February 2012 - Progressive Greetings

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Industry Overview
Steady As She Goes
Last year’s PG’s annual tracking of the ‘health and wealth’ of the UK greeting
card industry was called ‘The Big Squeeze’, focusing on the probable effects
of the squeeze on disposable incomes. This year’s equivalent article is
entitled ‘Steady As She Goes’, so-called in anticipation that the industry may
well have a better year than many predict, providing of course that there are
no freak storms.
PG plots the trade’s course of the last year and takes a reading on its
likely voyage through 2012.
Last year ended in a bit of a conundrum for
the greeting card trade. Although the nation’s
general retail economy performed worse
than expected, the UK greeting card industry
did not experience any really major
convulsions, casualties or really earth
shattering take-overs.
The industry is widely accepted as being
‘mature’, but notching up sales of £1.5 billion is
embracing maturity with a pretty rich and
sizeable ‘pension plan’!
As part of this mature status, the
consolidation of players at publisher level
continued in 2011, but at a slower pace than
many had predicted – though Carte Blanche’s
tease that it is to notch up its card sales by
another £9 million by the end of the year,
through a sizable acquisition, has set the
industry rumour mongers’ minds working.
This does however mean that, if the
market is not growing, then a publisher, or
retailer for that matter, can only grow their
sales at the expense of someone else.
All’s fair in love and war as they say, and
there has been a bit of loving and warring
going on in the last year.
The largest most eye-catching acquisition
of the last year was no doubt UKG’s purchase of
Watermark, the own brand supplier to Clintons.
This gives UKG around 70% of the Clintons’
card racks and really kicked start a fantastic year
for what must be now, the UK’s largest greeting
card publisher. The UK subsidiary of American
Greetings has, through clever positioning of its
brands, managed to establish a market
leading position in virtually every sector of
the market and even had the crowning
achievement of winning the Gold award in
the Best Service to the Independent Retailer
at last October’s Henries.
The other take-overs were pretty small
beer by comparison. Carte Blanche made two
quite small acquisitions with Hotchpotch and
Lello to further extend its greeting card clutch
of brands, while the portfolio of companies
owned by Simon Elvin increased with Paper
Rose effectively acquiring The Art Group.
Top: WHSmith has ramped up its support
for Funkypigeon.com by opening stores,
such as this one in Leeds station.
Right: UKG's director of independent
sales, Tony Roberts (left) and group
inventory manager, Richard Wilkinson,
beam as they accept their Gold Award for
Best Service To The Independent Retailer
from Chris Dyson, joint managing director
of Cardgains, sponsor of this category.
Left: The UK greeting card ship is strong
enough to hold its own as long as the
sea doesn’t get too choppy in 2012.
Outside of traditional bricks and mortar
publishing, the big acquisition news was that
of online print-on-demand greeting card
operator Moonpig for £120 million by
Photobox. Although this figure is huge,
perhaps it was a case of founder Nick Jenkins
cashing in his chips at the optimum time,
before the print-on-demand bubble bursts
and before the VAT exemption loophole for
Channel Island based companies (which gave
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Industry Overview
Moonpig such a competitive
advantage) is closed this year.
This sector of the market now
stands at around 3-4% of the
total of card sales and is
unlikely to grow substantially
but
will
fragment
as
WHSmith’s Funky Pigeon and
others try and steal the market
share from Moonpig. Card
Factory now of course, has a
slice of the action with its acquisition of
Getting Personal, Scribbler jumped in at the
back end of last year and there are strong
rumblings that Tesco is putting the final
touches to its offer which is reputed to launch
before too long.
As PG compiled its annual State of the
Nation in early January, two figures from last
year, both at each end of the spectrum, came
to mind. One was the £60 million profit made
by value retail chain Card
Factory in 2011, the second
was the welcome surprise
announcement of a 0.4 %
increase in like-for-like
Christmas sales by Clintons.
C a r d Fa c t o r y h a s
accelerated its amazing
progress since its change of ownership in 2010,
when founder Dean Hoyle sold the company to
the private equity group Charterhouse for a
whopping £350 million. But then, as the
running of the company has been in the safe
hands of Richard Hayes for years, who
continues as managing director (and Dean
continues his watchful eye over ‘his baby’), it is
not really surprising. Being a private company
Card Factory is under no obligation to release
its Christmas sales figures, but the suspicion is
that the shops did very well. There is no reason
to doubt, given the slickness of the Card Factory
operation and the viability of the business
model, that this will continue to grow in 2012.
The Card Factory profit figure was truly
earth shattering, but in many ways the
Clintons’ figure was equally significant. In a
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PROGRESSIVE GREETINGS WORLDWIDE
Left: Dean and Janet Hoyle, founders of Card Factory
have plenty to smile about.
Below left: Two card designs from Hotchpotch (left) and
The Art Group, both publishers were acquired in 2011.
Christmas selling season that at
best could be described as
challenging, and which has seen
the likes of Past Times, Blacks, and
Hawkin’s Bazaar forced into
administration, Clintons actually
reported an increase in sales, all be
it a tiny one.
This is the Clintons that those
soothsayers of financial gloom had predicted
would have a terrible Christmas and be a
potential post Yule casualty. In fact, Clintons
outperformed the mighty Tesco who
reported a 2% fall in sales in a similar period.
This is the Clintons that even its directors
recognise needs to be strategically analysed
and suffers from a portfolio of stores that
need great investment. Clintons, under its
new ceo Darcy Willson-Rymer’s new
management team, is not out of
the dark economic woods yet, but it
enters 2012 in finer fettle than most
experts predicted.
What the Clintons’ recent sales
figures (and Card Factory’s sparkling
profits) indicate is that greeting cards
are proving surprisingly resilient.
Add to this the
continued growth of
specialist multiple players
such as Paperchase and
Scribbler, plus the stable
Cardgains’ membership
(which has stood at 1,000
‘rooftops’ for as long as PG
can remember) and the
greeting card picture is not
bad at all.
Certainly there are challenges for both
publishers and retailers. For publishers
wanting more than a ‘lifestyle business’ and a
retail distribution outside independent gift
and card shops, they will continue to come up
against the trials and tribulations of having to
work through a broker. In what sounds like a
bizarre situation, in many cases, as well as
being a publisher’s biggest competitor, in the
position of broker (as in the case of UKG,
Hallmark, Woodmansterne and GBCC) they
could also be a brokered publisher’s biggest
customer. It will be interesting to see if
Stamping It Out
One big question mark is the future of Royal
Mail and how imminent and substantial
postage increases and privatisation will
affect greeting card sending?
Looming privatisation and the
necessity of make the future service
commercially viable will lead to swingeing
postage increases, which is likely to be bad
news for the greeting card industry.
On the plus side, there are signs that
the new more commercially driven
management team, free from the shackles
of the public sector, will be more receptive
to ideas to promote greeting card sending.
Initial discussions between the new Royal
Mail team and the Greeting Card
Association reveal that almost everything,
including aspects of the much hated and
consumer confusing sized base pricing, is
up for discussion, and that there is a
recognition that the greeting card industry’s
wellbeing is bound in with Royal Mail’s.
Above: The nation’s Christmas card sending
has further declined since Wallace & Gromit
did their encouraging stuff on stamps for
Christmas 2010.
Above left: The last year has seen Paper Rose
further strengthen its position in the market
with the acquisition of The Art Group.
Pictured is Simon Elvin founder of Simon
Elvin with Jayne Myers, managing director of
Paper Rose, which is owned by Simon Elvin.
Inset: As the findings of this year’s
PG/Cardgains’ Retail Barometer showed,
even independent retailers are considering
following in the footsteps of grocer giants
like Asda and be supplied via brokerage.
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Industry Overview
Left: Scribbler has continued to grow, both on the high
street as well as now through its new online prescence.
Below: Cardgains’ independent membership is holding
at around 1,000 rooftops. This year sees it continue on
its theme of upping service through its BUSiness Bus
marketing campaign fronted by Cyril Service.
Below left: A children’s card from Wishing Well, which
was acquired by Carte Blanche last year.
industry consolidation brings with it new
brokerage contenders – Noel Tatt has quietly
enjoyed success with its planning service and
this could be expanded, while the Carte
Blanche Group (especially if its makes an
appropriate acquisition) could feasibly start
expanding its remit in this direction.
Independent card retailers, though
holding up well, will like other retail players, be
bracing themselves for an unavoidable rise in
business rates this spring and so will be
looking to increase their average transaction
value even more this year.
Having got through what anecdotally
seems a decent Christmas for most, Christmas
card sending remains a cause for concern for
the trade. While sales of single Christmas cards
are faring OK, the last few
years have seemingly taken
their toll of the big Christmas
card send. The days of the
bulging corporate card
sending habit seems to be in
‘Christmas past’ and personal
sending has also been on the
wane. And this trend looks
set to continue, after all, the Y
generation have mobile
phone numbers of hundreds
of acquaintances at the touch of a keypad, yet
knowing their addresses to send them a
Christmas card is another matter.
Listing the potential threats to traditional
greeting card sending is no quick job. Ecards,
text messaging, Facebook, twitter, online
print-on-demand cards, decline of high street
retailing, squeeze on disposable incomes, a
near four year recession, changes at Royal Mail
and postal increases and the decline in
physical handwriting among the young. The
list could go on, on and on. Yet – and very
importantly, unlike CDs, DVDs and
books, other sectors heavily damaged
by technological developments,
people still seem to be buying
everyday greeting cards in
roughly the same quantity as ever.
Last year’s State of the Nation
concluded that greeting cards
being relatively low ticket items
would not be as badly affected as
many industries and to a certain
extent this prediction has
proved correct in an environment that
was worse than anticipated.
Card sending, quite amazingly
considering the cultural and
technological changes, is still very
much an ingrained part of our culture.
And there is certainly no drying up of
new ideas. The Ladder Club now has to
offer two days of seminars to meet the
demands of new and would-be
publishers wanting to make their way
in this industry; the GCA last year welcomed
100 brand new members into its thronging
fold and PG Live’s Springboard section (for
new and emerging publishers) has had to be
extended yet again at the show this May. All of
this shows that greeting cards still hold a
huge obsession for new creatively minded
entrepreneurs. The margins are still very
attractive for retailers, and although less so
than in previous years, they still offer a decent
nugget for publishers.
As ever, in 2012 people will continue to
have birthdays, anniversaries, weddings and
reasons for card sending and there will be
plenty of choice on offer to cover all tastes
and price points.
There is no cause for
mass wrist slashing and
those who predict the
imminent demise of the
humble greeting card do so
at their peril.
As long as the industry
is exposed to steady gentle
winds the good sailing ship
HMS GREETINGS will remain
on course throughout 2012.
The Wider Picture
PG‘s view of the trade is probably more optimistic than
the vast majority of economic forecasters looking at
the wider picture. The greeting card industry does not
exist in a vacuum and is at the mercy and whim of
the wider UK economy, but even here there is
cause for guarded optimism, especially given that
expectations among most ‘experts’ are so low.
Last year, these economic experts got it
wrong. They predicted GDP growth of between 2% and 3% with inflation at around the same
level. They were all inept in their predictions with GDP growth in fact only reaching 0.9% and
inflation averaging 4.7%. Having been overly bullish last year, there is reason to think that this
year they are being over pessimistic in their consensus predictions of between 0.5% and 1%
growth for 2012. They mainly though, predict inflation to fall to 2.1% by the year end.
If the ‘experts’ are right about inflation, they may well be underestimating the positive
impact this would have on growth of real incomes and hence stronger consumer spending.
And offers the best hope that the forecasters this year have overdone the gloom. Indeed,
some of the economic indicators in the first two weeks of this year have been better than many
expected. The Queen’s Diamond Jubilee and the Olympics should also help lift the spirits, so who
knows, 2012 could prove to be better than anyone hoped for.
A crisis in the Euro
Zone could effect this
negatively and would
certainly effect publishers’
export opportunities, but
the chances are that
Germany has too much
vested interest in the euro
to allow this to happen.
Above: The Queen’s Diamond Jubilee
should give a right Royal lift to the nation’s
morale.
Left: London 2012 is expected to out
£1billion into the UK economy.
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