $24.15, up $2.38 ... Wal-Mart: $59.37, up $1.62 ... Dow Jones: 11,659.90, up 2.9%. (Note: All changes in price are since 7/25 and are exclusive of dividends.)

To see the latest listings by the only personnel recruitment firm specializing in our industry, click on Jobs in the left-hand column or click HERE.

Law of Mechanical Repair: After your hands become coated with grease, your nose will begin to itch and you'll have to pee.

Law of Gravity: Any tool, when dropped, will roll to the least accessible corner.

Law of Probability: The probability of being watched is directly proportional to the stupidity of your act.

Law of Random Numbers: If you dial a wrong number, you never get a busy signal and someone always answers.

Law of the Alibi: If you tell the boss you were late for work because you had a flat tire, the very next morning you will have a flat tire.

Variation Law: If you change lines (or traffic lanes), the one you were in will always move faster than the one you are in now.

Law of the Bath: When the body is fully immersed in water, the telephone rings.

Law of Close Encounters: The probability of meeting someone you know increases dramatically when you are with someone you don't want to be seen with.

Law of the Result: When you try to prove to someone that a machine won't work, it will.

 REMINDERS

1. If you want a hard-copy of this issue, click on "Printer Friendly version."

2. If your company is a paid subscriber, everyone in the main office is welcome to register, free. Just click on "Work for a paid subscriber? Click Here to register" (center column, near the top).

3. If you ever have trouble with your password, click on "Trouble with your password" in the right-hand column of the main page. The computer will then email the correct information to you.

4. Creative Leisure News is published the first and third Mondays of each month. Consequently, your next issue will be Monday, September 1.

[ Home ] [ Business-Wise ] [ Kate's Collage ] [ "Vinny Da Vendor" ] [ "Benny Da Buyer" ] [ Newsbriefs ] [ Memory, Paper & Stamps ] [ Category Reports ] [ Designing Perspectives ] [ Subscribe to CLN ] [ Legal Q & A ] [ Scene & Heard ] [ Jobs ] [ Tech Topics ] [ Industry Research ] [ Store Layout/Design Tips ]

©Copyright 2008 by Creative Leisure Communications
(Reproduction or re-transmission without permission is prohibited.)