They say when one door closes, another door opens. I have no idea who said that, nor if that is an accurate statement, but it is an apt analogy in the case of Michaels.

In 1973, Michael Dupey founded Michaels in Dallas when he converted a money-losing Ben Franklin five-and-dime store into an arts and crafts store. (Fun fact: Sam Walton started Walmart under the Ben Franklin banner, too). At its start, it was a small-format arts and crafts store, and over the years it has blossomed into a large-format crafts and more store that we are all familiar with today. Since 2021, when it was acquired by Apollo Global Management, it has been private, but estimates are 1,237 locations in the United States and roughly $5-6B in revenue. A pretty amazing 53-year run if you ask me.

When I think of Michaels, I think of a type of large format, specialty retail that has been eviceracted by eCommerce. Sports Authority, Best Buy, JoAnn’s, Party City, Toys-R-Us, Michaels, Barnes & Noble, Gamestop, Office Depot, Staples, Bed Bath & Beyond, and more. Most of these stores are at best a shell of themselves, and at worst, no longer operating. For those who have survived, a common trait is that they have leaned into problems that eCommerce has not been able to solve. Barnes & Noble offers community and curation. Best Buy offers installation services and is a trusted source of information. Michaels offers a distinct assortment and experience, which, while you can get on eCommerce, those items are a pain to ship.

Diving deeper into Michaels, I believe there are two key factors to their success: assortment and pricing. This may seem basic, but it is not as simple as it sounds. If most retailers are able to get this right, they will succeed. I would argue these are maybe the top two factors for a retailer to succeed.

Let’s start with assortment. As discussed earlier, two stores that closed recently were JoAnn’s, which was a fabrics/crafting store, and Party City, a party supplies store. Both of these categories were products that Michaels either carried in a limited assortment or were very complementary in nature to their other products. This article dives deeper into the timeline, but Michaels was able to roll out 700 new products in a very complicated supply chain category in less than a year. They were even able to set up a whole Helium infrastructure in that time frame, no small feat. And it’s working. Here is a post I found on the Michaels employee subreddit:

Clearly, these business units are able to drive traffic and sales. Most likely not enough to sustain an entire business, but enough to be a strong component of an adjacent business. Plus, both have many facets of a business line that is very resistant to eCommerce penetration.

Finally, onto pricing, which is the more recent adjustment. Customers are very price sensitive right now and are unafraid to shop around. However, that doesn’t mean everyone just buys the lowest priced option; consumers are looking more at the entire value equation, which price is a part of. Another part of value is perceived value, which is what are people hearing, reading, etc. about a store’s pricing. This week, Michaels launched a PR campaign about their new price on more than 3,000 items across categories including arts and crafts, home decor, and its new The Party Shop and The Knit & Sew Shop. Combining the new prices with advertising their new assortment is brilliant. You can’t just lower prices in a vacuum; you need to take credit for the pricing. Otherwise, customers will not give you the credit with increased pricing. Micheals in on a tear right now, and it will be exciting to follow along and see what else they end up doing.

In October, I put the finishing touches to something I had been seeing for the past year or so: early-stage, retail AI startups were on the rise. Given the density of retail, CPG, and consumers in NYC, it created an amazing place to create AI for retail and CPG brands, as well as their interaction. I put together this market map overviewing all the companies I could find.

One company I mentioned in that piece was Glimpse, a software tool that helps CPG brands manage their distributor deductions, which can be a big headache for brands to manage. This use case is amazing for AI, there is a ton of fragmented, disparate data sources, that AI can package up to save money. There are major savings for brands by disputing and winning those deductions.

This week, Glimpse announced a $35M round to “Bring AI-Native Infrastructure to CPG and Retail.” The round was led by Andreessen Horowitz with continued participation from existing investors 8VC and Y Combinator. This brings the total capital raised to $52M. The plan for the capital is to keep building tools for CPG brands. It will be very exciting to follow along. Exciting for retail and exciting for NYC!

Unilever has been on a restructuring tear, after the conglomerate amassed many different semi-connected businesses. After spinning off its ice cream division, it is in talks to get rid of the remainder of its food business, so it can focus on its core personal care and beauty business. This week, news came out that McCormick, the company mainly known for its spices, is interested in the business. McCormick has been interested in increasing its portfolio recently via M&A, having tried, but failed to purchase sauce Banchan and Duke’s Mayo. This acquisition would give them a plethora of brands, led by Hellman’s and Knorr. This potential merger seems to be moving very quickly, so it will be interesting to see how it pans out.

Michaels is not the only retailer undergoing some changes. Dollar General, the discount retailer mostly located in rural areas, is also trying to reinvent itself. In a recent earnings call, the CEO shared some of the many changes. Here is a brief summary:

This week, Glossier, the beauty brand, announced that it would be closing nine of its 12 stores over the next couple of years. The only stores remaining will be the three flagships in New York, Los Angeles, and London. Glossier was founded by Emily Weiss in 2014 as a D2C focused brand. After initial success, it has failed to reach the next level, and is trying to shake up the playbook. The retail stores were initially a success, but it was the type of retail that was more for pop-ups rather than permanent locations. Instead of focusing on owned retail channels, they are going to be focusing more on Sephora to reach scale. Glossier is included in the free birthday gift for Sephora, which is a great way to gain additional reach. Sephora has such a wide portfolio and domination of the market that it is challenging to compete directly. Especially when the product mix is more geared towards consumers purchasing across a plethora of brands. It will be interesting to see how Glossier charts ahead. I could see pop ups doing well, so I wonder if they will bring it back.

Think of this as a mental power-up.

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