Is Michaels Going Out Of Business?

Is Michaels going out of business? Michaels, a well-established arts and crafts retail chain with a legacy of over 45 years, has been a trusted source for creative enthusiasts. Operating a vast network of over 1,200 stores spanning the United States and Canada, Michaels offers a diverse selection of art supplies, crafting materials, home decor, and seasonal items.

Recently, there has been speculation about the possibility of Michaels facing financial challenges, particularly following the closure of some of its stores. In this article, we’ll delve into Michaels’ financial performance, the factors contributing to store closures, shifts in consumer preferences, competition within the arts and crafts industry, and the company’s response to these concerns.

By the end of this article, you’ll gain insights into whether Michaels is in danger of going out of business or if there’s more to the story.

Michaels’ Financial Performance

Michaels Stores Inc. has been a prominent player in the arts and crafts industry for many decades, consistently delivering strong financial performance, achieving over $5.2 billion in revenue in 2020. However, the COVID-19 pandemic posed significant challenges, leading to a reported net loss of $97 million in the second quarter of 2020.

In response to these challenges, Michaels proactively implemented cost-cutting measures, including reduced store hours, employee layoffs, and rent renegotiations with landlords. Notably, they also invested in enhancing their e-commerce capabilities, a critical move that aided their resilience during the pandemic.

Competitive pressures within the arts and crafts industry, with rivals like Hobby Lobby, Jo-Ann Fabric and Crafts, and AC Moore, have affected Michaels’ market share. Despite these challenges, the company has maintained relatively steady revenue around the $5.2 billion mark, but rising operating expenses have impacted net income. 

Nonetheless, Michaels has sustained healthy profit margins, boasting a gross profit margin of 39.9% in 2020. This success can be attributed to their commitment to driving sales through product innovation and customer engagement. The company’s diverse product range, including exclusive brands and licensed merchandise, has played a pivotal role in setting it apart from competitors.

Michaels’ Store Closures

In recent years, Michaels has decided to close down several of its stores throughout various locations in the United States. One of the most recent closures occurred in Fresh Meadows, Queens, in January 2023, prompting curiosity and concern among both loyal customers and employees about the company’s future direction.

The rationales behind these store closures are multifaceted, with critical factors encompassing declining in-store sales and the amplified competition posed by online retailers. Additionally, some locations may need help to meet revenue expectations, necessitating these tough decisions.

Undoubtedly, these closures have had a notable impact on Michaels’ overall business operations. With a reduced physical presence, the company has increasingly relied on its online platform to drive sales, which can be a formidable challenge in an industry brimming with competition. Furthermore, the store closures have also left an imprint on employee morale, as some have had to navigate job losses or transfers to other locations.

However, it’s important to note that Michaels has proactively addressed the challenges posed by these closures. They have shifted their focus toward enhancing the quality of service in their remaining stores, prioritizing a more satisfying customer experience. Simultaneously, Michaels has expanded its online offerings, making it more convenient for customers to access their favourite arts and crafts products from the comfort of their homes.

Changes in Consumer Behavior

The impact of the COVID-19 pandemic on Michaels was substantial, reshaping consumer behaviour within the arts and crafts industry. The stringent safety measures and restrictions to combat the virus prompted consumers to adapt their shopping habits, resulting in a notable shift in product and service demand.

A significant transformation in consumer behaviour has been the surge in online shopping. With the closure of physical stores and limitations on in-store shopping, consumers have increasingly turned to online platforms for a safer and more convenient shopping experience. Michaels has been attuned to this shift and has invested in enhancing its online shopping offerings to cater to evolving consumer preferences.

Another notable change in consumer behaviour is the heightened focus on home-based activities. With stay-at-home orders in effect, consumers are spending more time at home and seeking creative and engaging pursuits. This has spurred greater demand for art and craft supplies, a positive trend for Michaels.

Furthermore, consumers have become more budget-conscious, actively seeking ways to save money. This shift has translated into increased demand for affordable and value-driven products. In response, Michaels has adjusted its strategies, offering promotions, coupons, and discounts to attract price-sensitive consumers.

Competition in the Arts and Crafts Industry

The arts and crafts industry is a highly competitive landscape, with multiple key players vying for their share of the market. Among the prominent competitors challenging Michaels are Hobby Lobby, Joann Fabrics, and AC Moore, all offering similar products and services, establishing themselves as significant industry contenders.

Hobby Lobby is renowned for its extensive arts and crafts supplies, home decor, and seasonal offerings. With over 900 stores nationwide and a workforce of more than 43,000 employees, it has solidified its presence in the market. In contrast, Joann Fabrics specializes in fabrics and sewing supplies but also extends its product range to encompass various crafting materials. Operating over 800 stores in 49 states, the company has also established a robust online presence.

AC Moore, once a notable competitor to Michaels, faced financial challenges and filed for bankruptcy in 2019, ultimately leading to the closure of all its stores. Nevertheless, industry giants like Walmart, Target, and Amazon have entered the arts and crafts sector, posing a formidable threat to speciality retailers like Michaels.

To maintain a competitive edge, Michaels has strategically adopted various approaches to set itself apart. One such method involves expanding its product offerings to include unique and exclusive items unavailable elsewhere. Additionally, Michaels boasts an extensive loyalty program that rewards customers for their patronage, offering discounts and exclusive deals to its members.

Moreover, Michaels has made significant investments in enhancing its e-commerce platform, enabling customers to shop online with the convenience of in-store pickup. The company has also extended its same-day delivery service to over 1,000 stores, providing customers with multiple options for receiving their orders.

Michaels’ Response to Speculation

The speculation surrounding Michaels potentially leaving business has understandably raised concerns among its various stakeholders, including employees, customers, and investors. Responding to these concerns, Michaels has issued official statements aimed at addressing the situation and reassuring its stakeholders that it remains a viable entity.

In its statement, Michaels emphatically asserts that it is not on the path of going out of business and remains steadfast in its commitment to delivering top-quality arts and crafts products and services to its valued customers. The company also acknowledges the unique challenges brought about by the pandemic within the industry and underscores its adaptability to navigate these evolving market conditions.

In response to these challenges, Michaels has undertaken concrete actions to enhance its financial performance and streamline its operations. In 2022, Michaels strategically closed certain underperforming stores to reduce costs and optimize its portfolio. The company also implemented cost-saving measures and bolstered its online presence to reach a broader customer base and increase sales.

This response from Michaels has garnered a positive reception from its stakeholders, reinforcing the company’s dedication to maintaining its prominent position in the arts and crafts industry. The management of Michaels has further conveyed their confidence in the company’s resilience and its ability to surmount the challenges that the sector presents.