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Is Michaels Going Out Of Business
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Crafts Retailer Michaels Will Go Private In $3.3 Billion Deal
Whether you’re looking for fresh fall decor for your home or you just need supplies for your latest creative spark, Michaels may be your go-to destination. This beloved craft store chain has locations spread across the U.S. and this has helped make it popular among countless buyers. But as is the case with all retailers, Michaels sometimes lashed out at its customers. Now, the chain is facing a new lawsuit over something it allegedly did to shoppers. Read on to find out why Michaels was attacked.
Like many other retailers, Michaels recently decided to upgrade its digital presence thanks to a shift in customer traffic. In February 2022, Jason Brenner, vice president of e-commerce at Michaels, said that the company had been implementing its “digital transformation over the last 18 months”. According to a press release, this includes several updates aimed at creating a better online experience for its customers, including a new program geared towards buying online for pickup or same-day delivery.
“We will continue to invest in our robust network of digital capabilities, further enhance our digital shopping experience and lay the groundwork for future strategic initiatives that will connect content, commerce and community,” Richard Armour, senior vice president of e-commerce for Michaels , told
. “We plan to achieve this by focusing on expanding our product range for customers, as well as updating our e-commerce platform to further reduce friction.”
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A class action lawsuit has just been filed against Michaels Stores Inc. through its website, report Top Class Action. According to the legal news outlet, the suit was filed on September 14 in Pennsylvania federal court by plaintiff Jennifer Farst. In his suit, Farst claims that Michaels used “session replay” spyware on his official site. As software company Quantum Metric explains, session feedback at its core is “a technology that allows you to watch end-user sessions as they experience them, just like you would watch a video.”
According to Farst’s allegations, Michaels uses this technology to monitor customers’ interactions with its website, including their mouse movements, clicks, keystrokes and search terms, as well as the pages and content they view while on the site.
Michaels allegedly intercepted, stored and recorded user interactions with its website without the user’s knowledge or consent, according to Farst’s lawsuit. The plaintiffs allege that doing so violates the Pennsylvania Wiretap and Electronic Surveillance Control Act, which requires the consent of all parties to the recording of communications.
In his argument, Farst argued that session replay spyware is not comparable to the traditional analytics tools used by companies. Instead, the suit says it is “sophisticated computer software that allows [Michaels] to simultaneously intercept, capture, read, monitor, redirect, forward, redirect and receive electronic communications entering his website.”
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According to Farst, the information Michaels allegedly collected from user interactions on its website could later be used to create video replays of the customer’s entire visit to the site. The suit claims that “this information is used not to monitor and discover broken website features, but to capture detailed user interactions and use that information to increase engagement, maximize conversion rates and otherwise increase their profits.” As a result, Farst claims that Michaels puts website users at risk of identity theft and online fraud if this personal information is leaked.
Michaels isn’t the only major business facing legal trouble for session replays. On September 8, Bloomberg Law reported that Lowe’s Co., Zillow Group Inc., and Expedia Group Inc. all have been hit with nearly identical class-action lawsuits alleging that the companies violated Pennsylvania law through their alleged use of session replay software. All of these suits were filed by the same plaintiff, Jamie Huber, who claims that he had a “reasonable expectation” that his visits to each business website were private and that the company would not track, record and watch as he browsed and interacted with the sites.ae0fcc31ae342fd3a1346ebb1f342fcb
Session replay software is used by many businesses with user-facing websites that are “interested in making their websites more interactive and responsive to user tastes,” explains Bryan Cave Leighton Paisner (BCLP) LLP. But as early as 2021, lawsuits began to be brought against companies for this technology through allegations that the software violated certain states’ wiretap acts—especially in states with “all-party” wiretap laws, which require all parties to agree.
“Most states require only one party to consent to the recording, but about 13 states require all parties to consent,” BCLP LLP says on its website. “Plaintiffs have alleged that because they did not affirmatively agree to use the Replay Software, the website operators violated applicable state wiretap laws.” When Ashley Buchanan first visited several Michaels stores after the retailer’s board approached her about the top job nearly two years ago, she was unimpressed. Too many items are out of stock, there are slow-moving lines at checkout in an understaffed store, prices are confusing, and the store itself is not an attractive place for its arts and crafts customers, he thinks. The online stuff isn’t great either.
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“I think it’s training for the end of the world,” joked Buchanan, who took the reins at Michaels in early 2020, after 13 years at Walmart, including most recently, chief merchandiser and chief operating officer of the U.S. discount giant. e- commerce business. “Customers keep telling me ‘I love this place,'” he said
Making Michaels more likable among its loyal shoppers became an easier task in March when Michaels agreed to be bought by private equity firm Apollo Global Management in a $5 billion deal, meaning Buchanan can move faster than investors usually allow a publicly listed company.
To be sure, Michaels is not a retailer disaster. But it obviously didn’t work. The go-private deal comes despite Michaels’ stock having quadrupled in the previous year, helped by Americans back home turning in greater numbers to arts and crafts and doing something with their hands to pass the time.
That helped Michaels post its best growth in years and solidify its leading position in the $45 billion industry. Still, Apollo’s executive in charge of its retail investments, Andrew Jhawar, said in a statement in March that the firm saw “huge opportunities to grow the Michaels brand.”
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Indeed in 2020, Michael brought in $5.3 billion in annual sales, up 4% from the previous year. But that compares with archrival Hobby Lobby and roughly Michaels’ net sales in 2016, illustrating the work needed to finally shake years of stagnation, work better done away from the klieg lights of Wall Street.
“It’s harder to invest the capital in the store base that we need to reinvest, to refresh the store base, as a public company,” Buchanan said. And now Buchanan can proceed as quickly as he wants and plans, among other things, to renovate all 1,250 or so Michaels stores in the next few years.
The Apollo deal brought Michaels back into the fold seven years after it returned to the stock market. Michaels was taken private in 2006, and the owners have made great strides in increasing profits but without modernizing Michaels stores or e-commerce—an ongoing problem.
“Michaels has an element of laziness in its stores,” said Neil Saunders, managing director with GlobalData, pointing out how old many stores are and how slow Michaels has been refreshing its assortment. And Buchanan, 47, is now implementing his plan to restore their energy.
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Just as the COVID-19 lockdown was a boon for home improvement, outdoor sports and baking, arts and crafts are booming as Americans gravitate to new hobbies, especially ones that involve working with their hands to take a break from all that screen time. Michaels’ financial results continued to improve throughout 2020, and comparable sales rose 12.9% in the fourth quarter.
So the pandemic has offered Michaels an opportunity to reinvent itself that retailers of its size rarely get—a chance to stand for something other than cluttered old stores, and discounts and same-old merchandise. “We’ve revamped the entire company, and COVID accelerated that,” the CEO said.
That means attacking Michaels’ chronic problem with out-of-stocks that needlessly cut into sales; a more concerted effort to reduce variety by ditching tired brands or products that aren’t selling well and accelerating the pace of new products. Michaels has cut about 10% off items. That included the bulk of Michaels’ home decor—a category that Buchanan felt could be a distraction given the overlap with Hobby Lobby, which runs a larger home furnishings business—to better dominate its bread-and-butter category: arts and crafts supplies. . (Home decor and seasonal items generate 22% of Michaels’ net sales. Hobby Lobby
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