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HALLMARK APPLIES ‘GET WELL’ THERAPY TO STORES

By Maura K. Ammenheuser

The next time you care enough to send the very best, take note that the store you patronize may now be looking its very best. This is because Hallmark Cards, the “number one producer of warm fuzzies,” in the words of one source, has been making over its Gold Crown Shops. And it’s about time, some would say.

For years Hallmark stores have had a basic, discountish, cluttered-white-box look, says Howard Davidowitz, chairman of Davidowitz & Associates, a New York City–based retail consulting and investment banking firm.

Recently, Hallmark launched a store redesign to change that. The new look includes wood fixtures rather than metal and glass, better lighting, a new cash wrap and an updated logo, says Lisa Macpherson, Hallmark’s senior vice president of retail merchandising. Current and seasonal merchandise is displayed up front, with everyday cards placed in the back. Shoppers now have a clearer view into the interior, Macpherson says.

Hallmark wanted to set the stores apart from mass merchandisers and make them better organized and easier to shop, says Macpherson.

Davidowitz calls the redesign a step in the right direction, though he says Hallmark could go further. Today people can send e-cards or buy inexpensive paper ones at pharmacies and supermarkets. Hallmark and Cleveland-based competitor American Greetings must “elevate” their stores and products to give shoppers a reason to step inside and also to match the increasingly upscale atmosphere of modern shopping centers, Davidowitz says.

Macpherson disagrees with the notion of an upscale Hallmark but says the company has aimed to make its stores warmer and more comfortable.

Hallmark refined the new look first at its company-owned stores; independently owned ones began the makeover this year, Macpherson said. She added that owners have three “levels of investment” in the new look, so stores will not look identical. By October 70 stores had converted to some version of the redesign.

There are about 3,000 greeting card publishers in the U.S., according to financial services firm Stanford Group Co. Privately held Hallmark controls the biggest market share in the U.S. greeting card business — 50 percent of sales as of 2004, according to Kathleen Reed, senior vice president of research at Stanford Group. American Greetings holds 35 percent of the market, and the rest is in the hands of some smaller companies, says Reed.

American Greetings distributes greeting cards and other wares, including gifts, wrapping paper and more, through other merchants and some 400 company-owned American Greetings and Carlton Cards shops in the U.S. and Canada. American Greetings is reducing the number of its stand-alone stores because its margins are better in wholesale than in retail, says Reed. Like Hallmark, American Greetings sells through mass merchandisers as well as its own branded stores.

American Greetings and Hallmark deal in other media too. Hallmark owns crayon maker Crayola. It also controls 95 percent of Crown Media Holdings Inc., which operates the Hallmark Channel, a family-fare cable TV network, and Hallmark Movie Channel. Crown Media enjoyed 2006 sales of $201.2 million, according to Hoover’s.
American Greetings recently discontinued The Hatchery, an entertainment company for family TV and films, but it owns licensed characters, such as Care Bears. The company said in the fall that it was also creating an animated CBS television series called Sushi Pack.

In June American Greetings launched a line of cards developed with and featuring a cartoon image of comedy star Ellen DeGeneres. The company plans to form a partnership with Comedy Central to produce more cards this winter.

American Greetings announced in 2006 a remerchandising strategy shrinking the number of cards displayed in stores and now categorizes them according to five perceived female lifestyles: These, according to Reed, are: Town & Country (“aspirational” women “who like the finer things in life”); HIPoise (trendy); Family Focus (the most conservative); Rowdy (artsy, with shock value); and New Traditionalist (for “type-A personality” working mothers).

It has also redesigned fixtures to allow a better view of the cards’ faces, says Megan Ferington, American Greetings spokeswoman. Company executives say they hope to boost sales, which have been flat, and Ferington says the efforts were meant to make it easier for consumers to pick a card and for the company to put out a smaller but improved selection.

Reed credits those efforts for American Greetings’ sales of $418 million in the first quarter of the company’s 2008 fiscal year (the year ends in February), a 3.4 percent increase over the same quarter the previous year. Second-quarter sales reached $377.4 million, up 1.6 percent year over year. (Fiscal 2007 sales were $1.79 billion.)

Hallmark posted consolidated net revenue of $4.1 billion for fiscal 2006. It, too, is tinkering with its products.
Last year Hallmark began participating in Product Red, a campaign to help fight disease in Africa launched in March 2006 by rock star Bono and Kennedy family scion and philanthropist Robert Sargent “Bobby” Shriver Jr. Through Product Red, consumer product companies earmark proceeds from certain merchandise for the Global Fund, which battles certain diseases that plague Africa. In Hallmark’s case, the company sends 8 percent of the proceeds from sales of a line of cards to fight AIDS.

Its newest Shoebox brand cards will “take humor beyond the expected … picking up cues from pop culture, current news, political icons and cultural trends,” says a promotional flier. Future gifts and wrapping paper will be “more casual and relaxed … with modern editorial that reflects how people actually talk,” the flier says.

But the big buzz at Hallmark comes from the musical cards that play when opened. These are a hit, says John Foroutan, who owns two Hallmark shops in New Jersey. “It captures the young market,” Foroutan said. “It’s in its second year, and I don’t see it slowing down.” According to the Hallmark Web site, the company expanded the Cards with Sound collection from 24 varieties to 224.

“People ask me for [musical cards] all day long,” said Lisa Kantoff, vice president of Events, a Houston gift and card shop that does not carry Hallmark. Smaller card publishers cannot afford the licensing required for such cards, she says.

The musical cards are part of an overall trend toward electronically enhanced cards, says Barbara Miller, spokeswoman for the Greeting Card Association, a Washington–based trade group. Some card manufacturers now embed electronic chips in their products that allow a variety of visual effects, she said — for instance, an image of a butterfly that appears to move its wings. These tap into the public’s love of technological gimmickry.

But handmade cards are big sellers, too. “You couldn’t have more diverse trends,” Miller said. Kantoff’s shop sells handmade cards, some for as much as $30. Customers buy them for special occasions such as weddings. The industry is full of such niches. Kantoff cites one company that makes only packaging for retailers’ gift cards.
Sometimes the specialty is not the physical attributes of a card, but rather the content. Card makers are concentrating on specific topics or demographic sectors, such as divorced people, racial minorities or religious groups.

Surprisingly, sources say e-cards, which are sent over the Internet, sometimes for free, have had no significant effect on paper card sales. “For all intents and purposes, paper cards and e-cards do not compete with each other,” said Miller.

E -cards are casual, edgy and favored by young people for everyday occasions, says Miller. The paper cards, preferred by older consumers, are sent for major occasions and are often considered keepsakes. Hallmark and American Greetings offer e-cards, Hallmark for free and American Greetings on a subscription basis.

The association says that 7 billion paper cards are sold annually in the U.S., accounting for about $7.5 billion in sales. (Miller points out that the average cost per card of just over $1 is misleading, as cards vary widely in cost, most between $2 and $4.) The group estimates that Americans send about 20 paper cards for every e-card, so no one expects e-cards to become a serious threat to sales of paper cards.
“What sells a card,” Miller said, “is the emotion that’s being conveyed.”

Tiffany’s smaller box

Tiffany unveiled the prototype for a lower-priced concept. The jewelry chain plans to open the first Tiffany & Co. Collections store at an undisclosed location next year. The retailer says it will open about five Collections stores annually starting in 2009, with the long-term goal of opening about 70.

Coach: Fewer shoppers ‘trading up’ this year

Coach might have a tougher holiday season this year than in the past, because the slowing economy could discourage middle-income buyers from making the “aspirational” purchases that have helped Coach’s sales surge, observers say. Traffic declined at the brand’s stores in the third quarter, executives said on an earnings call, with the most pronounced dropoffs occuring in Caifornia, Florida and the Northeast. The trend is likely the result of fewer aspirational buyers dropping in to purchase one of the line’s less expensive items, says Lazard Capital Partners retail analyst Todd Slater, because the rate at which people who enter the stores actually make a purchase is accelerating. “Perhaps after consecutive years of double-digit growth in average ticket price, the product could be less accessible to a certain demographic challenged by higher fuel costs and lower housing values,” he wrote in a note to investors. Coach is already one step ahead of the downturn, though, he says, and is already taking steps to focus more on higher-end shoppers. “Of note, the mix of $400 handbags is expected to double this year to 25 percent of sales,” Slater wrote, “making it more difficult for some to purchase and not just aspire.”

Fade to black

Movie Gallery filed for Chapter 11, pledging to reduce debt by about $400 million and to give shareholders 2 percent of the reorganized company’s equity. Dothan, Ala.–based Movie Gallery has some $150 million in debtor-in-possession financing to reorganize its books. In September the chain announced plans to close about 520 of its approximately 4,500 stores. The company’s Canadian subsidiary was not a part of the filing.

Luxottica eyes 1,000 China stores

Eyewear chain Luxottica says it will nearly quadruple its stores in China to almost 1,000 over the coming five years. Sales in China could reach €100 million ($147 million) next year, up from an expected €75 million euros this year, the company says. The company will invest €10-15 million annually over the next three years in China. Currently it operates 266 stores in China and Hong Kong.

Frette to blanket new markets

Italian luxury linens maker Frette, whose sheet sets start at $450, is rolling out new stores to grow its high-end business. Acquired last year by private equity firm JH Partners, Frette opened its tenth U.S. unit, a 1,200-square-foot store at Americana Manhassett, in Long Island, N.Y., this fall. The new owners will start rolling the brand out more widely within the next seven years and plan to grow its U.S. operations to include between 30 and 50 stores, executives say. Atlanta; Bal Harbour, Fla.; Dallas and Houston are in the brand’s sights, as well as Easthampton, N.Y.; Greenwhich, Conn.; and Santa Barbara, Calif.

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