2. Jo-Ann Fabrics 2
Table of Contents
Executive Summary........................................................................................................................ 4
Introduction..................................................................................................................................... 5
Apparel Industry Overview............................................................................................................. 5
Company Overview ....................................................................................................................... 6
Customer Base ........................................................................................................................... 7
Products....................................................................................................................................... 7
Stores’ Overview ........................................................................................................................ 8
Small-Format Stores .................................................................................................................. 8
Large-Format Stores .................................................................................................................. 8
Financial Analysis........................................................................................................................... 9
Issues Facing Company .................................................................................................................. 9
Customers ................................................................................................................................... 9
Official Website........................................................................................................................ 10
Stores......................................................................................................................................... 10
Recommendations......................................................................................................................... 10
Expand Customer Base............................................................................................................. 10
Carry Designer Fabric Line ..................................................................................................... 11
Improve Website Traffic........................................................................................................... 11
3. Jo-Ann Fabrics 3
Utilize Social Networks............................................................................................................ 11
Target Art and Design Schools ................................................................................................ 12
Continue Conversions of Small-Format to Large-Format Stores ............................................ 12
Remodel Stores for Sales and Customer Retention.................................................................. 12
Conclusion .................................................................................................................................... 13
Appendix....................................................................................................................................... 14
4. Jo-Ann Fabrics 4
Executive Summary
After conducting a thorough analysis of Jo-Ann Fabrics within the apparel industry, we are able to identify
the core question that summarizes Jo-Ann’s situation and make recommendations to address these issues. Jo-Ann
Fabrics & Craft Stores offer the largest assortment of Fabric, Sewing, Quilting, Scrapbooking, Knitting, Crochet,
Jewelry and other Craft items. Currently, Jo-Ann Fabrics has a strong market share and position within the fabric
retailing industry. In the past two years, Jo-Ann Fabrics’ net sales grew by 1.2% to $1,901 million. Increasing their
cash and recently decreasing their debt significantly has proved their leadership over their largest competitor, Han-
cock Fabrics as well as other players in the industry. Although Jo-Ann is in good financial health during this eco-
nomic downturn, they are opt to run into challenges in the future based on their current customer base and store inef-
ficiency.
Jo-Ann Fabrics’ customer base could serve as an issue in achieving their goals. Their customers are pri-
marily women 55 years of age or older with the vast majority of them in the baby boomer generation. There is a
need for Jo-Ann to widen their customer gap particularly by focusing on the younger generations. Jo-Ann’s core
customers are aging. Unfortunately, the next generation of potential customers’ hobbies is more web based than
activities such as sewing. Jo-Ann must find innovative ways to attract these younger generation customers. Another
major issue that Jo-Ann faces is that it has old and inefficient retail outlets. The retail stores have bad lighting and
are rarely renovated; the generation gap reflects two different lifestyles among baby boomers and generation Y. The
stores are also inefficient; sales per square feet are not maximized because merchandise layout is not optimized. Jo-
Ann has many locations with the US and can learn and benefit from this unique opportunity to become more effi-
cient.
There are several suggestions we recommend that Jo-Ann implement in order to stay competitive and grow.
The first is to broaden their customer base through educational programs such as “how to” classes. By having a
wider range of fabrics, Jo-Ann is also able to attract more customers as well. The second action we strongly suggest
is to improve on their website. Website sales were 2% of total sales in 2009 and continue to grow, implying that
there is potential to gain market share and increase profits. Jo-Ann can improve web traffic through free online so-
cial networking mediums and through viral campaigns with YouTube. By targeting art and fashion schools, Jo-Ann
can make important relationships that can help to increase their customer base as well as their recognition among the
public. To address the issue of store inefficiency, we recommend that Jo-Ann increase their store size to either
15,000 square feet or 22,000 square feet for a more inviting environment and flexibility of the store layout. Bigger
sizes will also help to improve sales per square feet. Lastly, Jo-Ann should accommodate educational programs
which cater to beginners. This will help to introduce new hobbies to younger generations and thus, increase their
5. Jo-Ann Fabrics 5
customer base. By implementing these recommendations, Jo-Ann Fabrics can maintain the lead as a fabric provider
within the apparel industry and continue to grow.
Introduction
Using an analytical approach, we believe Jo-Ann Fabrics faces the following core question: Can Jo-
Ann Fabrics maintain the lead as a fabric provider within the apparel in industry and continue to grow? A
closer look at external factors such as PEST, Porter’s 5 Forces and SWOT within the industry, answers the
core question; Jo-Ann is able to maintain their lead and continue to grow. Analysis also identifies Jo-Ann Fab-
rics current positioning within the apparel industry and what their positioning could be in the future. Financial
analysis to assess Jo-Ann’s financial health informed us of any key issues facing the company. After the anal-
ysis of the industry and the company, we have identified the important issues facing Jo-Ann within the apparel
industry. We then arrived at a conclusion about which strategies and recommendations the company needs to
follow in order to maintain their market lead and continue to grow.
Apparel Industry Overview
Companies in the apparel industry include suppliers of fabrics and materials, manufacturers, discount
and high end retailers, as well as anyone who is involved in the making, distributing or selling of clothing.
The apparel industry was re-created at the turn of the 20th
century when tailors in the US New-England region
turned single garment making into mass production. In 1985, the industry experience record imports which
caused manufacturers to strategize and use cheap labor. Over the next decade the industry balanced itself out
creating and losing jobs with the advancements of manufacturing technology. In the 1990s, players in the in-
dustry realized that operational and manufacturing costs could be minimized by moving parts of their business
out of the US to Asia. With time, the industry became more flooded with new entrants and therefore more
competitors.
Socially, consumer demand for fabric, craft and sewing goods is mainly driven by trends in real per-
sonal disposable income which also influence the quality, quantity and frequency of purchases. In higher in-
come periods, consumers lean more towards craft related goods. Subsequently with the economic downturn in
2008, fabric and sewing products are more popular during weaker income periods as consumers seek out more
cheaper, do-it-yourself activities (Exhibit 3). Major players in the fabric and craft retail industry include Mi-
chael’s, Hobby Lobby Stores and Hancock Fabrics (Exhibit 4). Competitors such as Hancock Fabrics have
struggled to maintain the amount of physical retail space Jo-Ann has. Hancock Fabrics for example operates
6. Jo-Ann Fabrics 6
265 stores in 37 states1
and Hobby Lobby operates 436 stores in 35 states2
. Currently, Jo-Ann has a 17% mar-
ket share in the fabric, craft, and sewing supply stores in the United States3. The first and fourth quarter tends
to be the main drivers for Jo-Ann’s yearly revenue. Last year, Jo-Ann 1st
quarter net income was $20.4 million
and its 4th
quarter income was $24.1 million. In the second quarter the net income was $8.6 million and in the
third quarter net income was $ -3.2 million. The reason behind the negative incomes in the 2nd
and 3rd
quarter
stems from seasonality. Craft stores manage to sell less during these quarters and see most of their sales in the
spring, fall, and winter.
Given the current state of the economy consumers are reluctant to spend due to either a lack of em-
ployment, less availability to credit, and shrinking disposable income. These factors have resulted in a decline
in over $60 billion in worldwide luxury goods in 2009. Many consumers are selecting value of products over
the discount pricing. When there is an increase in the income and wealth effect, consumers will increase their
consumption of normal goods and not inferior goods, hence revenues of companies in this industry will fall as
a result4 (Exhibit 5).
Company Overview
Jo-Ann Fabrics is the nation’s largest specialty retailer of fabrics and one of the largest specialty re-
tailers of crafts. The company has distribution centers in Hudson, Ohio; Visalia, California; and Opelika, Ala-
bama. In addition, headquarters and a support center are in Hudson. It has 764 retail stores, both small and
large-format, in 47 states, as well as a website5
. The company has an exceptional product selection, offering
two principal product lines, sewing and non-sewing. The products include fabric, crafts, home décor, scrap-
booking, frames, as well as knit and crochet. The non-sewing selections are offered in the large-format stores
(Exhibits 6, 7, 8).
Small and large-format stores have some structural differences. Small-format stores usually have 5
full-time team members and 10 to 15 part-time team members, whereas large-format stores generally have 10
full-time members and 35 to 40 part-time members. Both small and large-format stores have store team lead-
ers. The leaders receive compensation in the form of a base salary plus a bonus. The small-format store leaders
are often promoted from an assistant management position within the company. Conversely, the large-format
store leaders are hired from outside companies and have experience working in the retail industry. The store
team leader reports to a district team leader who reports to a regional vice president.
1 Hancock Fabrics, 10-k
http://phx.corporateir.net/External.File?item=UGFyZW50SUQ9MzQ4NDczfENoaWxkSUQ9MzM3MzA1fFR5cG
U9MQ==&t=1
2
Hobby Lobby 10-k http://www.hobbylobby.com/our_company/our_company.cfm
3 Ibisworld,2010,http://www.ibisworld.com.ezproxy.babson.edu/industry/segmentation.aspx?indid=1081
4
S&P Industry Report
5
http://www.joann.com/joann/home/home.jsp
7. Jo-Ann Fabrics 7
The company employs 21,708 full and part-time employees. A large portion of employees, approxi-
mately 75%, are part-time workers. The number of part-time employees fluctuates, and significantly increases
during the height of selling season. Employee turnover is low because workers are passionate about the work
they do and are treated well. The company offers competitive compensation, employee discounts, and flexible
hours. With the majority of employees working part-time, the opportunity to have flexible hours is imperative.
Jo-Ann Fabrics stores excel at customer service. The company emphasizes customer-employee inter-
action, which enhances the customer’s experience. Employees assist customers with projects and offer advice.
Additionally, many stores offer classes and free demos. Most employees are interested in sewing and crafting,
therefore the conversations are not forced, and the relationships are built on a shared bond. Often times the em-
ployees start off as customers.
Customer Base
Jo-Ann Fabrics’ customer base is comprised largely of baby-boomers. 60% of Jo-Ann’s customer base
is women age 55 years and older as known as the Baby Boomer generation (Exhibit 9). Recently, women age
35 and older, with available leisure time, and access to disposable income is an emerging consumer in this in-
dustry. Craft activities are popular among this key 35 years old market. With the current state of the economy,
the baby-boomers have seen a decline in personal income and as a result, are reluctant to spend money. De-
mand of sewing and craft work has also gone up concerning the Baby Boomer generation because they now
have more free time due to retirement. 6
Products
Jo-Ann Fabrics has an exceptional product selection, offering two principal product lines—sewing and
non-sewing. The sewing products include sportswear and fashion fabrics, special occasion fabrics i.e. evening
wear, bridal outfits, craft fabrics, juvenile design fabrics, fleece fabrics, home decorating fabrics, zippers
threads etc. The non-sewing products include yarn, photo albums, scrapbooks, fine art materials, home décor,
and craft materials (Exhibit 10). Jo-Ann stores offer consumers classes in knit and crochet; quilting; sewing for
apparel, home décor, and crafts; scrapbooking; painting; jewelry-making; floral design; and food crafting. The
classes are designed for varying levels—kids, beginner, intermediate, and advanced. The classes are taught by
expert instructors, at participating stores. They cost around $40, for two and three hour sessions7
.
In 2009, fabrics accounted for 40% of sales. While this segment is experiencing growth, the other seg-
ments are facing declining market shares. Fabrics have been the most profitable segment for Jo-Ann stores.
“The rise in this product category is due to an increase in population, a younger market entering the indus-
try, an aging baby boomer population and rising income levels” (Ibisworld).
6
Ibisworld,2010,http://www.ibisworld.com.ezproxy.babson.edu/industry/segmentation.aspx?indid=1081
7
http://www.joann.com/joann/home/home.jsp
8. Jo-Ann Fabrics 8
Stores’ Overview
As of fiscal 2009, Jo-Ann Fabric and Craft Stores operated 554 small-format stores and 210 large-for-
mat stores spread over 47 states (Exhibit 6). Essentially, Jo-Ann has two types of stores—large-format stores
which refers to stores that are larger than 24,000 square feet of retail space while small-format stores average
less than 24,000 square feet. In addition, large-format stores can be distinguished through its assortment of
goods— it will carry more craft goods—and its opening date—only recently has Jo-Ann decided to built or
remodeled larger stores8.
Small-Format Stores
Small-format stores carry comprehensive selection of fabric and a convenience range of crafts, artifi-
cial floral, finished seasonal and home décor merchandise. As of fiscal 2009, these stores are approximately
14,700 square feet and generated average net sales per store of about $1.5 million. Total net sales for small-
format stores have toppled $881 million (Exhibit 7). These sales translate to $115 sales per square foot of sell-
ing space (Exhibit 8). Small-format stores net sales for the quarter, on the other hand, only increased by 2.6%
while its same-stores sales increased by 6.1% compared to a decrease of 1.4% or the same period last year9.
Small-format stores generate lower revenues for Jo-Ann and offered a limited selection of products. In addi-
tion, they carry excess inventory and fail to provide educational classes which are pivotal for attracting new
customers.
Large-Format Stores
In recent years, Jo-Ann has decided to open large-format stores. Undoubtedly, it has proven to be a
more profitable format for Jo-Ann. Large-format stores offer wider selections of merchandise, seasonal items,
custom framing and educational programs in addition to what is being offered by small-format stores. In fiscal
2009, large-format stores are about 37,400 square feet in retail space and generated average net sales per store
of approximately $4.7 million. Total net sales of large format stores is $983 million (Exhibit 7).Currently, its
large-format stores have approximately $129 of sales per square foot of selling space (Exhibit 8). For the
fourth quarter of fiscal 2010, large-format stores enjoyed increased net sales for the quarter by 7.9% to $323.8
million compared to the same period last year. Additionally, same-store sales for large-format stores increased
3.1% compared with a decrease of 4.1% in last year’s fourth quarter10
. A reason for the lower percentage of
same-store sales for large-format stores can be traced back to the much smaller concentration of such stores per
state. For instance, the state of Massachusetts only has one large store and 22 smaller stores. Sewing same-
8
Jo-Ann Corporate Profile,2010,http://phx.corporate-ir.net/phoenix.zhtml?c=74290&p=irol-homeProfile
9 Jo-Ann Sales Release,2010,http://media.corporate-ir.net/media_files/irol/74/74290/info/Q410_Sales_Release.pdf
10 Jo-Ann Sales Release,2010,http://media.corporate-ir.net/media_files/irol/74/74290/info/Q410_Sales_Release.pdf
9. Jo-Ann Fabrics 9
store sales has increased 6.0% for fourth quarter of fiscal 2010, which mirrors the continued growth in its fab-
ric and sewing related merchandise during a down economy. However, non-sewing sales increased 2.8% due
to weakness in craft segment due to seasonal and custom framing merchandise category11
.
Financial Analysis
Jo-Ann Fabrics is in good financial standing for the past few years. In Fiscal 2009, it managed to im-
prove its ROE by 1.2% from 2008 while its main competitor, Hancock Fabrics increased from a negative
43.7% to negative 22.0% (Exhibits 11 and 12). The 1.2% gain is the result of growth in net margin of 0.4%
from fiscal 2008. Moreover, Jo-Ann also managed to decrease its long term debt outstanding from $100 mil-
lion to $66 million, as a result total debt to equity decreased from 22.7% in 2008 to 13.8% in 2009. The ability
to pay back long term debt is significant in this current economy as Hancock Fabrics is not able to do so. In
fact, Hancock is increased its long term debt by $29 million to $$42.98 million in 2009; thus resulting in total
debt to equity ratio to increase from 42.5% to 97.7%.
Compared to Hancock Fabrics, it is also apparent that Jo-Ann has better inventory management as its
inventory turnover is approximately 2.1x between fiscal 2008 and 2009 while Hancock’s average between the
two years is 1.3x. Undoubtedly, both are concentrating on leaner inventory by decreasing their inventory; Jo-
Ann decreased its inventory from $472.2 million to $429.4 million and Hancock decreased from $114.29 mil-
lion to $104.16 million (Exhibit 13). Additionally, its asset turnover is 2.1x in 2009 while Hancock Fabrics’
asset turnover is 1.6x in 2009. Furthermore, Jo-Ann Fabrics has been successful in growing its cash and cash
equivalents from $25.4 million to $80.6 million. Lastly, retained earnings for Jo-Ann has also increased from
$288.5 million to $310.4 million while Hancock Fabrics has experienced a decline from $137.34 million to
$124.91 million.
Issues Facing Company
Customers
Currently Jo-Ann Fabrics has a concentrated customer base with 60% of their consumers being 55
years and older women. Jo-Ann’s lack of diversification in customers may hinder their ability to continue to
be a market leader. Once the baby-boomer generation grows older with age, Jo-Ann has to rely on the next
generation to be sustainable. Jo-Ann hopes that the next generation will matriculate through life and adopt the
hobbies and interests of the generation before them. Realistically, this is not the case. The company must look
to increase their customer base with other age groups. Younger consumers will be Jo-Ann’s potential custom-
ers when they grow older but why should Jo-Ann wait for the next generation to grow up? Younger customers
11
Jo-Ann FY09 Annual Report on Form 10-K,2010,http://phx.corporate-ir.net/Exter-
nal.File?item=UGFyZW50SUQ9MjAwNnxDaGlsZElEPS0xfFR5cGU9Mw==&t=1
10. Jo-Ann Fabrics 10
have a faster paced and technologically advanced lifestyle. Jo-Ann will have to position itself to be able to at-
tract these customers by catering to a different type of lifestyle. With the increase in the generation gap,
younger consumers have hobbies that are more technological as opposed to physical. Being able to widen
their customer base will give Jo-Ann the necessary tools to continue to be a marker leader in the future (Ex-
hibits 5, 9, 10, 14).
Official Website
Jo-Ann has had proven success with their retail stores yet e-commerce has remained stale. Currently,
internet sales make up 2% of Jo-Ann’s revenue which exceeds their competitor Hancock Fabrics internet sales
which are 1.7%.12 According to Jo-Ann’s January 31, 2010 press release, Jo-Ann has $217.1 million in cash
and cash equivalents on their balance sheets13
. They could utilize some of this excess cash to revamp their
website and improve their viral marketing campaign. Generation Y seems to be shifting towards technology
and 80 percent of them have access to the internet therefore it would be worthwhile to improve Jo-Ann’s cur-
rent website14
.
Stores
Jo-Ann currently has multiple sizes of retail store locations around the United States. Many of these stores
are outdated and inefficient. Retail stores do not get renovated on a frequent constant basis and lighting and
setup of the store rarely changes. Some stores look the same as they did 10 years ago. Although this may help
bring some customers back based on a “neighborhood feel” or nostalgia, this will definitely not help in bring-
ing new customers to Jo-Ann Fabrics. Jo-Ann Fabrics retail stores are also inefficient. Efficiency is measured
by sales per square foot. Even though Jo-Ann has multiple store sizes and layouts, they have no way of mone-
tizing on the different efficiency levels of their stores. Jo-Ann does not know the appropriate size of stores to
be most efficient in maximizing sales per square foot. The lack of change and inefficiency of stores is a hur-
dle. Jo-Ann must update their stores so that their potential younger customers do not think the stores are just
for grandmothers as well as act on the lack of efficiency of some stores (Exhibit 5).
Recommendations
Expand Customer Base
We recommend that Jo-Ann Fabrics targets a younger audience. The younger generation, “Generation
Y,” including those born between 1977 and 1994, spends a significant amount of time shopping and spending
12
Capital IQ. Hancock Fabrics 10K. 1 January 2010. 6 April 2010 <https://www-capitaliq-com.ezproxy.bab-
son.edu>.
13
Capital IQ. Jo-Ann Fabrics Balance Sheet. 31 January 2010. <https://www-capitaliq-com.ezproxy.babson.edu>.
14 Kellogg School of Management Generation Y Conference <http://www.kellogg.northwestern.edu/re-
search/risk/geny/moreabout.htm>
11. Jo-Ann Fabrics 11
money on apparel. Consumers age 20 to 34 accounted for 24% of spending on apparel for the first quarter of
2009. “Generation Y” is made up of approximately 71 million people.15
“Generation Y” members tend to value self-expression, customization, and uniqueness. Jo-Ann
should exploit these concerns and develop educational programs to teach its audience how to knit and sew. We
hope the educational programs will spark an interest in the younger generation to create their own apparel, at
the same time as creating a desire for its products. This new customer base will cause an increase in demand
for the growing fabric segment. And the higher demand for fabric, will lead to a higher demand for Jo-Ann’s
other related products.
Moreover, there are opportunities for new fabric products, like a designer fabric line and green fabrics.
Carry Designer Fabric Line
The economy is recovering, and individuals are less likely to purchase inferior goods. Jo-Ann should
consider creating a designer fabric line to appeal to the consumers with rising disposable income. Currently,
Jo-Ann stores sell inferior goods, but if it enters into higher end products, it will attract new buyers. The de-
signer fabric line would appeal to fashion school students. Therefore, Jo-Ann should consider possible partner-
ships with fashion schools. These partnerships would give Jo-Ann an additional way to reach the younger seg-
ment.
Improve Website Traffic
Jo-Ann Fabrics should consider developing an affiliate programs in which affiliating website are re-
warded with discounts and promotions when they encourage their website users to purchase products from Jo-
Ann. Lastly, Jo-Ann should develop a free online university that provides individuals with knowledge about
knitting, quilting, sewing, upholstery, and fabric as well as definitions. Jo-Ann can leverage their employee’s
knowledge about the sewing industry to develop the content in this university. When an individual searches
definition terms related to sewing, knitting, and quilting, they will be directed to Jo-Ann’s website.
Utilize Social Networks
Jo-Ann Fabrics seems to be having trouble with attracting new age groups due to their reliance on
technology and lack of knitting skills. Jo-Ann needs to infiltrate a younger generation if they wish to grow in
revenue and in customer base. Generation Y seems to be a group that Jo-Ann should target with viral cam-
paigns. They have a tendency to be more expressive and they actively seek customization and uniqueness in
their products16
. Jo-Ann should tap into existing employee knowledge to create do-it-yourself (DIY) videos
and launch them via YouTube and their website. This will encourage the younger generation to perform man-
ual repairs on their clothing and to create their own clothing. DIY videos will result in existing and potential
consumers learning how to design and create their own clothes. With more individuals performing self-repairs
15
Apparel and Footwear Industry Report
16
Industry Panel Speaker- Andrea Stoll- Converse Representative
12. Jo-Ann Fabrics 12
on their clothes and creating their own clothing Jo-Ann should see an increase in e-commerce and customer
retention rates. These DIY videos are a great way to generate positive buzz for the company. With Jo-Ann’s
DIY videos, they will create a symbiotic shopping experience which will enrich the lives of customers and pro-
vide insights into the shoppers’ tastes and habits.
Target Art and Design Schools
Jo-Ann needs a new avenue to target customers. In order to increase their exposure and influence on
new customers, Jo-Ann should establish partnerships with art and design schools. More specifically, they
should partner with colleges in The National Association of Schools of Art and Design (NASD). NASD is an
association that is comprised of 294 accredited colleges within the United States17. These partnerships will
allow Jo-Ann to operate stores on the campuses of these colleges which attracts fashion students. Attracting
fashion students should result in an increase in revenue. Campus stores will be of the small-format store vari-
ety and will offer fabrics and crafts. A majority of these students have knowledge on sewing and knitting there-
fore there is no need for a large format. By targeting fashion schools, Jo-Ann will target a younger generation
and will develop a new customer base.
Continue Conversions of Small-Format to Large-Format Stores
Given the better track record set by large-format stores, Jo-Ann should continue to expand its older
small-format stores into large-format stores. More specifically they should concentrate on building two sizes—
22,000 square feet and 15,000 square feet—for its stores to maximize sales per square foot and cash flow gen-
erated by individual stores (Exhibit 15). In recent years, the pre-opening costs of these stores have become fa-
vorable due to a sluggish real estate market. As a matter of fact, pre-opening costs have declined from $2.7
million to $1.4 million which is a 48.15% drop in costs18. At the end of this year, Jo-Ann expects to open 30
new stores, close 30 new stores, and remodel 180 stores19
. Lower pre-opening costs and surging large-format
revenues provide Jo-Ann with an opportunity for growth in margins and in store-fronts.
Remodel Stores for Sales and Customer Retention
As part of its remodeling plan, Jo-Ann should furnish the new stores with better lighting and continue
to strengthen their plan-o-gram process to better facilitate in-store navigation for their consumers. Moreover,
its new stores should also include more space for sewing supplies such as fabric. Sewing comprised 51% of Jo-
Ann’s sales for 2009 therefore concentrating in fabrics will further improve sales (Jo-Ann 10-k). Also, Non-
17
National Association of Schools of Art and Design,2010,http://www.cca.edu/about/administration/academic-af-
fairs/accreditation/NASAD
18 Jo-Ann FY09 Annual Report on Form 10-K,2010,http://phx.corporate-ir.net/Exter-
nal.File?item=UGFyZW50SUQ9MjAwNnxDaGlsZElEPS0xfFR5cGU9Mw==&t=1
19
Jo-Ann Stores, Inc. Fourth Quarter of 2009-10,2010, http://phx.corporate-ir.net/phoenix.zhtml?c=74290&p=irol-
newsArticle&id=1401257
13. Jo-Ann Fabrics 13
sewing (craft) sales have decreased from 50% in 2008 to 49% in 2009. Inventory in new stores should be man-
aged in a manner that allows Jo-Ann to increase their stock of craft materials when there is economic expan-
sion. Through remodeling efforts, Jo-Ann will improve their margins, stock of inventory, and increase their
customer retention rate.
Conclusion
We believe that Jo-Ann Fabrics have the resources to implement the aforementioned recommenda-
tions. It has the physical assets such as existing distribution channel to support the newer stores. Moreover,
Jo-Ann will be able to finance those projects as it has a large cash reserve of $80.6 million as of fiscal 2009
and the company is unleveraged. Given that Jo-Ann’s major competitor, Hancock Fabrics, has a debt to equity
of 97.7%, Jo-Ann which has 13.8% will be able to get a loan at a rate which is favorable to it.
In addition, Jo-Ann has the human resources to achieve sustainable growth. Since the employees of
Jo-Ann Fabrics have the knowledge and experience with Jo-Ann Fabrics products, Jo-Ann can leverage on the
intangible assets to better serve its customers. The passion and drive of the Jo-Ann employees will facilitate
the implementation of our recommendations.
14. Jo-Ann Fabrics 14
Appendix
Exhibit 1: Decision Tree
Exhibit 2: 6 Dimensions
Can Jo-Ann
maintaining
lead and
Does it have
the
capabilities
Does it have
the physical
assets to
Do they have
the stores ?
Do they have
the financial
backing?
Does it have
the intangible
assets to
Do they have
marketing
assets?
Do they have
intellectual
property?
Can it position
itself to a
market
Can it position
itself through
online
Pest Analysis
(Existing &
New
Can it position
itself through
retail
5 Forces
(Existing &
New
15. Jo-Ann Fabrics 15
Exhibit 3: PEST
Exhbit 4: Major Players
-Information provided by IBISWorld
http://www.ibisworld.com.ezproxy.babson.edu/industry/keycompetitors.aspx?indid=1081
35%
17%10%4%
34%
Market Share
Michaels Stores, Inc.
Jo-Ann Stores, Inc.
Hobby Lobby Stores, Inc.
Hancock Fabrics, Inc.
Other
Politics
Low
Economy
Low
Social
High
Technolog
y
Medium
16. Jo-Ann Fabrics 16
Exhibit 5: SWOT
Exhbibit 6: Jo-Ann Stores nationwide
Exhibit 7: Sales by segment for fiscal 2009
Strengths
• Large store front
presence
• Diversified Product
Portfolio
• Active in store
remodeling and
marketing
Weaknesses
• Products are influenced
by seasonality
• Aging core customers
Opportunities
• Tapping into younger
generations as potential
customers
• Increasing internet sales
Threats
• Increase in disposable
income
17. Jo-Ann Fabrics 17
Exhibit 8: Sales of Large-Format vs. Small-Format Stores
52
46
2
Sales by Segment
Large-format stores
Small-format stores
Joann.com
129
115
110
115
120
125
130
135
0 150 300 450 600 750
Salespersq.foot
Number of Stores
Sales of Large-Format vs. Small-
Format
Sales per sq. foot
18. Jo-Ann Fabrics 18
Exhibit 9: Major Market Segments
Fabric, Craft & Sewing Supplies Stores in the US - Industry Report
Market Segment Share
Women aged 55 years and older
60.0%
Hobbyists and home decorators
25.0%
Seamstresses 15.0%
Exhibit 10: Products and Service Segments
Product/Services Share
Fabrics 40.0%
Sewing supplies 30.0%
Patterns 10.0%
All other merchandise 10.0%
Curtains, draperies, blinds and slipcovers
5.0%
Seasonal decorations 5.0%
21. Jo-Ann Fabrics 21
Condensed Porter’s 5 Forces
Rivalry among Existing Companies
High
Barriers to
Entry
Low
Threats to
Substitute
High
Buyer's
Power
High
Supplier's
Power
Low
22. Jo-Ann Fabrics 22
Exhibit 15: Pro-Forma for New Stores
Existing Stores 22,000 Sf
Pro-forma
15,000 Sf
Pro-forma
Large-Format Small- Format Yr 1 Yr 4 Yr 1 Yr 4
Size 36,509 14,708 22,000 15,000
Sales (Thousands) $ 4,706 $ 1,699 $ 2,578 $ 2,817 $ 1,577 $ 1,723
Sales/Sq Foot $ 129 $ 115 $ 117 $ 128 $ 105 $ 115
Cash Flow (a) $ 663 $ 268 $ 327 $ 410 $ 234 $ 282
Cash Flow % Sales 14.1% 15.8% 12.7% 14.6% 14.8% 16.4%
Store Investment, net
new:
Capital, net (b) $ 540 $ 450
Inventor, net (c) $ 470 $ 290
Pre-opening cost $ 160 $ 130
23. Jo-Ann Fabrics 23
Total $ 1,170 $ 870
(a) Excludes depreciation, corporate margin items, distribution center expenses and corporate administrative
expenses
(b) Net of landlord allowances
(c) Net of Accounts Payable support
1. **Assumptions: larger-format store will see a reduction in sales for the first year due to a decrease in
their square footage. After four years, they will be able to retain the sales/sq footage they previously
had prior to changes in sq. footage. Smaller-format store will see a reduction in sales for the first year
due to an increase in their square footage. After four years, they will be able to retain the sales/sq
footage they previously had prior to changes in sq. footage.
