One American Road
American Greetings helps people everywhere express their innermost thoughts and feelings, enhance meaningful relationships, and celebrate life's milestones and special occasions. We also strive to: Be the industry's preferred greeting card supplier with superior retail sales performance. Provide the highest level of customer service at the lowest cost of doing business. Use technology to advance sales, operations, and retail partnerships. Deliver solid profitability and long-term shareholder value. Set the industry standard for a work environment that respects each associate and encourages creativity and innovation at all levels. Adhere to the highest standards of moral and ethical conduct in dealing with our customers, suppliers, shareholders, associates, and the community at large. Enrich the quality of life in all communities where we do business.
American Greetings Corporation, which advertises itself as "the world's largest publicly owned manufacturer and distributor of greeting cards and related social expression products," is second only to Hallmark Cards, Inc. (a privately held corporation) in what has become an increasingly competitive and tight-margin industry. Since its founding in 1906 as a small Cleveland jobber's shop, American Greetings has enjoyed 91 consecutive years of increased revenue. Within recent decades growth has been driven especially by the company's creation, marketing, and licensing of such characters as Ziggy, the Care Bears, Holly Hobbie, and Strawberry Shortcake, as well as by a pronounced emphasis on "anytime" cards, a fast-growing niche area of the historically holiday- and occasional-oriented market. Strategies by which American plans to expand this niche area as well as appeal to a new card-buying public include its CreataCard vending machines, which allow shoppers to personally design and print their own cards, via touchscreen, both quickly and economically; its CreataCard Plus CD-ROM products, which allow users to print cards at home or have the company print them and mail them; and its various initiatives involving the marketing of its greeting cards through the Internet and online services. The company operates 31 plants in the United States, Canada, Mexico, the United Kingdom, France, South Africa, Australia, and New Zealand, and distributes its products through a network of more than 100,000 retail outlets in over 75 countries.
Early History
The birth of American Greetings roughly coincides with the birth of the U.S. greeting card industry, which was marked by the advent of occasional cards to complement the seasonal Christmas card trade. A Polish émigré named Jacob Sapirstein entered the fledgling industry in 1906 as an independent salesman. Sapirstein (known as "J. S.") had had some experience working with relatives in a hotel card shop. When the shop closed he established his own business, which consisted of buying picture postcards and reselling them to such local outlets as novelty shops, candy stores, and drugstores. Conducting his wholesaling enterprise from a horse-drawn wagon, J. S. enjoyed modest success and by 1918 welcomed his eldest son, nine-year-old Irving, as the first partner. In 1926 the Sapirstein Greeting Card Company solidified itself as a family business with the additional employment of Irving's brother Morris. Two years later, through the sales efforts of Morris and Irving, the company received its largest order since inception, a postcard contract worth $24,000. During 1929, a year after the Hall Brothers Company (Hallmark) had begun to advertise nationally, the Sapirsteins greatly furthered their eventual position as a mainstay of the market by becoming the first distributor to utilize display cabinets for its greeting cards. Three years later, the company began phasing out its dependency on suppliers, whose products were often inferior, by manufacturing its own line of greeting cards. Although Hallmark would retain until the 1980s a formidable industry lead due to its well-established name and high-quality image, the Sapirstein business was at least preparing itself to compete with the market leader.
The Great Depression had minimal negative impact on the company, as evinced by a continuing string of "firsts" during the 1930s. These included the hiring of the first sales representative in 1934; youngest son Harry's first year with the company in 1935; the opening of the first branch office and the first major manufacturing facility in 1936; and the introduction of the first line of Forget Me Not cards in 1939. With the advent of the next decade the company, which had now renamed itself American Greetings Publishers, catapulted to national prominence with annual sales exceeding $1 million. In 1944 the family-owned and family-run business incorporated under its present name and in 1952, due to rapid population growth and subsequent plans for both acquisitions and expansion, the company went public.
Creation of Characters Began in 1967
A new era dawned in 1960 when J. S. became chairman of the board and Irving (who, like his brothers, had changed his last name to Stone) became president. This same year the company launched a cabinet manufacturing plant in Forest City, North Carolina, the first of many large capital expenditures necessary to keep pace with growth and fortify the company's large position in the industry. In 1967 the company introduced the Holly Hobbie character to wide public approval; this important creative move, which had huge potential for licensing spinoffs, eventually led to the formation of Those Characters From Cleveland, a subsidiary operation active since 1980 that became a valuable contributor to the company's financial health. The year following Holly Hobbie's debut, overall sales surpassed $100 million.
The 1970s were marked by a number of major events. The decade opened with the introduction of Soft Touch cards, so labeled for their combination of soft focus photography and touching sentiment. This new line became the most successful of any introduced in American Greetings' history. In 1972 the world was introduced to Ziggy, "the world's most lovable loser." Even more so than Holly Hobbie (who by 1977 was the most popular female licensed character in the world), Ziggy became a perennial money-maker for the company, due especially to the royalty profits and publicity generated by his syndicated newspaper cartoon series, the creative rights for which were sold to Universal Press. In 1978 Irving Stone became chairman and CEO and Morry Weiss, Irving's son-in-law, was named president. During this changeover year, two new subsidiaries were established: Plus Mark, Inc., a manufacturer of Christmas gift wrap, boxed cards, and accessories, and A.G. Industries, Inc., the largest display fixture company in the country. By this time American Greetings possessed a view of itself as a leading mass-marketer to pharmacies, variety stores, discount stores, and supermarkets of lower-cost cards. Hallmark, which had ignored such venues until 1959, was now beginning to represent a serious threat to American's market share through its Ambassador card line. The most comforting news for American was that it, indisputably, dominated in terms of licensing revenue; the company reinforced this fact in 1980 with the unveiling of Strawberry Shortcake, whose array of products grossed $100 million in the first marketing year alone.
Industry Competition Increased in 1980s and 1990s
American celebrated its 75th anniversary in 1981 by recreating its 21-year-old emblem of the rose. This symbolic affirmation of quality and beauty dovetailed nicely with other key components of the new corporate identity program, including American's first foray into national television advertising as the Fresh Idea Company. Investors sensed a new surge in growth as they nearly doubled the stock price of American shares from October 1981 to May 1982. It was around this time that Weiss fueled investor fever by proclaiming, "We want to be the dominant force in the industry." Forbes writer Jeff Blyskal noted that the company was "actively upgrading its products and prices" and opined: "American Greetings is making a bold move. Weiss is pouring his licensing profits into an aggressive and well-timed campaign to challenge Hallmark." From 1981 to 1985 American grew from a half-billion to a billion-dollar company and thus attained one of the key corporate objectives it had set for itself. More important than this increase in total revenue, however, was American's astonishing net income increase of 613 percent in a 10-year period. What the company had failed to do, unfortunately, was enhance its market share with respect to Hallmark.
Gibson Greetings, the number three card-seller, shook the industry in 1986 with a vicious price war, which it commenced in an effort to increase its own 10 percent share. The price war ended the following year, but all three companies suffered profit losses from it, with virtually no change in their respective market positions (Hallmark still led with 45 percent and American followed with 35 percent; the bottom tier was still comprised of Gibson and several hundred much smaller manufacturers). American's recovery from this siege, as well as from downswings in noncard sales, was difficult. A 1988 Forbes article labeled the company "Flounder," finding support for its dismal forecast in new earnings estimates ($1.05 per share versus $2.35 in 1985) and a 60 percent drop in stock price from its mid-1986 high of 42. Nevertheless, after hitting bottom in 1988 with a devastating drop in profits from $63 million to $33 million, American rebounded in 1989 to $44 million.
By 1991, American more than doubled its net income and once again became a feisty contender for the number one position. Although Hallmark's revenues were roughly double those of American, American showed 10 percent growth in sales for cards and related goods in 1991 while Hallmark reported only one percent. At least some of this renewed vigor was due to the appointment of longtime employee Ed Fruchtenbaum as the fourth and first non-family president and the elevation of Weiss to CEO. Under Weiss, American cut costs, streamlined its operations, and improved its idea-to-market development time (Desert Storm cards were shipped to retailers within a mere three-week period from initiation). With Fruchtenbaum, American further honed its day-to-day operations by placing special emphasis on its information systems (IS) technology. Through its IS department, the company created software to aid management, the sales force, and their retail customers in tracking inventories and reacting to buying trends. With the ability to supply sales managers and retailers with block-by-block demographic data, IS was an indispensable component of Fruchtenbaum's future plans, for pinpoint marketing represented the cutting edge of the industry. As Laurel Touby observed, "To keep his sales growing, Fruchtenbaum is [already] targeting narrow consumer segments, such as college students, while continuing to beef up service to retailers." Touby also speculated that "the company, whose assets include a picture-frame maker, a hair-accessory manufacturer, and a licensing arm, may also make more acquisitions in and out of cards."
The most important and promising acquisition by American during 1992 was the purchase of Custom Expressions, Inc., maker of the CreataCard units, which initially featured approximately 1,000 card options and were capable of producing cards for consumers, priced at $3.50 each, in less than four minutes. In October 1992 American installed a few thousand of the kiosks in mass-merchandise outlets nationwide, and had more than 7,000 of them installed by early 1994, by which time they were generating healthy revenue but only modest profits. Hallmark, owner of Touch Screen Greetings and the Personalize It! method, had filed suit against American in 1992 for patent infringement, but the suit was settled in 1995 with each company getting a worldwide, nonexclusive license to use the technology; no other details on the settlement were provided.
Also in 1992, Weiss became both chairman and CEO of American Greetings. Fruchtenbaum was promoted to president and chief operating officer, while Irving Stone assumed the title founder-chairman. Starting the following year, the company began to add to, subtract from, and reposition its mix of non-greeting-card operations. In 1993 American acquired Magnivision, the leading manufacturer and distributor of nonprescription reading glasses in the United States and 15 other countries. Three years later, American entered into talks with BEC Group Inc. to buy BEC's Foster Grant Group, a maker of sunglasses, but in the midst of the negotiations American decided it did not wish to pursue the purchase. Also in 1996, American began to reorganize portions of its consumer products group by converting product categories into strategic business units, a move designed to elevate these products from mere sidelines to semi-autonomous units. Subsequently, the company's party goods line was relaunched in 1996 as DesignWare, while its candle line reemerged the following year as GuildHouse. Further such moves were planned for other lines. In March 1997, American announced that it had formed a new subsidiary, Learning Horizons, Inc., to manufacture and distribute supplemental educational products for preschool and elementary school students, including workbooks, science kits, flash cards, math kits, posters, audiocassettes, educational stickers, rubber stamps, and puzzles. The company in August 1997 sold two subsidiaries to Newell Co.: Acme Frame Products, Inc., maker and marketer of picture frames, and Wilhold Inc., producer and seller of hair accessory products. Further divestments were not immediately expected.
During this same period, American Greetings became more aggressive in pursuing markets outside the United States, whose maturing greeting card industry was seeing flat sales through most of the 1990s. In 1993 American launched the Forget-Me-Not brand in Canada, where it became that country's largest and broadest line of social expression cards. South Africa was the next target for company expansion, which came in the form of the 1995 purchase of an 80 percent stake in S.A. Greetings Corporation, one of the leading players in the $30 million South African greeting card market. The following year, American acquired John Sands, the number one greeting card company in both Australia and New Zealand.
By late 1995 the kiosk technology that showed such early promise was rapidly being rendered technologically obsolete by the increasing use of PCs and the Internet to make and deliver greeting cards. Lagging CreataCard sales led the company to take a charge of $52.1 million in November 1995 to reflect the decreased value of its kiosks. At the same time, however, American was moving quickly into the home PC and online arenas itself. By early 1996, the company had marketing tie-ins with three online services--Prodigy, CompuServe, and Microsoft Network. During fiscal 1997, American launched a web site, which allowed visitors to design cards and have them printed and mailed from the company fulfillment center in Cleveland. That year also saw the debut of two CD-ROM products, Personal CardShop for Home and Office and CreataCard Plus. The former enabled users to select from among 150 cards, personalize them, order them by modem, and have the card printed by the Cleveland fulfillment center. CreataCard Plus featured more than 3,000 predesigned greeting cards, invitations, stationery, and announcements, which could be printed at home on a color printer, sent by e-mail, or once again printed and delivered by the fulfillment center.
In the midst of all of this activity, of course, the greeting card war between American Greetings and Hallmark raged on. American gained ground in the 1990s, despite its market share remaining at the same level--35 percent--in 1996 as in 1990. During this same period, however, Hallmark's share fell from 50 percent to 42 percent. American nearly caught up with Hallmark in March 1996 when it tried to acquire the still-number-three Gibson, which claimed seven percent of the market. But that month, Gibson turned down American's $292 million takeover bid. In July 1997 American Greetings launched a massive revamping of its everyday card lines, aiming to replace, over the next 18 months, 80 percent of its everyday greeting cards as part of a new marketing strategy called "The All New American Way." The company hoped to gain market share by offering cards that met new marketplace needs arising from nine trends in American culture--for example, the increase in cultural diversity, changes in family dynamics, and longer and healthier lives.
Overall, the 1990s appeared a good period for American, as net sales grew from $1.29 billion in fiscal 1990 to $2.16 billion in fiscal 1997. During the same period, net income more than doubled, increasing from $72.2 million to $167.1 million. It also seemed clear that through such moves as the repositioning of its consumer products group, the targeting of additional overseas markets, the efforts to market cards electronically, and the introduction of a radical new marketing strategy that American Greetings would continue to reinvent itself in order to keep pressure on Hallmark in American's continuing quest to overtake its archrival.
Principal Subsidiaries: AGC Inc.; A.G. Industries, Inc.; Carlton Cards (France) SNC; Carlton Cards Limited (Canada); Carlton Cards Limited (U.K.); Carlton Cards Ltd. (Ireland); Carlton Cards Retail, Inc.; Carlton Mexico, S.A. de C.V.; CreataCard Interactive, Inc.; John Sands (Australia) Ltd. (U.S.A.); Learning Horizons, Inc.; Magnivision, Inc.; Plus Mark, Inc.; S.A. Greetings Corporation (PTY) Ltd. (South Africa; 80%); Those Characters From Cleveland, Inc.
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