American Greetings

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American Greetings

founded: 1906

Contact Information:

headquarters: 1 american rd.
cleveland, oh 44144 phone: (216)252-7300 fax: (216)252-6777 url: http://www.americangreetings.com

OVERVIEW

American Greetings is the world's largest publicly owned maker of greeting cards and other "social-expression" products. It controls 35 percent of the U.S. greeting card market, a second-place seat behind Hallmark's 43 percent market share. American Greetings is number one in Canada, New Zealand, Australia, and South Africa. Its products appear in approximately 100,000 retail stores in over 75 countries, including all 682 Toys 'R' Us stores in the United States and two out of every three mass-merchandiser stores. Sixty percent of drug-store chains carry American Greetings products, as do one-third of grocery stores. Daily sales total millions. In 1997 general greeting cards accounted for 44 percent of American Greetings' sales, while seasonal cards accounted for 22 percent and wrapping paper and party supplies accounted for 18 percent. The balance represents sales of the company's wide range of other products, including candles, reading glasses, and home-educational materials. Recent years have seen a greater diversification among products offered, though the company has been consistently profitable throughout its history.

COMPANY FINANCES

The year 1997 was American Greetings' ninety-first consecutive year of improved sales. Net sales of general cards rose by 10.3 percent, and sales of seasonal cards rose by 12.5 percent. Sales in 1997 were just over $2.1 billion, an increase of 7.95 percent over 1996, for a net income of $167.1 million. American Greetings' stock price rose by more than 60 percent for the 1997 fiscal year. Shareholder equity measured $1,361,655, or $18.16 per share. Net earnings per share were $2.23 with dividends of $.67 per share paid. In April 1998, the company paid its 186th straight quarterly dividend.

Utilizing resources from two 1997 divestitures, American Greetings bought back 4.5 million outstanding Class A shares—about 6 percent of the total equity—in 1998. Class B shares are not publicly traded. Class A shares have been moved from the NASDAQ exchange to the NYSE exchange where they have been traded since February 1998. The company expects this move to result in lower volatility and greater liquidity for the stock. Its total market capitalization exceeds $3 billion.

ANALYSTS' OPINIONS

American Greetings is noted both for its perpetual improvement in sales and for diversifying its product lines. In Supermarket News, Arthur Andersen's Michael Killeen characterized American Greetings' management as "very astute marketing people."

HISTORY

American Greetings was founded in 1906 by Jacob Sapirstein, a Polish immigrant who had worked in his relatives' hotel card shop. He began by purchasing picture postcards and selling them wholesale out of a horse-drawn wagon. The business became a family tradition when Sapirstein's son Irving became his partner. Shortly thereafter, Irving's brother Morris joined in what came to be called the Sapirstein Greeting Card Company. By 1932 the Sapirsteins were producing their own cards.

In the 1940s the company changed its name to American Greetings Publishers. The company went public in 1952 and was incorporated under the name it retains today. Business continued to thrive, and in 1967 the company introduced the popular character Holly Hobbie. By 1985 it was a billion-dollar operation.

STRATEGY

Demographic research is the core of American Greetings' marketing plan. The company studies the consumer bases of the stores that carry its products, assesses the most viable target markets, and tailors products to factors like age, gender, and ethnicity. In 1991 American Greetings established its own "research council" in order to better understand the purchasing habits of grocery-store patrons. They found that women between the ages of 55 and 64 are the largest consumer group, many of whom buy several dozen cards per year. The research council encourages stores to be experimental in matters of marketing and merchandising. In 1997 American Greetings released a three-year study entitled "Winning the Battle of Consumer Perceptions," which focused on maximizing profit by organizing general-merchandise and health- and beauty-product displays.

Identifying new and existing markets, efficiently creating innovative products, and rigorous test marketing can be linked with American Greetings' success. Among a staff of more than 400 artistic personnel, the "Retail Creative Services" group designs themed display units for different seasons and holidays. One example is the popular "Wacky Factory," an eye-catching, 13-foot-tall fixture for shelving Easter-related products. Additionally, electronic touch-screen kiosks with party planning pointers are distributed by this group to be tested and used in U.S. grocery stores to promote supermarkets as places to purchase party products.

In 1997 American Greetings revamped its market strategy with a 16-month in-house campaign called "The All New American Way." It replaced nearly 80 percent of its card designs in approximately 30,000 retail outlets in an effort to accommodate a broader array of today's American lifestyles, but birthday and general cards still form the backbone of the updated collections. Examples of their emphasized content include multicultural themes and communication across generations in families. According to company president Ed Fruchtenbaum, "This is a magnitude of change in greeting cards seen only once each generation."

As part of "The All New American Way," the company introduced the "Just Because" line in 1998. The collection boasts all-purpose (or "anytime") greeting cards; this category of general cards accounts for about 15 percent of output. The first year of production involved a $20 million marketing campaign, the first of such moves for American Greetings in a decade. Magazine advertisements for the "Just Because" line featured glued-in replicas of cards sent by celebrities for reasons other than special or calendar-based occasions. For example, the ads featured a card from Dr. Ruth Westheimer to a fellow therapist in whom she "can confide [she] stole this card," and one from Joan Rivers to her daughter to report on a sale of shoes. The company expects the line to boost overall sales as consumers realize that they need not observe a special time or event in order to send someone a greeting card.

The company's candle subsidiary, GuildHouse Candles was added in 1997. American Greetings has been a player in the candle market for decades, but it has now allocated considerable resources—including full-time sales and marketing staffs—toward turning what was once just a product line into a business entity in its own right. In a 1997 quarterly report to shareholders, Edward Fruchtenbaum said of the launch, ". . . GuildHouse can compete better if it can think and act like a candle company, not a greeting card company that happens to sell candles." One objective is to place the candles in stores where the company has not traditionally sold greeting cards. In 1996 American Greetings undertook the same type of institutional upgrade for its DesignWare line of party supplies as its first "strategic business unit."

INFLUENCES

Recent consolidations in the U.S. retail sector—such as the closings of F. W. Woolworth and Lechmere, as well as mergers among the pharmacy chains—may pose some challenges to American Greetings if there are fewer outlets in which to sell products, but the risk is difficult to gauge. In 1997 American Greetings sold its Acme (picture frames) and Wilhold (hair care) divisions, which were not profitable enough to remain part of the business from a long-term strategic point of view.

Investment in technology has been a priority for American Greetings. Sales personnel use laptop computers to keep track of information on sales calls, for example. The company's distribution systems are automated, thus facilitating speed and accuracy in filling orders. In addition, printing costs have fallen with the company's use of high-tech Komori presses, which are faster and deliver a higher-quality print job.

FAST FACTS: About American Greetings

Ownership: American Greetings is a publicly owned company traded on the New York Stock Exchange.

Ticker symbol: AM

Officers: Morry Weiss, Chmn. & CEO; Edward Fruchtenbaum, Pres. & COO

Employees: Over 21,000

Chief Competitors: American Greetings' competitors include: Hallmark; Gibson Greetings; and Factory Card Outlet.

DID YOU KNOW THAT. . .

Americans spend more than $6 billion a year on greeting cards and related social expression products, sending more than seven billion greeting cards to loved ones?
Christmas, Valentine's Day, and Easter are the top three card-sending holidays?
"to express friendship" is the second most popular nonholiday reason for people to send a card?
Father's Day is one of the top three occasions of the year for sales of humorous cards?
a full 30 percent of American Greeting's Father's Day cards are funny, compared to only 18 percent of Mother's Day cards?
on Mother's Day 1998, approximately 178 million cards were sent, compared to 100 million for Father's Day?

CURRENT TRENDS

American Greetings is entering the age of electronic greeting cards. In addition to selling cards through its web site, it has introduced a CD-ROM called American Greetings CreataCard Plus, which lets consumers use their home computers to create their own cards. Also in 1997, the company entered into an exclusive, three-year agreement with America Online, through which it will provide over 10 million subscribers access to more than 1,000 "paperless" cards that can be sent as e-mail messages. Among the points in the company's mission statement is a commitment to "use technology to advance sales, operations and retail partnerships."

In 1997, following a successful test-marketing scheme, American Greetings broke into the $630 million market for home educational products by introducing its line of 330 Learning Horizons brand materials. These items include workbooks, flash cards, puzzles, stickers, and audiotapes, which are aimed at children attending preschool through grade six. The average price for the products is $4.00. For its research phase, the company consulted a panel of parents and educational professionals who could provide feedback and advice about the developing products. American Greetings has noticed an up-swing in purchases of at-home educational aids by parents and grandparents, whereas teachers had once been the primary buyers. School-supply vendors had been the traditional outlet for such products, but Learning Horizons can be found in grocery stores. In Supermarket News, executive director Mark Schantz describes the products as "a one-stop shopping experience for parents who are interested in helping a child who may be having difficulty in school, or is bored or wants something enriching." Unlike many of the company's other products, Learning Horizons does not involve any licensed images.

The White House has selected American Greetings to design President Clinton's official Christmas card since 1993. The company's other significant presence at the White House is its sponsorship of the annual Easter Egg Roll, in which it has participated through the 1990s. The governors of Ohio, Arkansas, Kentucky, and Tennessee have also selected American Greetings to produce their holiday cards.

PRODUCTS

The mainstay of American Greetings is its card business, which includes general greeting and seasonal cards. The company has diversified into the areas of various consumer products, such as seasonal wrapping paper (under the Plus Mark brand name); supplemental educational products (under the Learning Horizons brand name); nonprescription reading glasses (under the industry-leading Magnivision brand name); candles (under the Guild-House brand name); party supplies (under the Design-Ware brand name); stickers; plush toys; and stationery. The company has also added licensed images of children's characters to its product lines. American Greetings is party to several multiyear agreements, which allow them to use "Rugrats," "Teletubbies," and Richard Scarry's characters on products including cards, balloons, wrapping paper, and stickers.

GLOBAL PRESENCE

American Greetings operates all over the world under various subsidiaries' trade names. A presence has recently been established in the South Pacific, with the acquisition of John Sands in New Zealand and Australia, where it now enjoys a 44 percent market share. In 1998 its British holding company, UK Greetings Ltd., acquired Camden Graphics Group, which it hopes will serve it well in a nation where the annual greeting-card consumption is a staggering 41 per capita. The deal was expected to take American Greetings' British market share from 11 percent to 15 percent. Subsidiary Carlton Cards' products are widely distributed in Great Britain and lead the Canadian greeting-card marketplace as well.

CHRONOLOGY: Key Dates for American Greetings

1906:: The Sapirstein Greeting Card Company is founded by Jacob Saperstein
1918:: Saperstein's son, nine-year-old Irving, becomes the first partner
1928:: A contract worth $24,000 becomes the company's largest order to date
1932:: Starts manufacturing its own line of greeting cards
1940:: Company is renamed American Greetings Publishers
1944:: Incorporates as American Greetings Corporation
1952:: American Greetings goes public
1967:: Holly Hobbie is introduced
1972:: Ziggy is introduced as "the world's most loveable loser"
1977:: Holly Hobbie is the most popular female licensed character in the world
1985:: Sales pass $1 billion for the first time
1992:: American Greetings purchases Custom Expressions, Inc., makers of a video touchscreen customized card creator; Hallmark sues for patent infringement
1997:: American Greetings enters into a three-year exclusive agreement with America Online to provide electronic cards that can be sent as e-mails

EMPLOYMENT

In the late 1990s, the company started a "Chairman's Award" to salute employees who have shown excellence in "community service, customer service, innovation, personal initiative, and teamwork." The company sponsors a defined benefit health care plan that furnishes postretirement benefits to personnel (65 years or older) who have worked full-time for 15 years and were hired before 1992.

SOURCES OF INFORMATION

Bibliography

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