INTERVIEW-Jo-Ann to capitalize on Wal-Mart exiting fabrics

*Sees opportunity in Wal-Mart exiting from fabrics

*Sees opening about 25, mostly large stores, in fiscal 2010

*As a pct of comp sales, website to grow faster than stores

By Divya Nair

BANGALORE (Reuters) - U.S. fabrics and crafts retailer Jo-Ann Stores Inc JAS.N seeks to capitalize on Wal-Mart Stores exiting most of its fabrics business and plans to open about 25 stores, mostly large-format, in the next financial year.

"Based on the success of those (new) stores, we would like to increase that by about 10 additional stores each year," Chief Financial Officer Jim Kerr told Reuters in an interview.

At Aug. 2, Jo-Ann operated 201 large-format stores and 567 small-format stores. The company considers stores that generally average more than about 24,000 square feet of retail space as large-format stores.

With Wal-Mart Stores Inc (WMT.N) exiting the fabrics business providing a competitive advantage, the company has stepped up promotional efforts to attract the discount retailer's customers, Kerr said.

Once it is confirmed that the local Wal-Mart store has stopped selling fabrics, Jo-Ann mails discount coupons to customers in the area to encourage them to visit its stores, CFO Kerr said.

Hudson, Ohio-based Jo-Ann has also benefited from competitor Hancock Fabrics' (HKFI.PK) bankruptcy filing last year, Kerr added. Hancock has since emerged from bankruptcy and has begun a major store re-modeling program.

"We differentiate ourselves by having a more complete selling assortment which we think gives us a competitive advantage," CFO Kerr said.

"We've been able to convert more people walking through the door into buyers and the average amount they buy on each trip has actually gone up consistently over the last year."

Despite sluggish U.S. retail sales as customers tightened their purse strings and cut back on discretionary spending, given the economic downturn, Jo-Ann's bottom line has managed to stay ahead of market expectations in each of the past four quarters.

WEB PUSH TO SALES

Jo-Ann is also looking to improve its website, joann.com, not only as a means to generate additional sales but also to complement sales at its stores.

CFO Kerr expects dotcom sales to grow faster than store sales, as a percentage of same-store sales.

Previously a minority partner, the company now fully owns the website, which is expected to account for a larger percentage of sales in the future. Internet sales through joann.com contributed about 2 percent to the retailer's second-quarter sales.

Last month, Jo-Ann, whose retail stores and website feature merchandise used in sewing, crafting and home decorating projects, posted a narrower-than-expected quarterly loss and raised its fiscal 2009 forecast.

"I just think that when you look at retail right now, there are not a lot of positive stories out there. Fortunately, we have been able to deliver results during these tough times and that's translating into our stock price," the CFO added.

Jo-Ann shares have doubled in value since the start of the year, while shares of its rival A.C. Moore Arts & Crafts Inc ACMR.O have shed about 43 percent during the period.

(Editing Anthony Kurian, Himani Sarkar)