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UPDATE 2-Crafts retailer Michaels to close nearly all Aaron Brothers stores

(Recasts headline, adds background from earnings call)

March 22 (Reuters) - Michaels Companies Inc will shut down 94 Aaron Brothers framing and art supplies stores, the largest U.S. crafts retailer said on Thursday, as it grapples with the popularity of online shopping.

The move is the latest example of how brick-and-mortar retailers are struggling to compete with e-commerce sites such as Amazon.com Inc. More than 15 U.S. retailers filed for bankruptcy last year.

The arts and crafts retailer plans to make Aaron Brothers a store-within-a-store and to provide custom framing in all Michaels stores. Michaels owns and operates about 1,300 stores in the United States and Canada.

Aaron Brothers reported $110 million in sales in Michaels' last fiscal year. Michaels said it would cost between $37 million to $42 million to shut the Aaron Brothers stores and that the process would be completed by July 31.

Reuters first reported Michaels' decision to shutter Aaron Brothers stores on Wednesday.

Michaels' shares were down 6.6 percent on Thursday after its earnings disappointed investors.

Aaron Brothers shops are located largely on the U.S. West Coast, and offer custom framing and an assortment of painting and drawing tools. As part of its plan to shutter the Aaron Brothers stores, Michaels will rebrand its online custom framing website as AaronBrothers.com.

Three smaller Aaron Brothers stores that only offer custom framing will remain open.

Michaels acquired Aaron Brothers in 1995, when the frame retailer was a 71-store chain, expanding it over the years. (Reporting by Jessica DiNapoli in New York; Editing by Bernadette Baumc)