Thomas Youngerman

OVERVIEW: The U.S. Greeting Card market is large, Americans purchase about 6.5 billion greeting cards each year, $7 - $8 billion at retail, with publishing revenue at approximately $3.6 billion. The category is trending downwards by about 4% per year, declines expected to continue into 2025. Key drivers of this decline: The U.S. retail apocalypse, fewer brick and mortar retailers, equates to less retail shelf space, less exposure. Impact of online sales. The proliferation of paperless, digital substitutes. The Greeting Cards market, at retail, is dominated today by two major players: Hallmark Cards, Inc., a privately-held firm headquartered in Kansas City, MO, established in 1910, and, American Greeting Cards, a privately-held, Cleveland, OH-based company, the largest greeting card company in the world, in business since 1906. Market share has been consolidating steadily due to acquisitions. This forecast statistic shows the revenue of greeting card publishing in the United States from 2008 to 2013, with forecasts up until 2020. AUTHOR’S NOTE: This report will address the following additional topics: About the Industry General Facts about the Industry Industry Threats Hallmark Cards, Inc. American Greeting Cards Industry Trade Shows However, let’s move on to the first retailer report, Walgreen’s Drug Stores. WALGREEN’S DRUG STORES: Headquartered in Deerfield, IL, approximately 25 miles north of Chicago, Walgreens is the second-largest pharmacy store chain in the U.S., behind CVS Health. The company, founded in 1906, is publicly traded. It specializes in prescriptions, health and wellness products, and photo processing. Walgreens operates upwards of 8,000 doors in the US, Puerto Rico, and the US Virgin Islands and employs more than 235,000 people. In fact, 76% of the US population lives within five miles of a Walgreens’ location. The typical size of a Walgreens store is approximately 14,500 square feet, with over 11,000 square feet devoted to the sales floor. A store stocks about 26,000 products in some 150 departments. First-year sales for a Walgreens store average $8 million. The company was founded by Charles Rudolph Walgreen and the current CEO is Stefano Passina. Key personnel in the Seasonal & General Merchandise category are: Joe Hartsig - Chief Merchandising Officer Heather Hughes – Division Vice President / Seasonal & General Merchandise Steven Anne – Category Manager Greg Gentile – Assistant Category Manager Amanda Giovenco – Assistant Merchandising Manager The Greeting Card category within Walgreens falls into the following segments: Seasonal – Christmas is the number one seasonal event for card sales Birthday Thank you Baby Related Wedding Invitations & Announcements Graduation Thank You, Congratulations, Sympathy Personalized Photo Cards Store Audit: The Scottsdale, AZ, Frank Lloyd Wright store is about average, 15,000 square feet in size with over 10,000 square feet devoted to selling area. The Greeting Card category encompasses 76 linear feet on three to four shelves, with either three or four slots, per shelf: Gondolas: 1 - 36’ LINEAR 2 – 15’ LINEAR 1 – 4’ LINEAR 1 – 6’ LINEAR ( Center-aisle gondola – typical of other gondolas in this store.) There are themed endcap displays within the section, but no free-standing displays and no secondary placement of Greeting Cards anywhere within the store. Brands Stocked: Hallmark Cards is the exclusive supplier of Greeting Cards in this store. The brands appear as Hallmark Classic, Hallmark Signature, and Featured Artist collections (see below photos): The Greeting Cards market is highly service oriented, and work intensive, rivaling categories such as Dairy, Fresh Baked, and Soft Drinks for the frequency of delivery and merchandising / stock rotation services provided. Logistics: Walgreen stores receive frequent deliveries, in this store weekly deliveries, via Fed Ex. (Other delivery options for this type service would include UPS [United Parcel Service], USPS [US Postal Service], On-Trak delivery service. These deliveries include cards, signage, and other merchandising vehicles. Service / Merchandising: The section is stocked, cards rotated and refreshed weekly by a Greeting Cards manufacturer’s representative. Restocking includes applying new signage and other merchandising vehicles. Sections are reset to match seasonality/occasions. Currently, Mother’s Day cards are the primary feature. Merchandisers may be manufacturer’s direct detailing team or broker representatives. Store personnel does not take an active role in stocking or merchandising in this section. The above chart illustrates the predominance of Christmas (1.6 billion cards sold annually) as the number one selling season for Greeting Cards, significantly influenced by boxed card sales. As indicated by the photos, this store’s Greeting Card section was very well merchandised, fully stocked, with appropriate signage for the season. Store personnel, the aisle clerk, and store manager were very cordial, knowledgeable and helpful. Key Intelligence Questions: 1. Do you have exclusivity agreements with any greeting card manufacturers? Yes. Hallmark Cards Inc. Our stores feature Hallmark brand cards only. There are no other card manufacturers authorized in our stores at this time. If so, when do they expire? I was unable to determine an exact expiration date, however, given the breadth and width of assortment in the category, the branded signage and fixturing, it is apparent these are longer term agreements. Store personnel confirmed there have been no changes in minimally the past two years. If you have an exclusive agreement with one manufacturer, are you willing to take on additional, smaller manufacturers? At this point in time, there are no other brands authorized in our stores. On occasion, seasonally, we have featured free-standing displays of boutique cards either adjacent to our card category, or in other departments in the store. 2. What is the typical term length of contracts with greeting cards manufacturers? I was unable to determine an exact length of a contract, however, as confirmed by store personnel the current agreement has been in place for several years. 3. Do contracts with greeting cards manufacturers focus just on greeting cards, or do they tend to cover other areas of social expression products? The contracts are focused primarily on greeting cards and related products, such as the Confetti Money Holders pictured below. Party favors, utensils, candles and wrapping paper are sourced separately. 4. Does Walgreens operate on a regular review cycle calendar? If so, when is the next stationary, (General Merchandise) review? Walgreens does, in fact, operate on a review cycle calendar. As an example, the First Aid category review cycle begins in July to September with vendor meetings. Then a discussion takes place internally and final decisions are made in the latter half of December. POs are issued in January, and the product needs to be on the shelf by March for the plan-o-gram reset in April. However, again due to the breadth of assortment and collateral materials, the Greeting Card category operates outside of the normal review cycle. 5. How do you evaluate potential new Greeting Card suppliers? As previously mentioned the Greeting Card category is somewhat unique due to the scope of the relationship: Breadth and width of the assortment The fixturing, signage, and collateral materials Frequency of direct to store delivery system Servicing of section Rotation of inventory Pick up of obsolete inventory So, in addition to the normal scrutiny any new vendor is subjected to, detailed below, a new supplier in the greeting card space at Walgreens’ must be able to demonstrate their financial wherewithal to service over 8,000 stores, geographically dispersed across the US, with a comprehensive assortment, the logistics capabilities to provide frequent delivery, and the manpower resources to service the account. Typical questions posed to any new supplier to the Walgreen’s system: Company / Brand Overview History, time in business Size of the business, annual revenue Distribution in other brick and mortar accounts Unique proposition of the brand/products Market Share data, syndicated sales data How will the product be accessed, distributor / direct from the manufacturer Pricing information; wholesale, MSRP, competitive pricing within the category, competitive pricing at other retailers Marketing support spend, national campaign, account specific spend And all of this presupposes the brand is able to secure an appointment with a Walgreens’ Buyer / Category Manager. Penetrating the Walgreens buying office can be daunting. Typically to do so one requires either an established brand in the Chain Drug channel or a similar class of trade, Food or Mass Merchandiser. A very sophisticated marketing campaign that is generating customer demand. Or, must engage with an experienced Walgreens sales agency, broker, or vendor representative. What are the table stakes of becoming a Greeting Card with Walgreens? This question was beyond the scope of the store personnel, however, in other categories, it is not uncommon to be charged what is referred to as a “mylar charge” for every new sku introduced into the Walgreens system. The “mylar charge” refers to the mylar price tag each product must display on shelf. This charge is in lieu of “slotting” charges typically charged by other big-box retailers. The “mylar charge” can be as much as $10,000.00 per sku. Obviously, Walgreens cannot charge Greeting Card suppliers per each card/card type encompassed in their assortment. I am assuming any “friction” costs, costs of entry, are negotiated into the overall contract. Is marketing spend a key input / lever in negotiations? Marketing spend, per se, is not as crucial an element as it once was in new product introductions. National marketing plans now encompass all types of social media engagement, in addition to the more traditional media spends. Almost of more importance is the “account specific support” program: COOP marketing, such as participating in the Walgreens print vehicles, participating in the Walgreens Customer Rewards program, frequency and depth of price promotion, in-store support (demos/sampling). This is another area where engaging with the appropriate representation is critical to the process. The broker/representative can be key in helping to determine the appropriate marketing mix for the category/category manager. 6. How soon before expiration does the renegotiation process begin, and how long does that process typically take? Although not able to address this specifically with a Category Manager I believe the timeline for this process would mirror that of a typical category review for implementation. That is, a protracted negotiation period that would last up to three–four months. One to two months for Walgreens internal discussions. Contract awarded in month six. Assortment, schematics and fixturing decided and initial PO’s placed in month seven or eight. Other Observations: The Greeting Cards category is unique in several ways: 1. Even within a direct to store delivery environment Greeting Cards are different. In virtually every other category vendors “share” sales within the category: Dairy, there are typically several competing brands, as there are in Fresh Baked and Soft Drinks. 2. There is, in effect, no private label or owned label in Greeting Cards. Some retailers do have “Exclusively Available at” offerings from their supplier. For the above reasons, normal category reviews are redundant in this space, and a decision in Greeting Card suppliers represents a much greater commitment to partnership on more levels. Based on our ability to provide credentials to Walgreens Division VP, Heather Hughes, we may be able to do a deeper dive on the Walgreens business through access to their Category Management team. ABOUT THE INDUSTRY: The industry is comprised of publishers that primarily publish greeting cards in print or electronic form. Some companies also publish products such as postcards, calendars, coloring books, yearbooks and more. There are an estimated 2,878 companies represented. This industry excludes newspaper, magazine, book, directory, map, atlas, database and music publishers. Industry Products Single greeting cards Greeting cards sold in boxed sets Consumer publishing Business, trade and professional publications Industry Activities Greeting card publishing Art print publishing Calendar publishing Catalog (i.e. mail order or store merchandise) publishing Clothing pattern publishing Coloring book publishing Diary and time scheduler publishing Discount coupon book publishing Postcard publishing Yearbook publishing GENERAL FACTS ABOUT THE INDUSTRY: Americans purchase approximately 6.5 billion greeting cards each year. Annual retail sales of greeting cards are estimated between $7 and $8 billion. The most popular Everyday card-sending occasion by far is Birthday, followed by a number of secondary occasions that include Sympathy, Thank You, Wedding, Thinking of You, Get Well, New Baby and Congratulations. The most popular Seasonal cards are Christmas cards, with some 1.6 billion units purchased (including boxed cards). This is followed by cards for Valentine’s Day (145 million units, not including classroom valentines), Mother’s Day (133 million units), Father’s Day (90 million units), Graduation (67 million units), Easter (57 million units), Halloween (21 million units), Thanksgiving (15 million units) and St. Patrick's Day (7 million units). Women purchase an estimated 80% of all greeting cards. Women spend more time choosing a card than men and are more likely to buy several cards at once. Greeting card prices can vary from 50 cents to $10 – with a price point for every consumer. The vast majority are between $2 and $4. (Total price per year include boxed cards.) The cost of a typical counter card, however, is between $2 and $4. Cards featuring special techniques, intricate designs and new technologies and innovations – such as the inclusion of sound chips and LED lights – as well as handmade cards, are at the top of the price scale. Seven out of 10 card buyers surveyed consider greeting cards “absolutely” or “almost” essential to them. Eight out of 10 of these buyers expect their purchases to remain the same going forward. Of the balance, twice as many card buyers say they will "increase" their purchasing as say they will "decrease" their purchasing in the coming year. Younger card buyers and those who are more technology savvy are currently the ones most engaged in buying paper greeting cards online. Most people now acknowledge many more birthdays than ever before because of Facebook, but they aren’t necessarily sending fewer cards as a result. The tradition of giving greeting cards as a meaningful expression of personal affection for another person is still being deeply ingrained in today’s youth, and this tradition will likely continue as they become adults and become responsible for managing their own important relationships. GENERAL FACTS ABOUT THE INDUSTRY: GENERAL FACTS ABOUT THE INDUSTRY: INDUSTRY THREATS: According to the Greeting Card Association, the sales of greeting cards have actually held steady for the last several years. This means about 6.5 billion greeting cards are purchased in the United States every year. Many industry products, such as greeting cards, day planners, and calendars, have been rendered increasingly obsolete. The industry will continue to grapple with growing competition from digital substitutes Consolidations and closures in brick and mortar retail amount to less shelf space and less exposure for the category. Today, greeting cards are nowhere as profitable as they used to be. This is due, at least in part, to the fact that numerous companies have flooded the market with digital greetings and delivery systems that can be personalized, but without much profit associated to them. The online portion of the greeting card industry isn’t lucrative enough to offset the weaker sales that are seen in stores. INDUSTRY OPPORTUNITIES: Although individual cards are dropping in sales, boxed cards remain a strong point for the industry. This indicates that outside of customization, consumers are looking for value purchases. Meeting this need may also help to drive sales upward. Handmade and 3D greeting cards have experienced a significant surge in growth. The average person still receives more than 20 greeting cards in a year, about one-third of which are birthday cards. HALLMARK CARDS, INC.: Company Name: Hallmark Cards, Inc. 2501 McGee Trafficway Kansas City, MO 64108 CEO: Donald J. Hall, Jr. President: David E. Hall Founded: 1910 Headquarters: Kansas City, Mo. Ownership: Private Consolidated Annual Revenues: Approximately $4 billion in 2017 Employees: Hallmark employs more than 30,000 worldwide • 3,200 (approx.) employees at Hallmark's Kansas City headquarters • 900+ employees in Hallmark's global creative community including artists, designers, stylists, writers, editors, web designers, and photographers who work on developing products Hallmark’ portfolio of businesses Hallmark Greetings: Global greetings business sells greeting cards, gift wrap and related products in more than 30 languages with distribution in more than 100 countries and 100,000 rooftops worldwide. The business creates approximately 10,000 new and redesigned greeting cards annually and can have more than 49,000 different products in stores at any one time. Hallmark Retail: Retail operations include more than 2,000 company and independently owned Hallmark Gold Crown stores in five countries that offer artistry, multi-cultural, local, and digital products in the U.S., Canada, England, Ireland and Scotland. Hallmark Home & Gifts: Offerings provide a broad array of home décor and gift product throughout the U.S. in more than 5,000 retail outlets from baby to trendy to whimsical under various brand names. Crayola: The No. 1 most-loved brand for moms1 and third-largest toy brand today, Crayola offers a wide range of art materials and toys designed to spark children's creativity around the globe. Crayola produces 3 billion crayons annually. Crown Media Family Networks: Operates three 24-hour cable networks – Hallmark Channel, Hallmark Movies & Mysteries, and Hallmark Drama – in addition to the e-books division of the Hallmark channels, Hallmark Publishing, and Hallmark Movies Now, a subscription-based streaming service. Crown Center: A real estate development business that manages the 85-acre hotel, office, entertainment and residential complex surrounding the world headquarters of Hallmark Cards, Inc. that hosts 3 million square feet of office space and welcomes more than 5 million visitors annually. AMERICAN GREETING CARDS: American Greetings Corporation, One American Road, Cleveland, OH 44144 Jeffrey and Zev Weiss, Co-CEO John Beeder, President & COO Founded: 1906 Headquarters: Cleveland, OH Ownership: Public (NYSE: AM) Employees: 7,000 Annual Revenues: $1.6 billion American Greeting Cards designs, manufactures, distributes, and sells social expressions products. The company operates through five segments: North American Social Expression Products, International Social Expression Products, Retail Operations, AG Interactive, Non-reportable. It offers greeting cards, gift packaging, party goods, giftware, stationery, and gift wrap and boxed cards. The company also distributes social expression products, including electronic greetings, and a range of graphics and digital services and products through electronic channels, including Websites, Internet portals, and electronic mobile devices.... About American Greetings Corporation For more than 100 years, American Greetings Corporation (NYSE: AM) has been a creator and manufacturer of innovative social expression products that assist consumers in enhancing their relationships to create happiness, laughter and love.  The Company's major greeting card lines are: American Greetings, Carlton Cards, Gibson, Recycled Paper Greetings Papyrus, Paper Rebel INDUSTRY TRADE SHOWS: Tradeshows, ranked in suggested order of importance: – NATIONAL STATIONARY SHOW - May – AMERICA’S MART, Atlanta -January – NEW YORK NOW, NY - February – AMERICA’S MART, Atlanta -July – NEW YORK NOW, NY - August – LAS VEGAS MARKET, LV, NV - January