Michaels crafts future with superior mix, service - Company Profile

Discount Store News, Jan 16, 1995 by Dawn Wilensky

IRVING, TEXAS -- Michaels Stores is coming off a banner year characterized by strategic acquisitions, store openings and a stellar financial performance.

And this category killer craft chain is not resting on its laurels as it pursues market dominance through a broad merchandise assortment and superior customer service.

"Our business is not as much items as it is ideas," said Jack Bush, president and chief operating officer of the power retailer since 1991. "We want to titillate the creativity of our customers."

The chain will definitely have this opportunity due to its acquisition of 100 Leewards stores last May. This acquisition has paved the way for the chain to enter markets in the Northeast and Midwest, where it had little or no penetration. It also helped round out several markets like California, where the chain has between 78 and 80 stores, its highest store concentration.

Building a presence in important geographic markets is key to Michaels' strategy. When the chain acquired Oregon Craft & Floral Supply last March, it was to fill a void in Oregon. When H&H Craft & Floral was taken into the fold during the same time frame, it helped round out the Southern California market. The same held true for its April acquisition of Seattle-based Treasure House where the chain had virtually no presence in the Northwest or in Washington.

The company currently owns and operates 380 stores in 41 states and Canada. Last year the company opened 32 new stores, including five in Toronto, bringing store count in Canada to eight. One store was also added to Craft & Floral Warehouse, a warehouse style concept Michaels' launched in October 1993 (see story,page 21).

This year, the chain will focus its expansion efforts in the Northeast with between 55 and 60 new stores and expand its presence into new markets like Puerto Rico in the spring and Alaska nest fall.

The chain plans to keep a consistent merchandising mix across the board except where local regulations dictate otherwise.

In Canada, stringent legal and package labeling requirements have forced Michaels to buy most of its products from Canadian manufacturers.

Despite this, the chain will continue to maintain a well-defined assortment of about 40,000 skus in its remaining markets, a weakness rectified several years ago. "At one time, our store managers operated almost independently. We made an effort to centralize the business more than in the past," Bush said.

As a result of this move, the vendor base declined from 4,000 to 1,000 and sku count became much more manageable. This enabled the chain to develop a planogram for all its stores highlighting key categories like floral, party and seasonal goods while also staying committed to picture framing materials and services and hobby and art supplies.

Straying from this commitment would only be done to take advantage of micromarketing, identified by the chain as an effective way to reflect the local tastes of the area. Bush added, "10% of our business is the result of micromarketing. We require our managers to keep up with the local trends."

Keeping up is a feat in itself as the crafts business continues to prosper. "The industry has a compounded growth rate of 14% in the last five years," according to Bush. "There are a lot more people participating not only on the retailer side but on the manufacturer side as well."

The good news is that Michaels is holding its own and has recently posted record third quarter results. Net income for the period grew by 61% to $7.8 million compared with $4.8 million during the prior-year period. Earnings per share rose 29% to 36 cents from 28 cents last year.

Sales for the aforementioned period increased 82% to $283.1 million from $155.8 million last year. Same store sales for the quarter were up 10% chainwide and 7% for Michaels stores excluding the former Leewards stores.

For the nine months ended Oct. 30, 1994, earnings rose 45% to $17 million compared to $12 million during the corresponding period. Bush credits an aggressive customer service approach for much of the impetus behind the chain's success.

"We want to be the most intensive customer service company in the United States," said Kristen Magnuson, vice president, finance and business planning.

Customer service is truly the life blood of the organization. Bush said, "We put some teeth into it because we base bonuses of our associates and store managers on the results of programs like the Mystery Shopper."

The Mystery Shopper program is conducted by an independent organization, which both phones and visits the stores five times a year (twice in the last quarter) and ranks each on a laundry list of criteria like "how fast they were greeted," "warm and friendly service," "speed of checkout." and "the 10-ft. greeting rule."

Comment cards also rate customer service. The company has devoted a staff dedicated to reading approximately 50,000 cards received last year. Customer service has also been a top priority in realigning some of its recent acquisitions.