Clotheshorse with Amanda Lee McCarty: Episode 234 – "Who Killed Jo-Ann?"

Introduction

In Episode 234 of Clotheshorse with Amanda Lee McCarty, host Amanda Lee McCarty delves deep into the rise and fall of Jo-Ann Fabrics, exploring how various factors, including private equity, mismanagement, and shifting consumer trends, contributed to the company's eventual bankruptcy. This comprehensive summary captures the key discussions, insights, and conclusions from the episode.

1. The Stress of Being a Content Creator

Timestamp: [00:00]

Amanda begins by sharing her personal struggles as the face behind the Clotheshorse brand on social media. She discusses the anxiety associated with posting content, fearing posts might flop or invite harsh criticism.

Amanda Lee McCarty: "If you wear clothes, you need to listen to Clotheshorse." ([00:00])

She highlights the dual nature of social media engagement—positive interactions can lead to broader visibility, while negative comments, especially on platforms like TikTok, can be particularly brutal. Amanda recounts a specific instance where a TikTok user wrongly accused her of working for Nike, leading her to block him across all platforms.

2. The Story Behind Jo-Ann Fabrics

a. Origins and Growth

Timestamp: [04:10]

Amanda transitions to the core topic: the history of Jo-Ann Fabrics. Founded in the early 1940s in Cleveland, Ohio, by German immigrants Hilda and Bertold Reich, the company initially sold cheese and gourmet foods before pivoting to fabrics at the suggestion of fellow immigrants, Sigmund and Matilda Rohrbach.

Amanda narrates the company's growth through the decades:

• 1943: Transitioned to Cleveland Fabric Shop.
• 1948: Opened a second store, with family members actively involved in operations.
• 1963: Expanded to 18 stores across Ohio.
• 1969: Rebranded as Fabry Centers of America and went public.
• 1970s-80s: Embraced the shopping mall trend, opening 4,000 square-foot stores.

b. Transition to Jo-Ann and Expansion

By the late 1960s, the company had expanded significantly, boasting 169 stores in 28 states. They rebranded again to Joann Fabrics in honor of the founders' granddaughters, Joan and Jacqueline Ann. The focus remained on expansion, positioning Joann as a one-stop shop for sewing and crafting needs.

3. The Impact of Private Equity on Retail

a. Understanding Private Equity

Timestamp: [21:48]

Amanda provides an in-depth explanation of private equity, comparing it to "house flipping" but for companies. Private equity firms pool capital to buy companies, aiming to improve and eventually sell them for profit. This often involves:

• Streamlining operations
• Cutting costs
• Identifying growth opportunities

However, Amanda warns that private equity can sometimes resemble parasitic practices, where firms extract value with minimal investment in the company's long-term success.

b. Red Lobster as a Case Study

Using Red Lobster as an example, Amanda illustrates how private equity can contribute to a company's downfall. In 2013, Golden Gate Capital acquired Red Lobster for $2.1 billion, selling off its real estate assets for $1.5 billion. This move saddled Red Lobster with substantial rent expenses, contributing to its financial struggles and eventual bankruptcy.

Amanda Lee McCarty: "Private equity is rarely looking to invest additional money into a company to make it better." ([21:48])

4. Jo-Ann’s Operational Decline

a. Financial Troubles and Acquisitions

Timestamp: [65:10]

By the late 1990s, Joann was grappling with significant debt from acquiring struggling fabric store chains like Cloth World and House of Fabrics. Additionally, the company faced legal issues, including a $3.3 million settlement for overstating earnings in 1992. These acquisitions not only failed to rejuvenate the brand but also burdened it with debt.

b. Leadership Changes and Rejuvenation Efforts

In 2006, Joann appointed Darrell Webb as CEO, the company's first non-family leader. Webb focused on returning to Joann's roots by emphasizing sewing over general crafting, which temporarily improved the company's financial standing. By 2010, Joann was debt-free, and sales were stable.

c. The Leveraged Buyout and Increased Debt

Timestamp: [80:25]

However, in 2011, Leonard Green and Partners (LGP) executed a leveraged buyout (LBO), taking Joann private for $1.6 billion. This move introduced substantial debt into the company's finances, setting the stage for future challenges.

Amanda Lee McCarty: "A leveraged buyout can destroy a business with debt." ([80:36])

5. Factors Leading to Bankruptcy

a. Staffing Cuts and Operational Inefficiencies

Timestamp: [103:07]

Throughout the 2010s, Joann experienced a revolving door of nine CEOs from 2011 to 2023, most lacking expertise in crafting or sewing retail. The company implemented significant staffing cuts to reduce expenses, leading to:

• Understaffed stores
• Inventory management issues
• Poor customer service

These operational inefficiencies created a vicious cycle where declining sales led to more cuts, further exacerbating the decline.

b. Increased Competition

Joann faced intense competition from:

• Michaels and Hobby Lobby: Both expanding aggressively with similar product offerings.
• Big Box Stores (Target, Walmart): Offering comparable craft and home decor items at competitive prices.
• Online Retailers (Amazon): Providing a vast selection of sewing and crafting supplies, often at lower prices.

This competition diluted Joann's market share and made it difficult to maintain profitability.

c. Shifting Consumer Trends

The decline of home sewing as a necessity played a significant role. With the rise of fast fashion and less time for crafting among consumers, the demand for Joann's core products diminished. Additionally, Joann's overinvestment in non-sewing categories like home decor did not resonate with their primary customer base.

d. COVID-19 Pandemic and Temporary Rebound

Timestamp: [75:16]

In 2020, amid the COVID-19 pandemic, Joann experienced a temporary surge in sales as more people took up sewing and crafting while staying at home. The public offering raised $131 million, seemingly marking a new era for the company. However, this rebound was short-lived, as sales plummeted in subsequent years, leading to a final decline and bankruptcy filing in 2024.

Amanda Lee McCarty: "The demise of Joann is less about private equity... and more about a lack of adapting." ([103:07])

6. Reflection and Potential Solutions

Amanda contemplates what could have been done differently to save Joann Fabrics. She suggests:

• Refocusing on Core Customers: Prioritizing sewists and enhancing the sewing experience.
• Expanding High-Quality Fabric and Notions: Offering a diverse range of fabrics and partnering with indie designers.
• Investing in Education: Creating in-store classes and workshops to foster a new generation of sewists.
• Improving Staffing and Customer Service: Hiring knowledgeable staff to enhance the shopping experience.

Amanda emphasizes the importance of adaptability and customer-centric strategies in ensuring business longevity.

7. Conclusion: The Sewing Revival and Supporting Local Fabric Stores

Timestamp: [112:33]

Amanda concludes by highlighting a resurgence in sewing and mending, driven by dissatisfaction with fast fashion and a growing awareness of its environmental impact. She advocates for supporting local fabric stores to create a thriving, community-oriented market for sewing supplies.

Amanda Lee McCarty: "Business that survive, that thrive, are the ones who change." ([112:38])

Amanda encourages listeners to actively participate in building a sustainable future for sewing by supporting local businesses and embracing the revival of handmade and custom clothing.

Notable Quotes:

• Amanda Lee McCarty: "The demise of Joann is less about private equity... and more about a lack of adapting." ([103:07])
• Amanda Lee McCarty: "Private equity is rarely looking to invest additional money into a company to make it better." ([21:48])
• Amanda Lee McCarty: "A leveraged buyout can destroy a business with debt." ([80:36])
• Dustin Travis White: "I had five last night. Me, I ate seven. How many crab legs did I eat? They were so good..." ([21:48])

Final Thoughts

Amanda wraps up the episode by reflecting on the broader implications of Joann's failure, drawing parallels to other retail giants and emphasizing the necessity for businesses to evolve in response to changing consumer behaviors and market conditions. She inspires listeners to take an active role in shaping the future of the sewing and crafting community.

This summary encapsulates the essential discussions and insights from Episode 234 of Clotheshorse with Amanda Lee McCarty. For a deeper dive, listeners are encouraged to tune into the full episode.