Michaels CEO on turning Party City and Joann closures into opportunities

It’s not often that two competitors exit the market at around the same time. But that’s the situation Michaels faced earlier this year when both Party City and Joann Fabrics declared bankruptcy, leaving two specialized marketplaces wide open and giving the arts and crafts chain a boost at a difficult time for specialized brick-and-mortar retailers.

The challenge now facing the company is how to fill the gap in a way that satisfies customers left behind by its former rivals, while also putting its own stamp on these categories. The recent announcement of two new shop-in-shops for party balloons and fabrics is a step in that direction.

Retail Brew spoke with Michaels CEO David Boone about how it turned these disruptions into opportunities.

This interview has been edited and condensed for clarity.

Can you walk us through Michaels’s initial response to the closure of Joann and Party City and how it’s tried to turn those disruptions into opportunities?

No. 1: Myself and the entire senior team were committed to this. We knew the opportunity was available, and what we committed to do was to take risks and go fast to get products in store because we knew those customers were going to find homes over the next six months as those retailers exited the market. I don’t think any retailer has operated as fast as we have over the past six months to put together a unique value proposition for those customers.

The second thing is talent. We went out and reorganized ourselves and acquired the talent in order to be able to execute that. The third thing was really focusing on what matters the most to the customer in those spaces, and so that’s been really detailed assortment work around operational execution and really detailed work with our vendors and global supply chain.

How were you able to expand into these marketplaces and take advantage of that opportunity without replicating the mistakes that led to these brands’ closures?

All of this business is incremental to Michaels. We have a strong, profitable arts and crafts and seasonal business that we are already operating. So these extensions are just natural add-ons to the business. We’re not really worried about making the mistakes others made in this space. Separately from that, we have really dug through the data and done a lot of consumer research on every aspect of what they’re looking for; and we’ve honed in on two things: the key products and services that are highly in demand and the experiences that customers are looking for; and then the second thing, which were still early days in: How do we make it unique to Michaels?

You’ve taken slightly different approaches in terms of responding to these two disruptions. In the case of Joann, you’ve actually acquired its intellectual property and private label brands. Why did you take this approach? And in what ways has it differed from your response to the Party City closure?

I think Joann was a very clear-cut expansion into a set of products that were 100% identified with that brand.

In the case of party products…it’s a pretty well-supplied market. There are lots of organizations that offer party supplies, and competed with Party City. We had a party business. We didn’t see any reason or need to acquire another brand for us to grow into that space.

Can you talk more about the shop-in-shop as a concept? What do you like about this form of merchandising? How does it serve Michaels’s goals as a business right now?

It starts with the customer, like everything does. What it allows us to do is put together in a more cohesive way—and certainly from a storytelling way—a value proposition that's going to resonate with the customer. That is No. 1. The second thing is, whenever you do something new, it’s always hard to demonstrate. It takes longer than you think to communicate and demonstrate to customers that you have those products and services in your store. When you build it as a concentrated shop-in-shop, it allows us to break through faster with more consumers as they walk our stores.

What have you learned about the US consumer in the last few years? What are some of the ways they’re changing in terms of their expectations and preferences?

The winning model for a company like Michaels is not going to be digital-only. It’s going to be omnichannel…It’s super important to engage customers digitally, but there is a need to visit stores, to socialize, to be a part of the community.