“Our new purpose is: We’re here for the makers,” Michaels CEO Mark Cosby says.
Cosby shared this philosophy on the Q2 earnings call for Michaels Stores Inc., explaining the new direction the company identified from surveying and interviewing 13,000 customers. It’s a big investment the company is hoping pays off in the rest of the 2019 fiscal year and beyond.
Previously, the company had focused on DIY enthusiasts and novices equally. Now the target customer is the “core maker,” a category that accounts for two-thirds of arts and crafts sales and has a strong desire to spend more on DIY projects. “When we were focused on bringing the novice into the store, we carried more finished jewelry and fashion watches in the assortment,” Cosby said. “With the DIY jewelry maker in mind, we will now be more focused on giving her the best assortment of jewelry pieces, so she can assemble what she wants.”
Here are the details of Michaels’ new strategy to cater to makers:
Build the business better
- Build the stores’ selling culture: Store employees will be trained to focus on the customer and on selling rather than just completing tasks, with scorecards to let them know how they’re doing against other stores.
- Create a customer-centric assortment: Michaels expanded its craft storage and fine art supply sections in Q2 to better serve core maker needs. Michaels also doubled the space of its technology section, and Cosby reports they have the largest Cricut assortment of any retailer.
- Optimized pricing and promotions: The big-picture goal of improving value perception started with eliminating the everyday value line of products. Streamlining coupons and sales, for simplicity but also to boost the bottom line, includes a shift from “buy one get one free” toward “buy one get one 50% off.”
- Maximize marketing productivity: Michaels is moving its marketing funds from newspapers to digital and TV, and it’s backloading that money to the fourth quarter of the year.
Leverage digital and data
- Enhanced customer relationship management: Cosby says Michaels holds a total of 75 million customer records, with 38 million customers in the rewards program. He said Michaels is able to link more than 82% of sales to a specific customer. Cosby said, “We will be enhancing our rewards program in 2020,” without giving further detail.
- Profitable e-commerce growth: The company is now experimenting with personalized email marketing and hopes to expand that to the website and app. “Today, our site is the same for every customer that visits. Later this year, the site will be customized to each site visitor based on their spending history,” Cosby said.
Re-position the business
- A Michael’s community: Makers have a strong sense of community, which Michaels wants to provide. “This will include work to take our existing successful Community Classroom to the next level and work to create an online community for maker customers,” Cosby said.
- Maker-centered store experience: Michaels is going to design a test store based around makers’ needs, open up new locations next year and apply what it learns there to all stores in the future. (JOANN has done something similar.)
- Maker-centered categories: The model store will have refined product categories to focus on the core maker categories of art, tools and technology and jewelry.
The company’s first semi-annual clearance event in early July succeeded in drawing customers in even though the actual impact on sales was small, Chief Financial Officer Denise Paulonis said. She also said Michaels is planning to implement “electronic article surveillance” in stores next year, likely referring to anti-theft devices placed at doors that can also provide a foot traffic estimate.
Michaels’ overall sales in the second quarter of 2019 were $1.03 billion, down 1.9% from the same quarter of 2018, a drop attributed to closings of the Pat Catans and Aaron Brothers stores. But same-store sales were up 0.3% from 2018, thanks to larger average purchases, and sales were up compared to Q1 of 2019.
Sales from Michaels.com remained strong in the second quarter, Paulonis said. The buy online, pick up in-store option accounted for 44% of e-commerce sales and 62% of e-commerce orders.
For the full 2019 fiscal year, Michaels now expects total sales to be between $5.16 billion and $5.19 billion, a slightly less optimistic estimate from the Q1 report when it estimated full-year sales at $5.19 billion to $5.24 billion.
Grace Dobush is a Berlin-based freelance journalist and the author of the Crafty Superstar business guides. Grace has written about business and creative entrepreneurship for publications including Fortune, Wired, Quartz, Handelsblatt and The Washington Post.