US OPINION: The craft retailers have discovered toys

Muller looks at the growth of toy sales within arts and craft retailers in the states.
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About two and a half years ago, I looked at the craft market and said in this publication:

The absolutely overwhelming majority is female, white, and childless. Also, the age profile is older than the population at large – three out of the four retailers have 70 per cent of their consumers at over 35 years as opposed to an average of 51 per cent. These demographic data also at least partly explain why the craft industry is not growing.

Caucasians as a percentage of the total population are declining. Childless females are not passing their hobbies on to their children. Older people have fewer years ahead of them to pursue crafts. There is no indication that these demographic facts are going to change and continued absence of growth is therefore a probable future scenario for the American craft industry.

Well, it did not happen this way. Michaels grew between 2008 and 2010 by 5.6 per cent and Jo-Ann by 9.4 per cent. Michaels first quarter 2011 performance demonstrates that this positive development is continuing. AC Moore, the smallest of the three, did not do as well in that this retailer had a 16.2 per cent sales decline between 2008 and 2010. However, A C Moore’s negative performance is widely attributed to internal reasons such as inventory problems and supply chain issues rather than demographic influences [and they are now exploring strategic alternatives – they are trying to sell the company].

So, what triggered this change in fortunes? Why did a retail channel beset by declining same-store sales and store traffic all of a sudden do so much better? While this is undoubtedly partly due to Wal-Mart’s retrenchment in their craft endeavor, the real answer again appears to be in the demographics of their consumers.

I first looked at the demographics of the people visiting their websites and here I found indeed striking changes between 2008 and 2010:

2010 2008

Female 70% 92%
Males 30% 8%

3 – 17 Years of age 10% 4%
18 - 34 Years 29% 30%
35 – 49 Years 31% 31%
50 Years + 30% 35%

Caucasian 87% 93%
No children 66% 70%

The major changes were in the fact that the percentage of males nearly quadrupled, the participation of the below 35 years age group went from 34 per cent to 39 per cent, and the percentage of families with children went from 30 to 34 per cent.

What brought about these changes?

A friend of mine, a long time sales executive active in the craft space pointed me in the right direction. He said about the craft retailers that "Customers have turned to toys, gifts, and sporting goods and games".

What is definitely the case is that all three retailers embraced toys with a vengeance since 2008. They always had had a relatively token presence in activity kits – crafts for children – and this, too has expanded noticeably. But the extent by which toys now represent part of the store assortment is astounding considering that there were next to none on the shelves a mere two years ago:

Store Toys Activity Kits
Feet Feet

Michaels 496 339
Jo-Ann 34 115
A C Moore 430 676

These toy and activity footages do not include the much greater extent of general craft items sold under licenses such as CARS and other Disney characters in the case of Michaels, Busy Kids Camp general craft items in the case of Jo-Ann and various Disney licenses in the case of A C Moore which are very clearly are targeting younger families with children.

Michaels, in addition, has a potent exclusives program including Dr. Seuss and American Girl clearly focused on the younger set.

Crayola totally dominates the activity kit space with all three retailers even though the private label entries of both Michaels [Creatology] and Jo-Ann [Busy Kids Camp and Summer Inspirations] have a respectable presence.

In the case of toys, Melissa and Doug have most of the space but K’Nex, Mega, RC2 [including Learning Curve’s Thomas toy range] and Reves all are there in force. The major toy categories are games and puzzles, car and plane models, animal and mythological figures and plush. Interestingly, Mattel has not one product in any of the three retailers and Hasbro has only one, Play-Do.

Considering that the three retailers have a very considerable number of stores in the United States, 1838 between them, you would have thought that the major toy manufacturers were awake to the opportunity this channel represents.

What obviously happened in the last two years is that the craft retailers, by moving into toys, managed to lower the age mix and to broaden the consumer group overall. This in turn brought about new opportunities. For instance, A C Moore mentioned in both their 4th quarter 2010 and first quarter 2011 conference calls that the cake and candy making product categories were particularly strong. Both are typically seen as a family endeavor and hence relate to a younger female population.

Will this broadening of the consumer group and hence the sales growth of the retailers continue? It strikes me that the Achilles heel of the craft industry is its dependence on the childless white female. Just to put this into perspective, childless females represent a mere 20 per cent of the US female population between the ages of 15 and 44 years.

While the ratio for the craft retailers has improved from the 70 per cent two years ago to 66 per cent now, the number is still more than three times the national average. This is, by definition, a dead-end because the craft endeavor is not passed on to the next generation. Unless the craft retailers manage to further diversify away from pure adult craft endeavors into a greater participation by children or families with children, their future could be problematic.

However, there is one important positive aspect to their business which must not be overlooked – online sales. In this, both Michaels and Jo-Ann did very well in 2010. This is how their web traffic looked like:

Company Web Visitors Web Visitors Growth
Nov '08 Dec 2010 %
Michaels 2.550,000 4,891,000 91.8
Jo-Ann 2,550,000 3,098,000 24.9
A C Moore 750,000 645,000 (14)

This compares with overall ecommerce retail sales growth in 2010 of 15.5 per cent.

Jo-Ann managed to translate their online traffic to sales of $44.5 million or about two per cent of their total.

While Michaels did not publish any numbers, I would expect them to have done considerably better than Jo-Ann on the strength of their skyrocketing web traffic performance. This bodes well for the future of both retailers in that consumers that purchase on the web typically are younger than the national average. If the two leading retailers continue to move ahead on the web to the degree they did in 2010, and if they continue to translate this into sales to consumers outside their current core group, I would view their immediate future to be pretty good.

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