Amanda Lee McCarty (37:15)
The connection between private equity and the bankruptcy of Red Lobster is pretty obvious with Joanne. It's a little bit more complex while simultaneously not so different from Red Lobster. We're going to see similarities here. We're also going to see a lot of differences, and I think the best way for us to understand this all is to just walk our way through the history of joann and how it fit or did not fit into huge social and economic changes over the decades. In 2003, Joann celebrated 60 years of business with special shirts for its employees and a super special anniversary magazine that was available in stores. And no, strangely enough, it was not free. Which, I'm sorry, this feels like a misstep already. And while I don't have that magazine in hand, I'm lucky that the Internet still exists and parts of this magazine are still available online. And a story from this magazine called 60 Years of Serving Creativity by Marsha McGregor gives you a good view of the history of the company, while also because remember, this was in a magazine that the brand itself was selling. It also omits some key things like the time it was accused of committing securities fraud in the mid-90s, which we'll also get to. But the story itself is super gloppy and sappy, as one might expect it to be. I mean, this person was paid, maybe even was a Joanne employee, paid to write this article for a magazine magazine celebrating joanne that is sold in joanne. We're not going to get the most unbiased journalism here, but I still think there are some really important parts of that article that actually get us started on our journey to understanding what happened to Joanne. The whole article begins with a little vignette that I'm going to read to you word for word right now. Are you ready? A young boy busies himself straightening the shelves of notions in his family's shop. It is Saturday and the store is humming with its familiar sounds. Customers chatting while they thumb through patterns, scissors cutting fabric from broad, colorful bolts, children tugging on their mother's sleeves, asking for a drink of water. Feeling a familiar tap on his shoulder, the boy turns a dollar bill and a handwritten note are pressed into his hand. The note bears a cryptic message that he quickly decodes. Butterick 55 62, size 12. He understands his mission and instantly darts out of the store. A customer has requested a pattern and his grandmother has learned that she does not have it in stock. So she has quietly dispatched him to buy the pattern her customer seeks from the five and dime across the way. He returns, quickly, transferring the package to his grandmother's hand. There is a brief, unspoken exchange of COVID victory between the two of them. She will make no money on that sale today, but she has kept a customer happy. Instinctively, she knows this decision is sound business as surely as she knows cotton from silk. The boy, watching the customer smile as she thanks his grandmother and pays for the pattern, listens and learns. He has witnessed again what lies at the core of his family's business ethic. And it will stay with him always. So the moral of this little story is that, well, that little boy's grandma, Hilda Reich, one of the founders of joann, knew that the most essential part of a successful business was making the customer happy. Now, I've worked many places where executives would repeat over and over in, like all hands meetings and business meetings, we're obsessed with our customer. She's our muse, et cetera. But then in the way we ran our business and the kinds of products we offered, we. We didn't really reflect this obsession. None of the decisions did. However, this is advice I give my clients all the time. A successful business with longevity must listen to its customers. Both the things the customer says explicitly in product reviews and in store, and via her behavior. What does she want? When does she want it? Where does she live? How do we meet her, where she is? That means changing as she changes. As we walk through the history of Joanne, we will see times when the business did adapt to changing times, trying to follow its customers. And we will also see when and where the company did not prioritize its customer and the ever changing world she lived in. Remember when I said that private equity was part of the demise of Joanne, but not the whole story? You'll start to see evidence of other bad decisions the company made as we move through its history. Now, that little boy in that story is Alan Roskam, the CEO of Joann from 1985 until 2006. And he is responsible for moving Joanne into larger stores and strip malls. He's also responsible for overseeing the company while it was doing some really dumb shit. And. And to be honest, by the time he stepped down as CEO, Joanne was on the verge of bankruptcy. Things were very bad. There were good times, there were bad times. I'm sure he learned a lot of stuff along the way. The story of Joanne begins in the early 1940s in Cleveland, Ohio. And it's such a quintessentially American dream kind of tale. German immigrants Hilda and Bertold Reich were running a cheese and gourmet food shop, which sounds amazing and I wish I were there right now. Sigmund and Matilda Rohrbach, who were also German immigrants, said, hey, I see, you're selling cheese, you're selling food. We have an idea. Why don't you also sell fabric? I'd say this a lot of like, what? It was a different time, okay? And Hilda and Berthold were like, yeah, like, let's give it a try. And so they put some fabrics in there and people were buying them. And then soon they moved the fabric fabrics to the front of the store and that was going even better. So they moved the food shop to another location and made this whole shop just a fabric store. And they called it Cleveland Fabric Shop. And that happened in 1943. Cleveland, as in Cleveland, Ohio, which is where they were. I know, wild name choice, right? This store was primarily run by Hilda and the Rohrbach's daughter, Alma Zimmerman. A second store was opened in 1948. Betty Reich, another daughter, and her husband, Martin Rosscam, would deliver new bolts of fabric to the store every Saturday. So we see that it's a real family run business with Hilda still leading it. And as the business grew, Martin would actually serve as CEO for years. By 1963, there were 18 Cleveland fabric shops in Ohio. And the families, the Reichs and the Rohrabachs, saw real potential to expand outside of Ohio. And a new name would make that easier. So they rebranded the business and the stores as Joanne Fabrics with a hyphen. The name combined the names of Alma and Betty's daughters, Joan and Jacqueline Ann. As the business grew and grew, it remained fueled by the family. Hilda lived to be 87, and she worked in the stores until five days before she died. Alma and Betty worked for the company well into this century. And wow, did Joanne grow. By the late 60s, the company had 169 stores in 28 states. It changed its name to Fabry Centers of America, and it became publicly traded in 1969. In the 70s and 80s, the company leaned into an emerging trend, shopping malls. And it began opening 4,000 square foot stores and shopping malls around the United States. To give you some context in terms of size, because when people say square foot to me, I'm like, I. I don't know, what does that mean? Right? The average Gap store. And I said Gap, because I think many of you have encountered a Gap at some point in the mall, at least walked by it. The Average Gap store is about 6,500 square feet. So the Joann stores of this era would be smaller and significantly, this is an understatement, significantly smaller than the superstores that would begin to emerge in the 1990s. By 1980, the company had opened it its 500th store in the midst of all this growth, and trust me, there is much more to come. The company was working its way through some major social changes. In the 1940s and 50s, women were sewing clothing for themselves and their families out of necessity. It was easy to sell fabric and patterns. You barely had to try at it, right? But in the 1960s, there's a new competitor on the horizon, and that is mass produced clothing. And it was becoming more readily available. So the company pivoted to marketing the very true idea that making your own clothing was the way to ensure you had something unique that fit you perfectly. I also will just say, through the 60s and 70s, while we are seeing a rise of mass produced clothing, and certainly, you know, we see magazines and other media really pushing this idea of mass produced clothing, perhaps even being superior to homemade clothing, still in the 60s and 70s, from a financial perspective, it was less expensive to make your own clothing. And slowly over time through the 80s and 90s, that shifts, right? And for a while it's about the same price. But of course there's the price of effort and time, right? So that makes sewing your own clothing a little less desirable. But by the time we get to this century, especially with the rise of fast fashion, you know, clothing production being over outsourced to overseas, where it is so much less expensive to make clothing, we start to see this huge gap where now sewing clothing is significantly more expensive than the clothes you can buy in your average store. Now, you and I know that there are a lot of reasons for that. That's what Clothes Horse talks about all the time. And the other thing I just want to call out here is that of course now, and people tell me this all the time, like, I don't know, it is way cheaper to go out and buy clothes than sew them. Technically, yes, but what kind of quality are you getting in those clothes, right? What is the longevity of those clothes? And so in theory, if you're using nice fabric and you're doing a great job of sewing, anything you make at home is going to last far longer than anything you buy pre made. And in that situation, probably you are saving money by sewing your clothes. But it's like a longer game, right? So, so that is, I'm going to tell you. Another nail in the coffin of Joanne, perhaps, is that over time, people are just like, why would I sew my own clothes? It's more work and it costs more money. In the 60s and the 70s, we are not there yet. And another thing that was like a sort of a boost for the sewing industry is that the sewing machine industry, specifically Singer, was marketing to a new group of customers, teenage girls and young women, telling them that by sewing their own clothing, they could afford to stay on top of trends. Furthermore, most public schools at this point were including sewing as part of their mandatory home economics curriculum, creating an entire generation, baby boomers, who knew at least a little something about sewing. And to even further grow this market of home sewers, joann began to offer more fabrics that were easier to sew. So great for beginners or people who are just really nervous or maybe didn't have the full skill set to sew with the really difficult fabrics. So they started selling things like double knits and polyester, which were a little bit more forgiving. And this just grows their business even more because more people are sewing and it makes sense for them to sew. And once again, joann isn't having to do a lot of pivoting to sell fabric and patterns. They just need to be in more locations, right? So their focus really is expansion, not even necessarily new customer acquisition at this point, because customers are just showing up. They're like, waiting for the store to open. And in the 1970s, as the United States was struggling with inflation and a poor economy, many families found themselves relying on sewing clothing at home more than ever. Because as I said, at this point, sewing your own clothing was. Was still more affordable than buying mass produced clothing. And I'll tell you, we'll come back to this later in this episode, but the leadership of Joanne would say over and over again, fabric and patterns recession proof, right? Like we've proven this. We just came through the 70s where people were really struggling and our business was stronger than ever because no matter what, people are going to need to buy fabric to make clothes. They felt like there was no risk in expanding this massive fabric chain because it would always be a necessity. Like a grocery store, right? And you can say, like, to a certain extent, a grocery store is kind of recession proof, right? Because people will always need food. The thing that I think no one at joann saw coming is that which I talked about a few minutes ago was that the way clothing was manufactured was going to change so much that soon clothing would be cheaper to Buy pre made than to make it yourself at home. And when that happened, which really, like I said, starts to kick up as we go through the 80s and the 90s and then just like reaches critical mass in this century, that shift is one of the reasons that Joanne is not with us anymore. It's more complicated than that. And I still think the business could be saved. We'll talk about that more later too. But. But we cannot understate the fact that a shift happened where sewing clothing went from being a necessity, a part of day to day life. Remember way back in the episode with Ruby, I think that was in December, we talked about how it used to be very normal that one of your wedding presents was a sewing machine or you might get one when you graduated from high school or from college. Like, like everybody was sewing at home. And a sewing machine was just as ubiquitous as a washing machine. Sewing went from a regular part of day to day life of the sewing machine, an essential appliance for every household, to a leisure activity. And when that happened, which it took decades to play out, that is when fabric stores were no longer recession proof. Because if you're struggling for cash, one of the first things you're gonna do is cut out your hobbies, right? And sewing, you're not going to go. You're not going to go. Hit up Joann. The 1980s were a weird time for Joann. Like I said, while fabric and sewing had always seemed like a sort of recession proof business, it wasn't immune to changing social trends. And the fact was that more and more women were working outside the home, which gave them significantly less time to sew. Once again, sewing was now a leisure activity. And with the little bit of leisure time that these women did have, they wanted to do something relaxing. And here we see the beginning of a trend called cocooning. It was a term coined by futurist and trend predictor Faith Popcorn. Okay, I just said someone's named Faith Popcorn. So let's put cocooning aside for a minute and let's take a side trip to meet Faith Popcorn. So Faith Popcorn, she changed her name to Popcorn. Legally, she was not born a Popcorn. She worked in advertising for eight years before founding her own consulting firm, brain Reserve, in 1974. And Brain Reserve's thing was identifying future trends for companies and how they may affect the business. Like imagine if Joanne had hired Faith Popcorn, which they did not. And she'd said, listen, there's going to come a time. I can see it based on all this industry data, I'm looking At that, people are going to stop sewing their own clothing, so you need to pivot. Joanne did not do that. But this is why a company would hire someone like Faith. And then, in theory, listen to her. I will just say that this is like a dream job for me, but it also is a super essential business. For example, Faith Popcorn advised Coca Cola to get into bottled water. Now, she told them that in 1981. And I don't know how hard they listened, but. But they launched Dasani in 1999, and I think that still counts as listening to her, even if it was 18 years later. She also told Kodak in the 1980s to start exploring digital photography. According to Popcorn, we told them that print film was dead and the future was all digital. They fired us. But she was right, right? In the 1990s, Fortune magazine called her the Nostradamus of marketing. But she believes that predicting trends is possible by tirelessly observing the culture around us. In 2014, she told reporter Peter Firth, it's reading everything you can get your hands on. It's going to different neighborhoods and trying new foods. It's going to the theater and seeing a ballet and then going home and binging on reality TV on Netflix, absorbing as much as you can, asking yourself what it all means. It's the notion of reaching out and touching as many parts of culture as possible, using all of your faculties to get a real feel for what's going on and then making sense of the whole. And I absolutely agree with her. And I have to say, my favorite part of being a buyer and now a product merchandising consultant is using what I see around me to predict trends in products, social media, and how and why people buy things. Now, Faith Popcorn wasn't always right. In 2006, for example, she predicted mechanized hugging booths, with which chill me. We could say, I'm not saying we're saying this, that those massage chairs at the mall that you pay like a quarter or whatever to use for 10 minutes, that those are essentially mechanized hugging booths. If we wanted to say that, we don't need to. But she also nailed a lot of other predictions that seemed pretty far out at the time, like using DNA to clone beloved pets. The idea that the average adult would have several jobs at one time, Facts and fan fiction, which she predicted as fan films. But it was essentially like, people will become so obsessed with certain books, films, and television shows that they will make their own film versions of what they would like to see the characters do. And so they didn't go that far. But she did predict fan fiction. She may have predicted those massage chairs at the mall. I'm just saying. But whether she was wrong, right, or somewhere in between, she also kind of predicted AI taking people's jobs. She keeps it all in perspective. She says there are no such thing as predictions that are wrong. There are only predictions that haven't been right yet. So that's Faith Popcorn. And once again, imagine if Joanne had hired Faith Popcorn. It's hard to say if their business would have changed, because it seems like a lot of these companies don't listen or they don't listen for a long time. But at the very least, someone who was in that first meeting with Faith Popcorn could look back 20 years later and be like, faith told us, I told you, and now look at us. We didn't listen. I don't know. Anyway, let's talk about cocooning, which Popcorn described to the LA Times in 1987 as, quote, a rapidly accelerating trend toward insulating oneself from the harsh realities of the outside world and building the perfect environment to reflect one's personal needs and fantasies. She first predicted this trend in 1984. Right. And I. I'm just gonna tell you, we saw this happening during peak pandemic era, and we called it Jomo, the Joy of Missing Out. But it was essentially like staying at home and making your house cozy and doing things at home that were comforting and wearing comfortable clothing, et cetera, et cetera. You may remember that we talked about it on the department, but I think we also. We lived it right. Here was the evidence that Faith Popcorn saw that made her see cocooning as an emerging trend. She said she noticed that people were buying a lot more of this, like, softer sectional furniture for lounging and, like, lazy boys and things like that, instead of just, like, more hard sofas that were more for sitting or entertaining guests. We're talking places where you lay down and watch movies and read books and take nap apps. She noticed that people were getting really into buying big cookies, which were indicative of sort of, like, need for comfort. She noticed that people were buying more frozen gourmet foods that they could reheat at home rather than going out for dinner. And she also noticed a renewed interest in foods that people may have eaten as children and adolescents that brought them a lot of comfort as adults, like, I don't know, macaroni and cheese, basically. Once again, the joy of missing out or nesting or any of the other names we've seen it called over the years. That's what cocooning was. And cocooning of course brought shopping trends along with it. I mean, big cookies, right? Soft furniture, but also comfortable clothing just for lounging at home, more interest in decorating the home and of course doing sort of like comforting crafts. Right. So Joanne does two things as a reaction to this trend of cocooning along with the reality that they were accepting that less people were sewing. Well, maybe they weren't accepting it, but they were observing it. So for one, in 1984, Joanne launched cargo Express, a discount housewares chain. Unfortunately, I'm so sad to say that Cargo Express seems to be lost to history. Joann doesn't mention it anywhere on its website. Only one person on the Internet seems to remember it. They imply that it was very, I don't know, adjacent to say a Pier one Imports. Also RIP maybe a world market kind of place. I'm so sad I couldn't find anything. So if you have seen anything about Cargo Express online or you have memories of it, please send them my way. I know lots of people would love to hear about it.
