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Challenges, problems, and triumphs -- from a manufacturer's perspective.

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Positive News about the Industry

What they want/need from the industry.

by Staff Report (April 20, 2009)

Recently a vendor called CLN looking for good news he could show his banker. Here is a collection of articles taken from the last six months of CLN. (Note: Readers are welcome to use any of this in negotiations with lenders. Readers are also welcome to give CLN's contact info to any lender wishing to learn more about the state of the industry: Mike Hartnett, 309-925-5593; mike@clnonline.com. Readers may also wish to cite CHA's Attitude & Usage study.)

From the April 20 edition:


"Despite the current economic crisis, some retailers continue to thrive," said National Retail Federation President/CEO Tracy Mullin. "Companies who choose to reinvest in their employees will be rewarded with higher morale, lower turnover, and, ultimately, a stronger company."

A shining example is Hobby Lobby, which increased the minimum wage of full-time hourly employees to $10/hour, effective immediately. That's 52% higher than the national minimum wage of $6.55. The increase and other pay raises for full-time hourly employees earning up to $13/hour will raise the pay of 6,900+ employees, some by up to nearly $600/month.

"Our employees are the backbone of our company, and we believe that giving them the opportunity to share in our success is the right thing to do," said CEO/Founder David Green. "This is part of our continuing efforts to reward our employees for their hard work and integrate them into the growth of our company."

When gas prices increased, HL gave employees a permanent $0.25/hour raise to help offset cost-of-living increases. This year HL expects to open about 25 stores.

"This minimum wage increase is the most exciting initiative Ive been involved with since I started the company," Green said. "We believe the success of Hobby Lobby is directly attributable to our outstanding employees and our strong corporate values, which are based on Biblical principles, including integrity, service to others, and giving back to those in need."


For the fiscal year ended Jan. 31, net sales were essentially flat at $276.4 million, but same-store sales rose 2.1%. Operating income improved to $3.1 million, up $7.1 million from fiscal 2007.

There was a net loss of $12.4 million ($0.65/share), down from $33.3 million $1.76) a year ago. The $12.4 million loss $8.2 million of reorganization expenses and $2.2 million of interest expense related to bankruptcy claims. EBITDA (cash flow) increased $6.6 million to $9.7 million. Debt is down approximately $25.8 million since emerging from bankruptcy.

The gross margin was 43.3%, up from 42.6% of the prior year. Selling, general and administrative expenses decreased to $112.1 million (40.6% of sales) from $117.8 million (42.6%), due primarily by a $6.2 million curtailment gain provided by the changes made to company retirement programs in 2008.

President/CEO Jane Aggers said, "We have made significant progress during 2008 in our effort to position Hancock for the future. The results of these efforts are demonstrated by our positive sales growth, significant increase in EBITDA, and considerable reduction in borrowings since we emerged [from bankruptcy] all of which have continued in 2009. We are optimistic that we can continue to improve our operating results, despite the challenging economic environment."

During 2008, Hancock opened 1 store, closed 7, relocated 4, and remodeled 63. The current store count is 263.

The board of directors also extended CEO Jane Aggers' contract another 30 months with a base salary of $450,000.

From the April 6 edition:


The fourth-quarter sales figures for Michaels, Jo-Ann, and A.C. Moore, as reported in the last issue of CLN, were gloomy. Same-store sales are considered the most accurate indication of how a chain is doing: Jo-Ann, -2.9%; Michaels, -5.6%; and A.C. Moore, -8.7%. Meanwhile, the latest quarterly update of CHA's Attitude & Usage Study, the closest thing we have to an accurate size of industry study, indicated sales were down.

But the picture painted by these numbers may be deceptive. Consider:

1. Sales were down in large part because custom framing, perhaps the highest-ticket category in our stores, was down, as were sales of seasonal items. But in a real sense, that's not us, the folks who make, import, distribute, and retail craft, scrapbooking, knitting, sewing, wearable-art, painting, kids crafts, and DIY home dec supplies. In fact, the sales of our products appear to be equal to or ahead of last year. But those are lower-cost items and their sales could not overcome the decline of more expensive custom framing business.

2. Enthusiasts aren't buying as much because they already have so much ? paper, yarn, beads, etc. They're still doing their thing, and eventually they will need to replenish their stash.

3. Hobby Lobby (see below) reported increased sales, and we're hearing reports that Wal-Mart is pleased with its craft sales.

4. I may be a cockeyed optimist, but it does appear the economy may have hit bottom, or close to it. For months now, consumers and businesses have hid under a rock as the economy tumbled down around us. The dust is beginning to settle, and as we crawl out from our storm cellars, we'll see the sun is still shining and the economy is in a recession, not a depression.

5. History tells us the industry does just fine in a recession. In fact, we're already performing better than the economy in general. The Commerce Department just announced the Gross National Product declined 6.3% in the fourth quarter, the worst drop since 1982. We had a tough quarter, but not that tough.


In a speech to Samford University business students, Hobby Lobby Founder/CEO David Green reported same-store sales are up 5% this year and the company has plans to open 25-30 new stores, the Birmingham (AL) News reported. Annual sales for Hobby Lobby and its subsidiaries have reached $2 billion, slightly higher than the $1.9 billion reported by Jo-Ann.

Green attributed the company's success to a) following Biblical principles; b) a hands-on approach to merchandising: he spends about 80% of his time with HL's buyers; and c) empowering employees. "We feel we need to make entrepreneurs out of all our people, from our store managers to our buyers."

An important lesson Green shared with the students (one many people in the industry should learn): explaining the difference between a business person and a merchant: a merchant is more concerned with discovering customer's needs instead of crunching numbers. "A lot of times, if you're not careful, you let the numbers drive decisions," the Birmingham News reported.

From the March 2 edition:


The recession is causing changes in consumer behavior, changes that are helping our industry:

1. "Shopping Down." Nordstrom's clients are moving to J.C. Penney, whose customers are shopping at Walmart, which is losing some sales to dollar stores. Diners are eschewing high-end restaurants for Appleby's, which is losing business to McDonald's. Retail expert Paco Underhill, the author of Why We Buy: The Science of Shopping, agrees. "The demographic profile of people willing to shop down is expanding," he told Time magazine.

The same trend is evident in how consumers are spending their leisure time. "Staycations" grew during the gas price hikes last summer and have continued as the economy worsened. People still want to "do" interesting things, they're simply more likely to look for activities in their homes. That's us, folks.

2. Apparel. Underhill, who was the keynote speaker at the CHA (then HIA) Winter Show a few years ago, sees another trend: "There's a willingness to buy used, rather than necessarily buy new." He cites the increase in vintage clothing stores, sales on eBay, and even traffic at Goodwill re-sale shops.

Yet our industry offers a wide variety of ways to transform apparel into something new. Consumers don't have to buy any clothing at all, simply transform what they already own.

Is our business great? No, but we're in a much better position to weather the storm than most retail industries.

From the February 16 edition:


There are signs that consumers' interest in our industry is growing, if tv ratings are any indication. "Our series have experienced anywhere from a 10% to a 41% increase in the last six months," reports Kathie Stull, head of KS Inc. Productions which produces numerous tv series for PBS stations.

"One factor is bandwidth," Kathie explains. "As stations convert from analog to digital, they can put multiple stations in the same band width. This is leading them to do more specialty channel series such as how-to, or programs specific to a certain category.

"Hands On was the most dramatic increase," Kathie says, "because the 7-12 age group is a difficult one to market to on TV, and many stations did not program specifically to them; but when they added a kids channel, we got additional carriage. We have also seen increased web traffic; not quite as dramatic an increase, but anywhere from 8 to 15% in the last quarter. Also so far in 2009, a KS, Inc series is airing in all 50 states, 100% of the top 25 markets, and 94% of the top 100; today 92% of the country is airing one or more of our shows."

From the February 2 edition:

Wedbush Morgan upgraded Jo-Ann stock from Hold to Buy, saying the company should benefit from market-share gains in sewing, global sourcing, and favorable real estate trends. ...

From the January 19 edition:


It appears our industry performed significantly better in December than most retail operations. The National Retail Federation (NRF) reported "hobby" stores' sales rose 0.7%, while overall retail sales (excluding automobiles, gas stations, and restaurants) fell 2.2% over last year, and November sales were revised down to a 3.4% decline.

From the January 5 edition:


CLN had stopped counting the number of newspaper articles and tv stations that reported strong sales in our industry's stores. Now the New York Times has joined the group with a Dec. 22 report citing a variety of sources:

Scrap, a craft store in Portland, OR, reported November sales were 33% higher.

CHA's Victor Domine: "With the recession, people are looking for ways to save money, and doctors are recommending it as a major form of stress relief."

CEO Brian Cornell said Michaels' sales of small-ticket craft supplies had increased sharply, particularly in jewelry-making, cake decorating/baked goods, scrapbooks, and wearable art. (However, seasonal and home dec products were not selling well.)

Company spokesperson Lisa Greb said Jo-Ann's sewing and craft sales had increased in this fourth quarter.

Stampingly Yours, a scrapbooking store in Clifton, NJ, reported many new customers in recent months.

Consumers are buying supplies ? and finished crafts, too. The article reported sales of handmade crafts on Etsy.com are up 34%.

(Comment: The article is surely a boon to the industry; the next day a Motley Fool writer recommended Jo-Ann simply on the basis of the Times article. However, the article did contain a few "facts" that made CLN say, "Huh?" It put the size of the "craft sector" at $5.9 billion, and quoted an analyst at the research firm IBISWorld as saying, "The number of [craft] establishments is growing.")

From the December 15, 2008 edition:


I have never seen so much media publicity about consumers making Christmas gifts. Dow Jones News' report on Black Friday sales was typical: "Old-fashioned arts and crafts are also seeing significant demand, as consumers shop for materials they can use to make gifts or to give do-it-yourself kits as presents."

You can add articles in Forbes and newspapers across the continent, from Bangor, ME and Frederick, MD to Abilene, TX, Salt Lake City, and Calgary. The Bangor Daily News quoted local yarn, needlework, quilt, and bead shop owners who report increased sales because more consumers want to make gifts. The Birmingham (AL) News quoted Hollie Mann, store manager for the Hobby Lobby in Hoover: "It seems like the craft goods sold faster than I can ever remember selling before."

It reminds me of the media hype a few years ago when the Craft Yarn Council of America's public relations efforts resulted in an article in In Style magazine showing movie stars knitting between takes on movie sets. That set off a wave of articles ? so many, they weren't news after a while. (Who knew In Style was so influential with other magazines?) Thanks to that media attention, knitting became the "in" thing to do.

Now I think we're seeing frugality as the new "in" thing ? a trend that will last long after Christmas has come and gone. The "I made it myself" benefit of crafts will be even stronger than ever. We can profit if we show consumers how crafts can save them money and make them feel good about it. Some examples:

Want a new dress for a New Year's party? Take your old black dress and spruce it up with a new knitted scarf or a great handmade necklace. ... Instead of buying mom another sweater for Mother's Day, give her a new scrapbook or a photo mug of her grandkids. ... Create a new outfit with old clothes and fabric paint. ... Don't buy a new couch. Spruce up the old one by making new pillows and an afghan. ... Forget Hallmark; create your cards. ... Make bath salts and soap. The list is endless.... But will our stores show consumers crafty, money-saving ideas, or will they simply present rack after rack of stuff and say, "You figure out what to do."

Retail analyst Marshal Cohen told CNNMoney.com, "If you're selling something unique or something that consumers perceive to have value for them, they will still buy."

From the December 1, 3008 edition:


Our industry may have fared better than retailing in general, due to an unprecedented amount of publicity. Whether this is a genuine consumer trend, or merely the media finally realizing many consumers make Christmas gifts remains to be seen. Some examples:

1. "The shaky economy scared shoppers away from retail stores before Thanksgiving, but the lines at Bellingham's Jo-Ann Fabric and Craft store were winding and long on a recent day. Whether it's the desire to save money or return to the simplicity of handmade goods, many shoppers are shunning store-bought goods for crafts to satisfy the people on their lists this year," reported the Bellingham (WA) Herald.

2. A feature on Black Friday for NBC's Today Show last week reported sales in craft stores were up because of an increase in consumers making gifts this season.

3. The Chico (CA) Enterprise Record reported Emmy Willis, manager of the local Jo-Ann store, is seeing increased traffic. "Sales are up," said Willis. "We're hearing they're making gifts instead of buying."

4. The Watertown (WI) Daily Times reported great grandmother Pat Joers was scooping up fleece at $2.99/yd. so she could make 10 shawls for Christmas presents.

5. In its article on the subject, the Connecticut Post interviewed three 18-year-olds in a Jo-Ann store who were planning to make teddy bears, ornaments, and tea cups as Christmas presents. The article cited Janet Kemp, owner of Janet's Fine Yarns, who said "Scarves, hats, mittens and socks, what's fast and easy" are popular gifts. Also quoted were Steve Berger, CHA's Chief Governance Officer; the recent Michaels survey reported earlier in CLN; and others.

6. The Morning News (AR) article quoted a Diane Dunken who said she was spending 30%-40% less this year, but she was standing in front of a Hobby Lobby.

From the November, 17, 2008 edition:


The Associated Press, which distributes articles to hundreds of newspapers and other media, reported on the trend of consumers making Christmas gifts, or at least buying handmade items: "While the movement to buy and receive handmade gifts was already growing, it is getting an extra boost from the economic downturn that turned into a full-fledged meltdown this fall."

"The handmade and craft movement, encouraged by an online coalition of do-it-yourselfers, is half a concerted effort to save money and half a desire to shun the in-your-face consumerism that some people see as having led to a nation that got used to living beyond its means," the AP reported. "Whatever the reason, observers say it's gaining steam."

The AP cited http://www.buyhandmade.org where thousands of people have pledged to give only items they've made themselves or handmade items that they've purchased. The article reported Etsy.com's sales thus far this year are $64.5 million. In all of 2007 sales were $26 million. The article also cited a spokesperson for Jo-Ann, whose holiday slogan is "Let's Make Christmas" and quoted Michaels' CEO Brian Cornell. CLN reported in the previous issue that Michaels launched www.wherecreativityhappens.com for the making-gifts trend.

But the AP included a cautionary note from market analysts, citing the disappointing third-quarter sales results at Jo-Ann and A.C. Moore (see articles, below).

From the November 3, 2008 edition:


An online poll conducted for Michaels indicates more holiday shoppers plan to make gifts while cutting back spending on some of the season's traditionally most popular categories such as electronics, toys, and travel.

According to the survey, 58% of the 1000+ respondents stated they were more likely to make gifts this year versus last year, and 41% said handmade gifts were the best use of their holiday shopping dollars. Meanwhile, 59% said they were either likely or very likely to reduce spending on travel, 57% said they would spend less on electronics, and 41% would spend less on toys. (Note: Spending less on electronics, toys, etc., is consistent with other surveys.)

"Clearly, our customers are more likely to enjoy their holidays at home and are looking for ideas for giving personalized gifts from the heart," said Michaels' Chief Marketing Officer Stuart Aitken. "We are making sure that we provide inspiration and ideas to help our customers have a wonderful, festive holiday on any budget."

Jo-Ann is optimistic, too. District Manager Robert Lynn told the Emerald Coast, "We do not think the economy is going to slow us down. "The kind of products we sell will be in high demand, because people can make warm, homemade gifts with what we sell and that's what we specialize in."

Yesterday Michaels launched a holiday gift and decor idea website at http://WhereCreativityHappens.com that will feature a series of how-to videos with Michaels' creative expert Jo Pearson. Throughout holiday season, Michaels stores will also host free weekly holiday workshops where customers can work alongside Michaels' staff to make wreaths, centerpieces, gift baskets, ornaments, etc.



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Vinny's Recent Columns...
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