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

In my recent post entitled Walmart State of Mind, I stated that Walmart accounted for over 50% of the state’s total retail sales in seven states.   Several readers were shocked by this information and requested more detail.  Happy to oblige:

States where over 50% of total retail sales are Walmart

Oklahoma – 66.8%
Arkansas – 64.7%
Kansas – 57.5%
South Dakota – 52.4%
North Dakota – 51.5%
Nebraska – 50.6%
Louisiana – 50.4%

States with 40% to 50% by Walmart

Indiana – 45.9%
Iowa – 45.6%
New Mexico – 45.6%
Missouri – 45.1%
Utah – 41.8%
Arizona – 40.0%

Several states have imposed serious zoning constraints on Walmart; however, the list of “affected” states is substantial.  Draw your own conclusions, but I suspect that Mom-and-Pop retailing is probably not doing too well on Walmart’s playing field.   There is always a tradeoff when it comes to competitive pricing and convenience.  Could this tradeoff be the loss of a “sense of community,”  meaningful employment opportunities, entrepreneurship and even hope?    I certainly hope not, but if you think “big” is good and Walmart’s retail sales growth are good for our society, then the 13 states listed above might be places where you wish to retire.  

Richard W. May
Thérèse Saint Clair

For many years I was addicted to the “talking heads” on CNBC, the financial news network that is currently owned by General Electric.   The CNBC “news” formula is to bring in “experts” to share their reaction to late breaking financial and industry news.  Many consider their comments self-serving and manipulative, but others consider CNBC useful in making sound investment decisions. 

Some weeks ago, I was listening to a program in which CNBC was analysing Walmart’s (or Wal-Mart) retail sales and how a same-store-sale’s increase of 3.2% augured well for the retail industry.  Well, I work in the retail industry and, quite frankly, Walmart’s same-store sales don’t strike me as a useful barometer of how well or how poorly the retail industry is doing.   Since Walmart represents  a disproportionately large percentage of total retail sales, does it necessarily follow that all retail sales increased in the same proportion or did Walmart’s  “good” performance occur at the expense of local competition? 

I, therefore, decided to do a bit of research and have now decided we all need to adopt a ”Walmart State of Mind” if we truly want  to see where this is all heading.  (Think Billy Joel’s New York State of Mind if you want to hum along). Trust me, it ain’t pretty.

Most people know that Walmart is the largest retailer in the world with 2009 sales of over $300 billion and close to two million employees.    Wal-Mart’s sales are four times larger than the second-place retailer, Kroger.  Even more, if you combine the sales of the retailers rated two through six (Kroger, Target, Walgreen, The Home Depot and Costco) this total only barely exceeds Wal-Mart’s total sales ($305 billion for Wal-Mart vs. $319 billion for the group).

While big and successful, Walmart has attracted a number of detractors ranging from criticism of their employment practices, third-world sourcing, the environment and the devastating impact on local businesses and the communities they serve. Stacy Mitchell’s Big-Box Swindle is perhaps the most disturbing analysis of how “Big Box” stores impact community life.

What is less well known is how Walmart’s scorched earth retail marketing strategies have permanently altered the economic and social landscape of many states in the United States.   For instance, in seven states Walmart accounts for more than 50% of retail sales.    In fact, in many states Walmart has managed to get tax breaks and incentives from State and Local governments to open stores to the detriment of many local businesses.

In a University of Illinois (“UIC”) study evaluating the opening of a Wal-Mart store in Chicago’s Austin neighborhood in 2006 concluded that it “has not increased retail activity or employment opportunities in the years since. Researchers found that stores near Wal-Mart were more likely to go out of business, eliminating the equivalent of about 300 full-time jobs – about as many as Wal-Mart initially added to the area.”  UIC researcher David Merriman concludes that “‘What we’re seeing here is that placing a Wal-Mart in an urban setting is basically a wash in terms of sales revenue for the city and jobs for local residents.”  There are even more alarming details of the economic consequences of big box stores from other resources.

This Blog Post  is not an exposé of Walmart, whose “issues” are addressed by people far more competent that I am.   A Walmart State of Mind addresses a far more fundamental question for independent storefront retailers:  What must an independent storeowner do to survive and, hopefully, make a decent living with the dramatic changes that are occurring in today’s market place?  

The question becomes significant for stationers when you learn that Walmart is selling individual greeting cards for $0.46.  Furthermore, seemingly every store in town, from the local car wash to the grocery store, is selling identical greeting cards to the ones whose lines you have nurtured for the last 10 years or so.  What to do?

There are many other examples where the joy of running your own business has now been superceded by the frustration of running faster to just to make ends meet.  This is not good for your piece-of-mind, health or economic well-being.    Short of closing our businesses is there anything we can do?    In the next series of articles we will seek to examine several concrete strategies to avoid getting into a Walmart State of Mind.  Some of these strategies may not be immediately “good” for your pocketbook, but they will focus your mind.

Richard W. May
Therese Saint Clair