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Michaels may need a crafty strategy to survive the retail apocalypse

2 months ago by Jon Marino in Facts, News

Texas-based craft retailer The Michaels Companies ($NASDAQ:MIK) is under the same pressure as other retailers this earnings season, from the same source of pain: mega-retailers like WalMart ($NYSE:WMT) cutting into its market share, as well as online competitors like Amazon ($NASDAQ:AMZN) giving consumers a good reason to stay home. 

Michaels will report earnings before the market opens Thursday June 6 and analysts tracked by Zacks Investment Research are expecting $0.31 EPS, a slight decline year-over-year. After closing out a subsidiary, its footprint has slightly shrunk, and the craft business as a whole is facing challenges in a difficult environment for brick-and-mortar retailers. 

Competitor Hiring Slowdown

A look at competitors' data shows the craft business as a whole is facing negative trends. Hobby Lobby ($HOBBYLOBBY), Michaels' largest competitor, saw a steep drop-off in job postings during the quarter, according to our data. Hobby Lobby reduced job postings from a 2019 high of 199 to 160, a decline of about 20%. If the Hobby Lobby needs less staff, and - per a GlobalData Retail report earlier this year — Michaels is beginning to see market share decline in the crafts space, it may be a sign of just how much the mega-retailers have successfully chipped into their user base. 

Growth as It Shrinks?

Michaels is executing the trick of simultaneously reducing the number of stores it operates, while growing the brand's footprint. So far this year, Michaels stores footprint grew from 1,238 to 1,258 - but the company's total stores tally fell from 1,371, counting now-eliminated brands Aarons and Pat Catan's, according to its federal filings. Michaels is likely absorbing some of the Aaron's craft stores it is shutting down, as it closes the brand. 

Slime Pays (Just Not as Much, Now)

Both Hobby Lobby and Michael's have one factor in their favor: younger consumers have turned to crafts - and that could be a big difference-maker. Michaels' Facebook ($NASDAQ:FB) Were Here Count reflects that foot traffic has continued to rise, and with some consistency over time. Facebook Were Here Count represent how many check-ins and mobile device location shares a store or group of stores have over time.

Our data tracks companies' information including job postings, social and web traffic, product sales and app ratings to measure factors like hiring, revenue and foot traffic. Data may not be fully comprehensive (we track what is available on the web), but it can gauge factors like a company's staffing and sales. 

In the past, Michaels has managed to dive into an even younger consumer base (a true rarity for brick-and-mortar retailers in the e-commerce environment) thanks to 'slime,' the homemade children's project that also happens to consumer a disproportionately large amount of glue. Unfortunately for investors "Long Slime," Google searches aimed at that term have declined since 2018 (although they recently started rising again). But don't expect that slime bump to save your craft portfolio - at least, this quarter. 

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Jon Marino

Jon Marino is Thinknum's finance editor, covering the impacts of alternative data on public companies and investors. Prior to joining Thinknum, Jon worked in the ...

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