House of Fabrics Acts to Divest Crafts Outlets

House of Fabrics, terming its two-year foray into the crafts-shops business a failure, says it will try to sell its unprofitable, 45-outlet Crafts Showcase division and concentrate instead on opening larger fabrics stores.

The Sherman Oaks-based company disclosed last week that it took a $2.1-million charge against earnings for the year ended Jan. 31 in anticipation of the sale of the Crafts Showcase unit. A charge against earnings is an accounting adjustment made for an expected loss.

“In hindsight, we made a mistake in buying Crafts Showcase,” said Gary Larkins, president and chief operating officer of House of Fabrics.

Some Closures Expected

Larkins said the company is negotiating with two prospective buyers for the division’s stores. He said he does not expect to be able to sell all the Crafts Showcase outlets, however, and that some may have to be closed.

House of Fabrics, the nation’s largest chain of retail fabric stores, with 735 fabrics outlets in 43 states, has fought the nationwide trend of declining sales for sewing accessories by increasing its own market share through acquisitions.

In 1983, it purchased the 24-store Beaconway chain based in Framingham, Mass. Last year, House of Fabrics acquired the 12-store Yardage Fair chain in Northern California.

Industrywide Decline

The sewing-products industry, now estimated at $3 billion a year, has suffered because more people are buying ready-made clothing instead of making their garments, according to Dan Williams, an analyst with the San Francisco brokerage firm of Sutro & Co.

To enter a business that it thought offered more promise, House of Fabrics bought the Cleveland-based Craft Showcase chain in February, 1984. The stores sell such products as needlepoint and cake decorating kits.

But the Craft Showcase chain, which is situated mainly in the Midwest and East Coast states and generated about $15 million in revenue in 1985, was unprofitable, Larkins said. Larkins said that, even though House of Fabrics has small crafts departments in most of its stores, it lacked the expertise in the business to make Crafts Showcase worthwhile.

Instead, the company wants to build more of what it calls “superstores,” outlets ranging from 10,000 to 20,000 square feet with wide selections of fabrics and sewing materials. House of Fabrics has put together a network of 110 superstores over the last two years.

“Our experience is that customers would rather get away from the problems of parking and hunting for us in shopping malls,” Larkins said.

He added that customers like the larger stores and that House of Fabrics wanted to avoid high mall rents.

Net Income Down

The company’s charge against earnings for the fiscal year ended Jan. 31 brought net income down 62% from the previous year, to $4.3 million. Sales, however, were up 3%, to $286.7 million.

For the fourth quarter, sales were up nearly 5% from the previous year, to $85.9 million. Net income dropped nearly 66% during the period, to $1.3 million, largely because of the charge against earnings.

House of Fabrics recorded the first quarterly loss in its 39-year history during the second quarter ended July 31. In the third quarter ended Oct. 31, the company turned a a profit again, although net income was down 29% from the same period in 1984.