Craft and hobby retailers, for the most part, have seen positive sales results during the pandemic, which has spurred consumers to try new DIY pastimes and/or renew their interest in past creative hobbies. Crafts and DIY activities had already been on the upswing for some time before the crisis began, thanks in part to the Maker trend, which has boosted demand for supplies from both amateurs and a growing pool of professionals (e.g., Etsy sellers).
Results of individual arts and crafts chains have varied throughout that period, depending on their circumstances. These retailers operate in a competitive market consisting of not only the major specialty chains (e.g., Michaels, Joann, and Hobby Lobby in the U.S.) but also mass merchants, regional and mom-and-pop specialists, and online purveyors including both craft supply outlets and generalists such as Amazon.
Against that backdrop, three arts and crafts retailers announced significant financial steps last week as they try to position themselves for success (or survival) post-pandemic:
- Michaels said that it expects to go private through a $5 billion deal with Apollo Global Management; other bidders have a 25-day window to make offers for the 1,275-store operator. The company’s full-year 2020 financial results, announced on the same day, showed net sales increased 3.9% year-on-year, from $5.072 billion in 2019 to $5.271 billion last year, while net income increased nearly 8.2%, from $272.6 million to $294.9 million. Comparable store sales grew 4.8%, despite store closures in some states in the early months of the pandemic. In late 2019, Michaels took over 40 locations and purchased the intellectual property of a formerly powerful regional competitor, A.C. Moore, which had 145 stores at the time of its demise.
- Joann Inc., which was taken private by equity firm Leonard Green & Partners in 2011, filed for an initial public offering, with plans to list shares on the NASDAQ exchange. The 857-store chain experienced flat results in 2018 and 2019, but at the time of the filing reported sales growth of 38% since May 2020, thanks in part to the renewed interest in crafting and hobbies, as well as technology improvements the company was making pre-pandemic. Joann differentiates itself from its main competitors, Michaels and Hobby Lobby, by its strong position in sewing and fabrics, which is the category where its roots lie.
- The 158-store chain Paper Source, owned since 2013 by private equity firm Investcorp International, said it had filed for bankruptcy and would try to sell itself. A stalking horse bid by its lenders, led by MidCap Financial (managed by Michaels buyer Apollo), was on the table. This chain’s situation differs from the two above in that, while it sells paper and other materials for scrapbooking, card making, crafting, and other paper arts, it also carries greeting cards, gifts, party goods, and custom wedding invitations, none of which have been flourishing during the pandemic. Paper Source had been growing before the crisis and boosted its store count by 20% when it took over 30 locations from competitor Papyrus, a greeting card specialist that went out of business in early 2020.
Overall, the home crafting market is pegged at more than $40 billion. It should be noted that all three of these chains are frequently involved in collaborations with licensed properties for crafting kits, supplies, fabric and card collections, and the like.
A heads-up that Raugust Communications’ monthly e-newsletter comes out next Tuesday, March 16. Both the Topic of the Month and the Datapoint research spotlight will provide some insights, from different angles, on how industries and companies connected to the licensing business fared in 2020. Sign up here if you are not yet a subscriber to this free publication.
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