Scrapbooking company attempts fresh start after bankruptcy

You'd never know that people at Creative Memories have been going through a difficult and emotional time these past few months as company president Asha Morgan Moran shows off the company's manufacturing facilities.

The company is well known for its Tupperware-style scrapbooking parties led by 55,000 consultants around the world. Moran said the manufacturing facility is where the hub of the action is for Creative Memories.

"We have a very sophisticated manufacturing process for what we do," Moran said. "So the things we manufacture, we carry so little completed inventory. We really manufacture virtually on demand."

Creative Memories employs between 500 and 600 workers, mostly in St. Cloud. In 2003, the company became 100 percent employee-owned, so all employees owned stock in the business. Morgan Moran says then, something happened.

"Our balance sheet had gotten out of wack," Moran said. "We have a very good business with a bad balance sheet."

Creative Memories executives said when some employees saw the high value of their stock, they quit in order to lock in the value of their stock and cash out. Rhonda Anderson, one of the co-founders of Creative Memories, said the company had to repurchase the stock from some employees who were laid off, and many others who quit.

"And when you have enough of those people do it, whether their balance was $100,000 or a million, those really add up," Anderson said.

Since 2004, the company also experienced significant sales declines. According to bankruptcy court documents, a downturn in the scrapbooking industry, competing online scrapbooking tools and a high employee turnover were responsible for revenue declines and debt. As of September 2008, the company had a year-to-date revenue of $148.8 million. For the year ending December 2007, the company had revenue of $241.9 million.

Creative Memories will no longer be employee-owned when the company gets through the bankruptcy process. Anderson said the company will be free of its debt, and will be able to expand its products online and grow.

"We're in a really strange economy with people talking recession and downturns and that actually is a very positive thing for our type of business," Anderson said. "People tend to turn inward towards family-focused activities at times like this, more of the cacooning phrases that a Faith Popcorner would use where they want handmade, homemade and special."

Anderson said she doesn't expect the economy to affect the company at all.

But Anderson's rosy views aren't shared by analysts in the craft industry. Mike Hartnett is publisher of Creative Leisure News, an online business newsletter for professionals in the arts and crafts industry. Hartnett said Creative Memories pioneered a strong scrapbooking industry, which caught the attention of chain stores, such as Target, Walmart, Michael's and Joann's Fabrics.

"You know, originally, Creative Memories was the only game in town," Hartnett said. "Well, now consumers all over the country, they don't have to wait for the next Creative Memories parties. They could just go to any one number of stores and buy supplies."

Then, Hartnett said, the scrapbooking industry began to evolve online. People can turn to Web sites, such as Shutterfly and Snapfish, to order digital albums. Creative Memories now has far more competition than it did 10 years ago.

According to Nancy Nally, a scrapbook industry news writer and analyst based in Florida, the company faces another challenge.

"The scrapbook industry in general has been experiencing a downturn in the past three years, a very significant one," Nally said.

Nally said that poses a big hurdle for Creative Memories.

"Their financial forecasts for how they're supposed to be able to recover from this bankruptcy calls for them to be able to increase their sales over their current levels by pretty significant amounts over the next couple of years," Nally said. "And honestly, that's going to be difficult to do in a shrinking market."

Nally said the craft industry tends to be very cyclical. Nally said in the 1980s, the hot trend was cross stitching. In the early 1990s, it was quilting.

"And scrapbooking had its time there for a while and you've got some people who have stayed with it," Nally said. But she said quilting is back. Sewing and knitting are also really popular at this time.

"Knitting is incredibly hot," she said. "Let's put it this way. Knitting is no longer your grandmother's hobby. It's starting to become hot even with the 20-somethings, who five years ago wouldn't have been caught dead with a pair of knitting needles."

Nally emphasizes this is just a natural cycle of the craft industry market. She said Creative Memories is smart to focus on its digital products. She said the big question is whether the company is too late.

Creative Memories executives Asha Morgan Moran and Rhonda Anderson seem to be up for the task. They believe the same passion that created their success will help them through this challenge.

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