Jo-Ann Final Report

1. ASM3300-4 Strategic Problem Solving Stephanie Alim James Avelar Christian Joseph Nicole Giuliano Alisha Varde

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-Anns 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 economic downturn, they are opt to run into challenges in the future based on their current customer base and store inefficiency. 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-Anns 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 efficient. 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 social 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, Porters 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-Anns financial health informed us of any key issues facing the company. After the analysis 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 industry 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 personal disposable income which also influence the quality, quantity and frequency of purchases. In higher income 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- chaels, 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% market 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-Anns 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 nations largest specialty retailer of fabrics and one of the largest specialty retailers 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 dcor, scrapbooking, 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 leaders. 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, approximately 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 customers 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 employees start off as customers. Customer Base Jo-Ann Fabrics customer base is comprised largely of baby-boomers. 60% of Jo-Anns 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 industry. 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 linessewing 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 dcor, and craft materials (Exhibit 10). Jo-Ann stores offer consumers classes in knit and crochet; quilting; sewing for apparel, home dcor, and crafts; scrapbooking; painting; jewelry-making; floral design; and food crafting. The classes are designed for varying levelskids, 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 segments 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 industry, 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-format stores spread over 47 states (Exhibit 6). Essentially, Jo-Ann has two types of storeslarge-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 goodsand its opening dateonly 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 dcor 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 selling 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 addition, 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 years 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 fabric 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 improve 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 million 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 Hancocks 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 million 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-Anns 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-Anns potential customers 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 attract 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-Anns revenue which exceeds their competitor Hancock Fabrics internet sales which are 1.7%.12 According to Jo-Anns 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-Anns current 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 . 13 Capital IQ. Jo-Ann Fabrics Balance Sheet. 31 January 2010. . 14 Kellogg School of Management Generation Y Conference

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-Anns 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 designer fabric line would appeal to fashion school students. Therefore, Jo-Ann should consider possible partnerships with fashion schools. These partnerships would give Jo-Ann an additional way to reach the younger segment. 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 employees 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-Anns 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 campaigns. 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-Anns DIY videos, they will create a symbiotic shopping experience which will enrich the lives of customers and provide 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 therefore 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 feetfor its stores to maximize sales per square foot and cash flow generated by individual stores (Exhibit 15). In recent years, the pre-opening costs of these stores have become favorable 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- Anns 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 managed 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 recommendations. 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-Anns 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%

19. Jo-Ann Fabrics 19 Exhibit 11: Jo-Ann and Hancocks Financial (1)

20. Jo-Ann Fabrics 20 Exhibit 12: Jo-Ann and Hancocks ROE and ROA Exhibit 13: Jo-ann and Hancocks Financial (2) Exhibit 14: Porters 5 Forces -45.0% 5.0% 2008 2009 Percentage ROE and ROA $- $125.00 $250.00 $375.00 $500.00 Jo-Ann Hancock 2008 2009

21. Jo-Ann Fabrics 21 Condensed Porters 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.

24. Jo-Ann Fabrics 24

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Jo-Ann Final Report