While Etsy’s e-commerce business thrived in the first quarter of 2020, Michaels Stores Inc. was hit hard by COVID-19 shutdowns of bricks-and-mortar retail.

Michaels CEO Ashley Buchanan was the bearer of more bad news after reporting disappointing results for 2019 just ahead of the pandemic.

Sales for Q1 2020 were down 26.9% from Q1 2019 to just under $800 million, despite a whopping 300% increase in ecommerce sales.

“I believe that COVID-19 has fundamentally changed the retail industry and accelerated shift in shopping behaviors with even a greater focus on e-commerce,” Buchanan said on the call. “I am confident of Michaels’ ability to gain market share in the post-pandemic retail environment.”

Are crafts “essential”?

Joann, Hobby Lobby and Michaels all tried to keep their stores open as “essential” in states with lockdown measures. Judges and police forced Hobby Lobby stores in Texas, Indiana and Wisconsin to close. Craft stores in Ohio and Louisiana, among others, were allowed to remain open.

“Our customers are telling us that crafting is an essential coping mechanism, sometimes ahead of exercise, reading books, or even being outside,” Buchanan said on the call. “Our research has found that three out of four makers are crafting more during this time.”

A Change.org petition got 25,000 supporters asking Michaels to close all stores for the workers’ safety. “Employees are told to clean high traffic areas, carts, door handles and washrooms, jeopardizing the health of the employee and their families,” the petitioners wrote in mid-March. While “Michaels continues to ignore, block, or delete all/most public comments regarding closure on social media.”

But there was no arguing with the shelter-in-place measures in effect in states such as California. At the peak of the shutdowns in April, more than 900 Michaels stores out of 1,273 were closed; as of June 4, fewer than 270 remained closed. Michaels said it expects the rest of the stores to open by the end of the month. Most of the company’s distribution centers remained fully functional.

Measures Michaels took included limiting store hours, increasing cleaning and sanitation, and implementing social distancing measures. They also provided thermometers for associates, installed Plexiglas shields at check-out, and hand sanitizer dispensers for both our customers and workers.

Buchanan noted that the company saved money by making the Plexiglas shields in the stores’ ArtisTree framing departments.

Pandemic pivots

Michaels had been trying to boost its ecommerce sales for many quarters, and the pandemic pushed the team to move faster. Within 45 days, Michaels rolled out curbside service, expanded ship from store, same-day delivery, shop my store, in-app purchasing capabilities, and a chatbot, Buchanan said on the call. Over 80% of stores were used as fulfillment centers during the lockdown.

Buchanan believed craft pantry stocking and the US stimulus checks were partly behind the increased online demand this quarter, “which at times was beyond anything we have seen before, including Black Friday.”

The new customer loyalty program meant to launch in April has been paused until the end of the year. Most of the planned A.C. Moore property transitions and Michaels store relocations have been pushed to 2021

And Michaels plans to shut down its Darice wholesale business by the end of 2020. Michaels acquired Darice when it purchased Lamrite West in 2016 for $150 million, which included 36 Pat Catan stores that were closed or converted to Michaels stores. Michaels plans to keep Darice’s sourcing offices in China to continue to create private-label craft supplies.

The financials

When it released its annual report for 2019, Michaels anticipated sales in the first quarter of 2020 to reach $1.08 billion to $1.10 billion, on par with 2019.

But with the shutdown measures, Michaels’ sales were just under $800 million for the first quarter, down 26.9% from Q1 last year.

Due to rapidly changing conditions, Michaels isn’t making a financial forecast for the second quarter or the rest of 2020. The company called out $15 million in costs directly related to COVID-19 in the first quarter, including hazard pay and sanitation costs.

Meanwhile, former CEO Mark Cosby sold his vacation home in Boca Raton, Florida, for $10 million in May. He and his wife had bought the property for $5 million in 2014 — not too shabby of a profit.

As CEO of Michaels, Cosby’s base salary was $1.2 million per year, with a potential bonus of up to 200% of that salary if financial targets were achieved — there were no bonuses in 2019. He did, however, get a $250,000 signing bonus when he agreed to become CEO last April, and his total compensation for 2019 including stock was $6,508,424.

Buchanan’s salary is also $1.2 million per year, according to the proxy statement, with the same incentive bonus structure. He received a signing bonus of $3.7 million in January when he became the CEO designate, which he must pay back if he leaves Michaels before January 2022.

For the sake of comparison, the median compensation for a full-time Michaels employee is $31,727. But the median compensation for all 41,730 employees — and 75% of them are part-time or seasonal — is $9,561.