On the supply side: Former Walmart and Sam’s Club manager discusses Michaels turnaround

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Arts and crafts retailer Michaels Stores Inc. had lost its way by the time Ashley Buchanan took the reins as CEO in January 2020. Her job to turn around the Texas-based retailer has become more complicated thanks to COVID-19.

Buchanan, a former Walmart and Sam’s Club executive in Bentonville, recently spoke at the Texas A&M Center for Retailing Studies summit in Dallas. He said he was happy at Walmart and Sam’s Club and raising his family in Northwest Arkansas when Michaels came to call him. But the idea of ​​returning to his country of origin had a certain appeal, as did the management of a turnaround at the small specialist retailer.

Two weeks after starting his CEO role, Buchanan said he called his first COVID meeting as he watched it spread across Asia and Europe. In the fall of 2019, Buchanan said he had read a novel about the 1918 Spanish flu pandemic, so he felt the need to act early. He said he knew omnichannel would become more important even in the practical craft space, but he had no idea how quickly arts and crafts would take off once consumers stayed behind. at home.

At the start of the April 2020 pandemic, NPD Group reported a 70% increase in sales of arts and crafts, especially in craft kits and reusable compounds. Increased consumer interest continued throughout 2020, with indexed Google search volumes for terms such as ‘knitting’, ’embroidery’ and ‘crochet’ surpassing 6%, 12% and 18% respectively. the year before, according to Google Trends.

In 2021, the most prominent players began to focus on social media strategies and develop their ad targeting strategies to appeal to casual artisans.

“I believe the crafts sector will remain larger than it was before the pandemic,” said Neil Saunders, managing director of retail research agency GlobalData Retail. “However, I think it will be difficult to replicate the type of sales growth that was seen in 2020.” He added that to further foster growth, “craft retailers need to retain customers, perhaps by creating online communities with videos and tutorials and a social aspect.”

Buchanan said that before Michaels could benefit from the craft craze, there was a lot of work to be done. He said ecommerce only made up a measly 4% of total sales and the user experience was terrible as there was no mobile app and conversions made up less than 1% of visits. He said the back room was overrun with inventory and the high / low pricing strategy was exhausting.

Ashley Buchanan

The first order of business was to register with customers. Buchanan said he has spoken to thousands of clients and the consensus response he got was that loyal clients love Michaels, but the company is making it difficult. He said the retailer has also somewhat lost its identity as an arts and crafts retailer for manufacturers and artisans.

“We were carrying far too many home decorations and not enough manufacturing materials,” he said. “I knew we had to streamline our supply chain and our backrooms to be effective once the pandemic hit the United States. At the time, our inventory averaged seven keys, which is unacceptable in retail. We brought it down to two. We also added two new distribution centers and outfitted our 1,200 stores to do curbside pickup for online orders as the pandemic hits the United States. “

Buchanan said he also insisted on a new location for the home office that allows for open and collaborative spaces. And because there was so much office space on the market, costs were lower and the new space was 40% smaller than the segmented home office built in the 1980s.

He said the company is just beginning its total transformation, comparing it to the third inning of a nine-inning baseball game. One area he worked to improve was the social community that began to flourish amid the pandemic. He said that because Michaels had worked on redesigning their website with outside developers and an in-house tech division, the retailer could easily host programs for performing art projects. He said that part of the business had taken off and there were free classes on the site and paid sessions. Participants can order the supplies in a package and pick them up at the local store or deliver them before class.

He said stock overruns were curtailed last year by running promotions for curbside pickup. With a leaner inventory, the business can focus more on serving the “manufacturers,” who are the bread and butter of the business.

Michaels increased its social media subscribers to 3.2 million last year and reported sales of $ 1.9 billion in the fourth quarter of 2020, up 12% from the period of l ‘last year. Private equity firm Apollo Capital Management bought the company in March 2021 for $ 5 billion. Buchanan said the move to private had gone smoothly, and that it also allowed more agility for big moves without worrying about shaking investor confidence on Wall Street.

Buchanan said Michaels’ main competitors in the United States are Hobby Lobby, which focuses more on home decor items, and Joann, which focuses on fabrics. Joann saw his revenue increase 24.3% in the first quarter of 2021, compared to a year ago. Based in Oklahoma City, Hobby Lobby is also privately held with over 930 stores in the United States. The company’s revenue before the pandemic was estimated at $ 5 billion a year, more than double that of Michaels.

Joann is based in Cleveland, Ohio, and is led by former Tyson Foods and Walgreen executive Wade Miquelon, who took over as CEO in February 2019. Joann, formerly owned by Leonard Green & Partners, went public in March with an initial offering price of $ 12 per share. The company raised $ 130.8 million with the initial share offering and now has a market capitalization of $ 468 million, with three-quarters of results recorded as a public company. Joann’s third-quarter revenue totaled $ 496 million, about a quarter the size of Michaels.

Hobby Lobby and Joann have locations in Northwest Arkansas, but Michaels does not. The nearest Michaels stores are in Fort Smith and Joplin, Missouri.

Buchanan said the company hasn’t ruled out a future location at Rogers at some point, but the focus is on growing online sales and running more efficient stores. He said the company was trying to move away from high / low discounts and move to a loyalty program aimed at manufacturers, its main customers.

Editor’s Note: The offer side section Talk Business & Politics focuses on businesses, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is operated by Talk Business & Politics and sponsored by Propak Logistics.


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