Michaels Turned Rival Bankruptcies Into a $5 Billion Turnaround

Apollo Global Management paid $3.3 billion to take Michaels private in 2021, when the arts-and-crafts retailer looked like another specialty chain headed for irrelevance. The timing seemed questionable. A.C. Moore had shuttered completely in 2020. Joann was drowning in debt and would file for Chapter 11 three years later. The thesis Apollo was betting on wasn't survival. It was consolidation through efficiency while competitors collapsed under their own balance sheets.

The clearest tell was the coupon strategy. When Joann began closing locations during its 2024 bankruptcy proceedings, Michaels ran local ads offering to honor Joann competitor coupons at nearby stores. The move cost almost nothing and harvested a customer base that had spent years developing loyalty to a brand that no longer existed in their zip code. By mid-2024, Michaels had absorbed enough of Joann's former traffic that same-store sales growth outpaced inflation, a rare outcome for physical retail in a high-rate environment.

Why private equity wanted this sector

Specialty retail chains fail the same way: they carry too much inventory relative to sales velocity, take on debt to fund store expansions during growth years, then get crushed when consumer tastes shift or recessions reduce discretionary spending. Michaels had all those vulnerabilities. What it also had was 1,290 physical locations that could be repurposed as logistics hubs rather than showrooms.

Apollo's playbook leaned into that. Stores became mini-warehouses optimized for buy-online-pick-up-in-store orders, which now represent a significant share of digital revenue. Regional distribution centers were built to reduce last-mile costs. The company stopped trying to be a destination and started functioning as the most convenient option within a 15-minute drive. That shift required no aesthetic overhaul, just operational discipline around inventory turns and delivery windows.

The private label advantage

Roughly 60% of Michaels' current inventory consists of own-brand products. When Walmart or Target stocks craft supplies, they sell third-party brands at thin margins. Michaels manufactures or sources its own yarn, paint, framing materials, and seasonal decor, keeping the markup.

Private labels also allowed the company to sidestep tariff volatility. As import taxes on Chinese goods fluctuated between 2018 and 2023, Michaels shifted production to suppliers in Vietnam, Mexico, and Central America faster than competitors locked into long-term vendor contracts. The margin buffer from owning the brand meant the company could absorb some tariff costs without immediately raising prices, a flexibility that debt-laden rivals like Joann couldn't match.

When inflation pushed discretionary budgets down in 2022, Michaels didn't discount heavily. Instead, it used its 45-million-member rewards program to send targeted digital coupons, maintaining average transaction values while making customers feel like they were getting deals. The data from that program fed directly into inventory decisions, letting the company stock regionally specific products instead of uniform national assortments.

The marketplace gamble

In 2023, Michaels launched a third-party seller platform with over one million SKUs. The goal wasn't to compete with Amazon's scale but to capture the "vetted craft supplies" niche that Etsy dominates through independent sellers. Michaels positioned itself as the curated middle ground: more reliable than Etsy's inconsistent quality, less overwhelming than Amazon's search results.

Early traction has been modest. The marketplace contributes a small fraction of total revenue, but it extends the product range without requiring Michaels to hold inventory. For Apollo, that's the kind of asymmetric bet private equity prefers: limited downside, potential upside if the platform reaches critical mass.

The structural advantage remains what it was in 2021. Michaels isn't thriving because it reinvented retail. It's thriving because it stayed liquid while competitors went insolvent, then absorbed their customers at almost no acquisition cost.