It’s been a hectic 2 years of activity with Michaels as well as its CEO Ashley Buchanan.
Reviving the image of a sluggish retail company in the most favourable of circumstances is not an easy feat. However, add the midst of a pandemic or supply chain issue and then, of course, the transfer of the business to private equity, and the task gets more complicated. Hello, Ashley Buchanan’s home.
As the CEO of January 2020 for Michaels MIK 0.0 0.1%, the retailer of arts and crafts which is the most significant participant on the North America market, Buchanan has faced plenty of challenges when he has tried to take what had been an averagely successful but admittedly stagnant business through 21st Century retailing.
“I grew up with the Michaels brand. I’m from Texas,” Buchanan told me recently during the Zoom phone call to the company’s headquarters, which is located just away from Dallas. “When I started my new job, I spoke to hundreds of our customers. Their feedback was that they were awed by the brand but wanted to understand why it was difficult for them to buy from Michaels.
“I looked at Michaels and was shocked by the crowded stores and back rooms so full you could barely move around and no plan. Customers had seen the same products for more than three years, and there was nothing new.”
Buchanan who’s friendly and easy-going style is enthralling and entertaining, is from Walmart WMT +0.7 percent in which his 13-year tenure was spent as the chief store for the first Sam’s Club and then all of Walmart online shopping, skills that were likely to be utilized in significant ways when he joined Michaels.
Although it was successful, the company had a highly undeveloped online presence and a stale product mix. “Most of our wounds were pretty much self-inflicted,” the CEO said. However, the repercussions that came a couple of weeks after his staff’s arrival was an external cause.
“About 90% of our physical stores were closed when the pandemic hit, and we had to turn the whole company into e-commerce in 90 days,” he explained. After the stores were reopened, Michaels swiftly moved to BOPIS (buy online/pick-up at the store) Same day delivery, and the ability to ship from the store.
Behind the scenes, Michaels created two distribution centers for seasonal sales, changed its order packs’ size to enable more efficient inventory control, and ensured that its top sellers were always available, which wasn’t the case in the past. This is where his Walmart education, along with its “efficiency obsession,” came to the rescue.
Its 1200 stores could have been seen as a liability during the transition into online retail, transformed into assets. “We used to ship between 86 and 92% of our online orders from our central DC, but now it’s 16% because all of those stores have become mini-distribution points.”
On the other hand, in e-commerce, the retailer won’t disclose what percentage it makes of the company’s overall business. However, he said it’s “growing very well,” and in its Michaels Pro division (launched last year) that targets resellers who buy in bulk, it’s currently accounting for 40 percent of its revenue. There’s a lot to be done online, he acknowledges. “My main issue is friction, and we’re experiencing plenty of it today. However, wherever they wish to shop is fine with me.”
The changes are getting results, and in March of this year, Michaels saw impressive gains on its highest line bottom line, sales, and earnings per share. The total revenue of $5.27 billion. However, the news came out the day before that grabbed the headlines: A private equity company Apollo Global APO -1.8 percent, was purchasing Michaels and bringing it into private with a price of $3.3 billion.
In the case of Buchanan, it wasn’t something he’d committed to before the year, but he now says it’s been good for Michaels. “They’ve bought into our strategy, and they want us to move faster.” The only thing that’s not said is that the investment made by Apollo and the lack of need to publish short-term financial performance have allowed the store to reach the point Buchanan would like to go quicker and, ultimately, greater profitability. “My experience is that they’ve been fantastic.”
Of, of course, Buchanan needs to keep the Michaels enhancements in the pipeline. The focus is on the maker’s community through online and in-store classes, launching Facebook Live sessions, and adding more new merchandise to the retail stores. The process is just one-third complete, the company says. It plans to maintain its current physical presence while it expands its online presence by expanding its services.
Buchanan claims it’s been a swift two years. “We have a total of 10 years in the same year, but we’re only in the third innings of a nine-inning match. The brand has been flipped.” The fact that we’re in the field of crafts is, he says, which is particularly popular and is probable to stay that way is a huge positive for the company.
Even as he walks through the shops, including the company’s laboratory store near Lewisville, I do not anticipate him picking up the latest kit for crafting. “My kids are always saying I’m messing it up” when we make things.
Of Michaels and the craft market, Buchanan says, “I just have to know how to run it, not do it.”