The Stationers Guild

Almost a year ago, I recall exchanging email correspondence with a gentleman who worked for a well-known greeting card company and was responsible for one large big-box store account.    He had recently been laid off as part of a corporate downsizing exercise and lamented that it is “tough to compete when Walmart is selling a similar greeting card at $0.46.”

Now, I have not corroborated his story with a visit to Walmart to check out their pricing, but I suspect that the pricing is not too far off.    Target is selling greeting cards at under a dollar and offers promotional discounts if you buy three or more cards from over 600 cards offered at their stores.

Not much is known about the greeting card industry as a whole and what little information we have available comes from American Greetings, which is a publicly traded company on the New York Stock Exchange (symbol: AM).   I would like to quote a few excerpts from American Greetings 2009 Annual Report:

• Competition:  “The greeting card and gift wrap industries are intensely competitive. Competitive factors include quality, design, customer service and terms, which may include payments and other concessions to retail customers under long term agreements  (my emphasis).   There are an estimated 3,000 greeting card publishers in the United States, ranging from small family-run organizations to major corporations. In general, however, the greeting card business is extremely concentrated .  . .  The market for consumer photofinishing and digital imaging services is highly competitive and still emerging. The major competitors in the consumer photofinishing and digital imaging market are Kodak, Snapfish and Shutterfly.  There are no significant proprietary or other barriers to entry into the digital or
  consumer photofinishing industry (my emphasis).”
• Concentration:   We rely on a few mass-market retail customers for a significant portion of our sales.    Approximately 55% of the North American Social Expression Products segment’s revenue . . . was attributable to its top five customers, and approximately 40% of the International Social Expression Products segment’s revenue . . . was attributable to its top three customers.   The loss of sales to one of our large customers could materially and adversely affect our business,results of operations and financial condition.” (Author’s note: Walmart accounted for roughly 16% of total revenue).
• Relative Share Price Performance:    Using 2004 as a benchmark index of $100.  The share relative price of American Greetings is $18 vs. the S & P 400 (composite stock index) of $80.  In other words, the overall value of American Greetings shares fell by 82% vs. an average of 20% for the leading 400 non-financial stocks on the New York Stock Exchange.   This is four times worse than the S & P composite!

The purpose of this analysis is not to throw cold water on American Greetings or their management, but merely to point out the extremely difficult competitive environment in which the second largest company operates.   With such a concentration in sales, it is inevitable that they succumb to cutting margins to retain volume.   At a price point of a dollar a card, it is difficult to see how an  independent retailer can make money.  In the case of American Greetings, their overall revenue has been stagnant at just under $1.7 billion and I suspect corporate headquarters would be a lot happier if the company were private and sales were half the present volume and far less concentrated.

Implications for Independent Stationers

• With greeting card displays now occupying nearly every square foot of “usable” space in supermarkets, pharmacies, box-stores, car washes, Starbucks, delis and most every store that hangs an “OPEN” sign, it is reasonable to say that we have an oversupply of greeting cards.    While one might have the “best” supply of handpicked greeting cards in the neighborhood, market-pricing has  been set so low that  most consumers are no longer willing to pay $3.95 or $4.95 a card – regardless of the quality.    People that wouldn’t bat an eyelash at spending $10,000 or more to buy a Lexus rather than an Audi often go apoplectic when they see a handmade card by an accomplished artist priced at $10 or so.  In effect, the mass retailers have set the bar so low that the value of the greeting card has become diminished in the eyes of the consumer. 
• While each independent stationer faces a different set of competitive circumstances, I believe that market conditions suggest the following rational behavior (one or more may apply):
  • Conduct an informal survey of stores selling greeting cards within a 3 and 10 block radius.  If you have five or more stores selling greeting cards within a three block radius and 20 or more within a ten block radius, I would recommend disengaging (reducing exposure and concentrating on unique lines).
  • Avoid carrying lines at sold to mass-distribution retailers and box stores.  Pricing has already been compromised and you are at a competitive disadvantage.
  • Avoid lines where the retail price is quoted on the bar code.  This is normally done for mass-marketing retailers.  If you would like to carry a particular line that pre-prices their cards, suggest a discount of 10% to 20% off the keystone wholesale price.   
  • Buy or create greeting card lines from local artists that are unique to your store or unique greeting cards that are sold on a far more exclusive basis (Constance Kay springs to mind).    This is a good way to support and encourage independent artists and build community spirit.
• It strikes me that greeting card companies (based in the United States) with a heavy concentration of revenue to mass-retailers will inevitably destroy their businesses since pricing pressures will not allow them to maintain the necessary margins to produce a quality product that warrants a “brand” premium. 

The greeting card industry is changing, but there are still informed consumers who believe that a well-designed greeting card printed on beautiful paper sends a useful and personal message.   It is far better to create a following with this knowledgeable clientele than duke-it-out with the mass-retailers.  

Richard W. May
Thérèse Saint Clair

I recently was engaged in an  interesting discussion on LinkedIn within the “Greeting Card, Stationery & Gift Industry Gurus” Group.   Without going into a lot of detail, the discussion focused on the future of paper greeting cards and how best to create the next generation of eGreetings to connect with a new generation of “tech savvy” users.   While I do not question the impact of the digital revolution on paper greeting cards, I could not see an economic rationale to create a sustainable and successful eGreeting business.  Found below are brief excerpts of some of the comments I made during this discussion. 

 There is no question that digital greetings and invitations are rapidly eating into the “paper” market. While I don’t happen to think of paper as a “device”  since color reproduction and print quality on paper remains far superior and authentic to anything on the web (band-width restrictions), the whole point of the discussion is how to make money with digital greeting cards.

Personally, I think it is a losing proposition because I don’t believe any company will be able to create designs or unique delivery capabilities to compete on a sustained basis with the many (and growing) “free” alternatives on the internet. I have yet to hear how someone will be able to create “brand awareness” around something so mercurial as a greeting card and convince a critical mass of “subscribers” or “buyers” to pay for something that is pretty much free.

To draw from just one example. Take Blue Mountain Greeting Cards which was one of the first digital greeting cards to make a splash in electronic greeting cards. They are now owned by American Greeting Cards (AG), because they wouldn’t have been able to survive as a stand alone venture. Is AG any better off? I think not. Their sales are down 25% since 2002, they lost over $200 million in 2009 and they may break even this year.

Why Paper? A well-designed greeting card with a personalized message printed on quality paper is often worth “saving.” On the other hand, a digital greeting card or image maybe worth “storing” (there is a huge difference between mechanically deciding to save a physical object as compared to storing it on your computer). While you may eventually want to print the stored image, what will you print it on?: 20lb copy paper stock. There is a reason why people go to art museums: they want to see the real thing, not some digitally reproduced image formatted for a digital transmission. The same is true for greeting cards for memorable occasions.

There is a difference between building an iPhone application that plays “Happy Birthday” and sends a cute text message to your contact list on their birthday as opposed to building a business providing “unique” designs over a technology platform that gives the business provider a sustainable competitive advantage. Most novice tech users can already embed videos and pictures in their emails and many have already created their “free” Wordpress or Blogger websites. While I don’t doubt that technology providers can “sell” services to users interested in creating or selling their own greeting cards, I have yet to see how one can build a sustainable eGreeting business around the many “cool” apps that appear each day. Competing against “free” communication alternatives doesn’t seem to be a market that offers much promise.

Just did a Google search: there are 14.5 million web pages offering “free greeting cards.” Do you think it will be less competitive when the iPad hits the market in a few weeks? Again, if someone shows me a sustainable business model for eGreetings I will eat the digital printout of the business plan. Better yet, if you have figured it out, go for it! (I would love to be a shareholder).

I remain unconvinced that one can make money on a sustained basis with electronic greeting cards. Twitter and Facebook have essentially eliminated the need for them since the lives of its members are pretty much an open book.

Richard W. May
Thérèse Saint Clair

The New York Times reports that a price war is developing in the merchandising of books that threatens to destroy the industry.  New York Times writer, Motoko Rich, says that a price war between Wal-Mart and Amazon accelerated on Friday with many bestsellers offered online at $8.99. 

Writes Motoko Rich, “Publishers, booksellers, agents and authors, meanwhile, fretted that the battle was taking prices for certain hardcover titles so low that it could fundamentally damage the industry and ability of future authors to write or publish new works.”   If you like Chainsaw Al, you’ve got to love Wal-Mart.  Once Wal-Mart  gets a stranglehold on an industry the resulting landscape will be as barren as Georgia after Sherman’s march to to the sea during the Civil War. 

A similar, but not so dramatic, battle is taking place in the stationery industry.  Yep!  Wal-Mart has got its paw into this industry too, selling greeting cards for $0.46.  American Greetings and many other greeting card companies are suffering by these predatory practices of Wal-Mart.  As Wal-Mart pushes for the last cent from its suppliers to provide the “cheapest” product on the market, hundreds if not thousands of artisans, craftspeople, workers and families are displaced and marginalized by their practices.  

While the current bestseller from Amazon, Wal-Mart and the town bookstore are identical, one might ask “why should I pay more?”   I guess it is for the same reason why discerning consumers pay more for “green” energy:  they are concerned by the implications of their purchasing decisions.    I think it would be a stretch of credulity to assume that Wal-Mart really cares about the future generations of authors, craftspeople and artisans that no longer can support themselves in an industry dessimated by Wal-Mart.   I guess these would-be artisans will be obliged to lay down their paint brushes, sell their Heidelberg presses and donate their book-binding tools to museums and become sales clerks at Wal-Mart.

As a stationer, I see many inferior designs and poor paper quality touted   as “fine stationery” by online marketing companies and their  paid internet marketing mercenaries who shamelessly promote their brand  in social media channels.   Stationers and Fine Paper companies simply must do a far better job in “educating” the consumer that there is more to fine stationery than a disingenous advertising ploy.

It was recently reported that American Greetings had sold its retail stores to Schurman Fine Papers and purchased the wholesale division of Papyrus.  According to a press release from American Greetings, American Greetings (‘AG”) paid $18 million for the wholesale division of Papyrus, which makes fine greeting cards and other paper products.  Schurman Fine Papers (“SFP”) acquired the operating rights of approximately 350 retail stores from AG, who operate these stores under the names of American Greetings and Carlton Cards, for $6 million.  AG also acquired a 15% interest in SFP for $2 million.  The article states that SFP now owns 511 retail stores in the United States.

While this transaction may come as little surprise to those in the industry, the financial compensation and wording of the press release is curious.  According to one financial veteran, “I don’t understand it, it seems like the transaction is missing a zero.”  Indeed, it does seem surprising that SFP could “acquire” 350 stores for only $6 million - or roughly $17,000 a store!  It is unclear from the press release whether AG remains responsible for the leases or the nature of the ongoing operating agreement and “limited” credit facilities between AG and SFP.

Rumors are that Weston Presidio, a private equity firm which has a significant ownership stake in SFP, had hoped to take the SFP public when the firm reached a critical mass of 300 stores.  While this still may be the case, it seems unlikely that they would attempt to do so in today’s rather unsettled market conditions.  AG has its own share of financial problems as their latest financial results show.  Clearly, shedding their retail stores will eliminate one major distraction; however, many more challenges face the company and the industry at large.