Michaels expands into wholesale floral business

DSN Retailing Today, May 22, 2000 by Debbie Howell

IRVING, TEXAS -- Michaels Stores' purchase of a one-store wholesale floral supply business in Dallas will serve as a testing ground for the craft retailer's evaluation of a new growth vehicle.

The company purchased Star Wholesale Florist earlier this month from Celebrity Inc. for an undisclosed sum. Star, which generated $5.1 million in sales last year, sells artificial floral supplies and accessories to florists, gift stores and other retailers in Dallas-area markets.

Michaels will use the acquisition to develop a wholesale business concept dealing with upscale, fashion forward products targeting florists, interior designers, event planners and commercial businesses. "We will use this one-store operation as a platform to identify and develop a successful model, positioning us for future growth in the wholesale sector," said ceo Michael Rouleau.

Cfo Bryan DeCordova said Star Wholesale will be operated separately from the company's retail concepts--587 Michaels and 98 Aaron Brothers stores.

If the venture proves successful, the company would later either fund an expansion or make further related acquisitions. "It's really intended to go after a different customer," DeCordova said. "We're looking for another growth vehicle."

Dennis Telzrow, an analyst with investment firm Hoak Breedlove Wesnewski of Dallas, said Michaels' move to test a wholesale operation on a small scale is a prudent move. "I think that's an opportunity that could be interesting, and they're doing it the right way by buying an ongoing business. I think they'll spend some time analyzing it and working on it," Telzrow added.

Star carries about 15,000 skus of artificial flowers, ficus trees and plants, seasonal goods and other decorative accessories such as containers and ribbon available for wholesale purchase only. Celebrity retained its core wholesale business in Tyler, Texas.

While Star won't support Michaels' retail stores in purchasing of floral goods, DeCordova said the company does expect to benefit from synergies between the businesses. Product sold in Michaels Stores, for example, could be tested in the wholesale format.

The purchase of Star is actually the second foray by the craft retailer in wholesaling. For several years, Michaels has operated a store in Los Angeles that is a combination retail-wholesale concept.