Craft industry implemented strong 1992 sales gains - Discount Store News Annual Discount Industry Report; Part 1: Chain Analysis - Industry Overview

Discount Store News, July 5, 1993

The nation's top crafts retailers assembled a strong front in 1992, producing sales of nearly $3 billion, an increase of 18.6% from 1991.

The largest increase recorded for the year was at Hobby Lobby, up 61.3% to $129 million, with an increase of 14 new stores. The lone decline for the 12-chain census was recorded at Zaks. No. 12 on DSN's craft list, Zaks' sales plunged 18.8% in 1991 to $26 million. [TABULAR DATA OMITTED]

Zaks, which was acquired by Regency International, Costa Mesa, Calif., earlier this year, will change its mix to include closeout and variety merchandise, said Steve Alexander, chairman. Alexander said he expects the company to be profitable by year end, and projects income of $1.5 million for 1993.

Despite Zaks decline, the crafts industry was one of the largest sales gainers during 1992. The overall strength of the crafts business helped to launch the category onto DSN's Top 200 list of discounters for the first time.

In past years, craft chains were included in DSN's general census report on specific industries but not included among the nation's top discount store chains.

Fabri-Centers of America, last year No. 2 on the list behind House of Fabrics, surged ahead to the No. 1 spot this year on a 30.2% sales gain, to $574 million. House of Fabrics, with $558 million in 1992 sales, recorded a 13.2% sales gain.

Fabri-Centers of America became the 56th largest chain on DSN's Top 200 list in 1992.

Pulling down House of Fabrics this year was a 1.1% decline in its same store sales. The annual sales increase reported by House of Fabrics was due entirely to the inclusion of a full year of sales at the Fabricland stores (acquired in 1991) compared with only six months of sales from these stores during 1991. Operating income dropped to $15.5 million from $37.2 million.

On the positive side, store expansion resulted in significant sales gains for most craft retailers, but so did comparable store sales growth:

* Amber's reported same store sales for the year were up 8%. Operating income nearly doubled, reaching $4.1 million, compared to $2.3 million for 1991.

* Fabri-Centers reported same store sales increases of 8% for the year. However, operating profit slipped to $5.2 million from $18.1 million for the year.

* Michaels' same store sales increased 7.4% and operating income jumped to $34.3 million from $25.6 million.

* Rag Shops posted same store sales increases of 14.9% for the year ended August 1992. Operating income climbed to $4.9 million from $4.0 million.

The strength of the crafts business has prevented Rag Shops from falling victim to the declining sales and profits of fabric-oriented retailers. Sales of crafts at Rag Shops during the year 1990, 1991 and 1992 rose steadily from 57.3% to 58.7% to 64.2%. Regarding crafts, management noted that, "We see a continued growth in this area and the company will continu to work towards changing its presentation of merchandise to reflect this shift in sales," according to its 10K report.

At Michaels, profit growth was due in part to a 1.2% improvement in gross margins to 34.4%. Interest costs were nearly eliminated from the proceeds of its $61 million equity financing to repay bank debt.

Marketing efforts were greatly intensified with the introduction of Michaels Arts & Crafts magazine which, priced at $2.95, has been among the chain's top-selling magazines. Michaels Kids' Club--a way to keep children busy while their mother shops the store--was undertaken in May 1992 and now has 175,000 members. Michaels plans to open its first store in Canada in 1993.

Ben Franklin Crafts, which includes company-owned and franchised craft chains, has implemented guidelines for royalty payments by franchisors and expects that this alone will beef-up its bottom line in the years ahead. The weekly royalty fee, according to company president Dale Ward, will be 2.5% of the store's retail sales. This does not include an initial fee of $24,000 nor any advertising or area development fees.

Leewards, which struggled with cash flow problems at the start of '92 due to an IPO that was never completed, managed to be profitable in '92. Last month it completed the issuance of $10 million in preferred stock to fund store openings.