Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
In the information age, what’s more informational than a greeting card? It says: “I remembered you and want you to know.” All the rest is just packaging. But what packaging: Greeting card companies spend tens of millions a year to get the packaging just right-from birthday cards making every conceivable crack about aging to Mother’s Day greetings sporting hundreds of variations on flowers and lace. Greeting card companies have spent years honing the messages and images to suit both customer and occasion from among hundreds on the rack.
Enter the Internet, which turns card buying into a multimedia adventure. Suddenly, greeting card makers must adapt the high-tech world of e-mail and the Web for the high-touch world of greeting cards. The trick for card companies is to reproduce, as closely as possible, the complex experience of picking out and sending a card that says it all in just a few lines. But while the Internet challenges the paper-and-ink world of greetings, it also offers opportunities to companies competing in a flat market with an older customer base. Greeting card sales in dollars are growing only about 3% a year, barely above the rate of inflation. The typical buyer is a 35 to 45-year-old woman. In fact, women make up an astounding 80% of the card market. The Internet already is changing some of those demographics. Buyers are not only younger (25 to 35 years old) but slightly less likely to be female (70%). “We get excited about that,” says Kathi Mishek, spokesperson for Hallmark Cards, Kansas City, Mo. “We are attracting new customers-men-while remaining a stopping place for female consumers online.”
Serious business, serious cash
Although greeting card companies aim to make people laugh, smile or at least feel better, it’s serious business. In 1998, the latest figures available, consumers spent $7.5 billion to buy cards the old-fashioned way in supermarkets, drugstores, stationery shops, and other traditional retailers. The race is on for the Internet market, and the major players are offline leaders Hallmark and American Greetings, with dark horse Blue Mountain Arts solidly in the running to dominate the virtual market. Forrester Research estimates that online greeting-card sales will skyrocket almost fivefold in the years ahead, from $68 million in 1999 to $320 million in 2003. Though Internet sales are still nickel-and-dime stuff to the industry’s titans-online revenue, for instance, accounted for less than 1% of Hallmark’s $3.8 billion in 1998 sales-the possibilities for retail synergy are written in large letters. Greeting card companies are essentially in the communication business, so the online information explosion, combined with the increasing popularity of e-mail, is a natural for driving up sales. The big question is whether print or electronic cards will attract the most consumers. Though print cards have become more sophisticated, they’re no match for the Internet’s wow-’em graphics. E-cards offer sound, animation, and interactive, do-it-yourself technology that can excite even the most jaded online user. Powerful messages in small packages can be used by perceptive marketers to grab online consumers with short attention spans and itchy mouse fingers. Since the Internet offers more of everything, Web sites where consumers can download and send free greeting and postcards abound. Hundreds of electronic postcard sites make every conceivable image available to send via e-mail. Electronic greeting contenders also are luring customers with various sales incentives and greeting gimmicks. E-cards.com, for example, contributes a small amount to the World Wildlife Fund for every card sent. And greeting-cards.com claims to be the “biggest animated musical greeting card store on the Internet,” with 30% of its customers coming back for more. Putting aside these and other Internet upstarts like Barking Cards, the big three are competing as aggressively on the Web as they do offline, where business jockeying continues. In November, American Greetings bought Gibson Greetings for $162 million. The merger is expected to give American Greetings about 36% of the paper card market. Companies that are creatures of the Internet, with nary a brick laid to mortar, dominate many areas of e-commerce. Not so with the three dominant Internet card companies. All started as creators and sellers of paper cards, and each has a strong history and reputation. In a business built on finding ways to help people express their emotions, the integrity of the brand name is all-important.
All quiet at American Greetings
American Greetings, based in Cleveland, is the world’s largest publicly held creator, manufacturer and distributor of greeting cards. The 94-year-old company boasts some 21,000 employees and one of the largest creative studios in the business. In FY 1999, it recorded its 93rd consecutive year of increased sales, with revenue exceeding $2.2 billion, slightly ahead of the previous year. Thanks to a quiet period prior to the launch of e-marketing division, American Greetings would not talk publicly about its Web strategy. In selling a minority interest in the online division, all that American Greetings executives will say is that they aim to raise cash to continue developing and promoting the site. Americangreetings.com currently offers about 3,000 cards on its site and through AOL. Some are free, but most cost less than the paper-card price (the average greeting card costs $2). The site offers a package deal that allows customers to send unlimited cards for $20 per month. American Greetings also offers a selection of so-called “personal creativity” packages, including Add-a-Photo, which lets users append a photo of their choice as an e-mail attachment, and CreateaCard Plus, software for creating greeting cards at home. Privately held Hallmark, the nation’s 89-year-old market leader, sells almost half the greeting cards in the United States. The company estimates that stores nationwide are stocked with as many as 3.5 billion of its cards. Hallmark first braved the Internet with a corporate site in the early 1980s, when it participated in online experiments with CompuServe. It got serious about retail sales in 1996 by introducing Hallmark.com. “Our consumers expected us to be there and we were,” says Mishek. “We were fulfilling our brand promise.” The pioneering paid off, allowing the company to learn about selling on the Internet before demand rose. As a result, any mistakes it made were experienced by relatively few customers. The early entry also seasoned Hallmark’s online staff, so that technicians can implement site enhancements faster than most of its competitors. Last spring, Hallmark revamped its again site, unveiling what it describes as a “vertical portal,” a niche for people looking for cards, flowers and gifts. Customers who enter the site’s “My Hallmark” section can build a profile that helps them keep track of important occasions and sends them reminders via e-mail. Hallmark has used various marketing strategies to push its online offering, especially in the last Christmas shopping season. This includes banner ads and sponsorships on other Web sites, such as women.com and Yahoo! Print ads point out the company’s URL, which is emblazened on the flip side of some 3 billion Hallmark cards. At the same time, says Mishek, the site is there to reinforce established patterns, helping customers gather information about goods they continue to buy in traditional stores.