Hobby Lobby's heavenly ascension

Discount Store News, Jan 24, 2000 by Debbie Howell

Surely there's more to running a 212-store chain than divine intervention. Yet ask David Green, ceo of Hobby Lobby, what's made his chain successful and he'll tell you it all stems from his strong Christian faith.

However, the religion of retail can't run on faith alone. Since the chain's founding in 1972, hard work has played a significant role in making Hobby Lobby one of the best-kept secrets in the $10 billion arts and crafts retail industry and has led to the creation of a chain that breaks many of the usual retail rules while remaining highly profitable.

Some industry analysts attribute Hobby Lobby's good fortune to its wide range of manufacturing subsidiaries that make everything from candles to unfinished wood crafts, while others argue that astute buying practices, diversification beyond retail and creative merchandising have given Hobby Lobby its edge.

"They are an anomaly," said Susan Brandt, assistant executive director of the Hobby Industry Association. "[Green] has diversified in so many ways that even if one [division] goes sour, the impact on the bottom line is not going to be substantial."

Hobby Lobby Stores, which evolved from a miniature picture frame company Green started in a garage 30 years ago, has expanded into more than a half dozen separate subsidiaries operated primarily by members of Green's family. Besides the flagship Hobby Lobby Creative Centers, other company-owned retail and manufacturing subsidiaries include: Mardel, a 15-store Christian materials, office supplies and educational products retailer; Worldwood, a manufacturer of frames, wood decor products, T-shirts and sweatshirts, potpourri, candles and store fixtures; Greco Frame & Supply, a custom frame and framed art manufacturer; Crafts, ETC!, a wholesaler of arts and crafts products; and Basket Market, a bulk sales retail store. The company also operates its own domestic real estate, construction and advertising divisions, as well as a sourcing and buying office based in the Philippine Islands.

Green estimated that the craft chain's sister companies generated $200 million in sales for the fiscal year ended Dec. 31, 1999, while Hobby Lobby stores brought in $800 million. About 90% of the product generated by the company's manufacturing entities support its retail stores.

Sales at Hobby Lobby stores grew by 20.3% from $665 million the prior year, Green said. The average store generates about $100 in sales per square foot and $4.2 million annually.

Same-store sales were expected to increase 4% for 1999 vs. 7.5% the prior year, said Green, who attributed the lower increase to the retailer's decision to close more stores on Sunday, in keeping with the company's religious principles. Presently, about 70% of the stores are closed on Sunday, and Green plans to expand that tradition to all stores by late summer 2000. Green explained that his company is driven by principles beyond increasing profits.

"We just feel like when you make decisions, you don't think about the consequences. If it's right, the consequences will take care of themselves," Green said.

Although Hobby Lobby does not release its earnings, Green said the chain is "very profitable." Of specialty crafts retailers, Hobby Lobby is the No. 3 player in the nation in sales, coming in behind industry leader Michaels Stores' $1.6 billion in sales and Jo-Ann Stores' $1.2 billion for the fiscal year ended Jan. 30, 1999. Whereas Michaels operates small stores in prime retail locations, Hobby Lobby's stores are relatively large--twice as big as Michaels' units--and are often located in lower rent, second-generation buildings, such as former Wal-Mart sites.

"We rehab those [locations] and therefore we're able to give our customers wider aisles and a larger store," Green said.

Stores range in size from 35,000 sq. ft. to 75,000 sq. ft., with the average store about 57,000 sq. ft. In addition to craft supplies, the stores focus heavily on home accents, seasonal and floral products-- the four strongest departments in sales volume. Each store carries roughly 70,000 items, about 30,000 of which are seasonal and home accents merchandise.

Offering a generally wider selection of merchandise than other retailers at very competitive prices is what sets Hobby Lobby apart, Green said. That's due to the company's value-oriented buying strategy and ability to make its own product--about 10% of store merchandise is made by sister companies.

Home accents, added three years ago, has become the chain's third strongest category. Items such as oriental and antique furniture, lamps, decorative glass and candle holders are merchandised prominently in Hobby Lobby foyers and in the front center of stores that follow the prototype. Accents also can be found on color-coordinated or themed display tables in the store's racetrack.

Hobby Lobby pays extra attention to merchandising such goods, building all of its own fixtures at its mammoth manufacturing facility and corporate headquarters in Oklahoma City.