Michaels Knows That The Rainbow Loom Gravy Train Has To Stop Eventually

Michaels, a store that sells craft supplies and random decorative crap, managed to become the only big-box craft store that sells kids’ current favorite craft/toy, the Rainbow Loom. Here’s the problem with having one hot product, though: it might boost a company’s sales and profits now, but how long will the trend last?

In the case of Rainbow Loom, that one product, which Michaels only carried for half of 2013, made up almost 3% of the company’s sales growth in comparable stores. That’s pretty great, but Walmart has the official yet slightly different Crazy Loom, imitators are sprouting up everywhere, and there are even companies selling counterfeit Rainbow Looms.

The future of the looms is important to the chain, because the company filed for its second attempt at an initial public stock offering this year. Bloomberg Businessweek points out that they even mention the product specifically in the “risks” section of their IPO filing.

Our recent results of operations have been significantly enhanced by sales of one product, the Rainbow Loom. Sales of the Rainbow Loom and replacement rubber bands were the primary driver of the increase in our Net sales in the fiscal year ended February 1, 2014 compared to the prior fiscal year. Based on our retail experience, we expect that the popularity of this product will diminish over time, and our results of operations could be affected by our inability to anticipate demand for this product and stock the appropriate level of inventory. Similarly, if we identify products in the future that have a significant effect on our results of operations, we could face similar challenges and risks that could affect our profitability.

The challenge for Michaels will be keeping that momentum going, which will only happen if they’re lucky and resourceful enough to identify the next craft trend (for kids or for adults) early on. They could also find a way to transition Rainbow Loom fans to more grown-up and complex but similar crafts, like loom knitting or even crochet. It’s all loops and hooks, after all.

How the Rainbow Loom Fad Made Millions for Michaels [Bloomberg Businessweek]