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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

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