American Greetings Corporation

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American Greetings Corporation

10500 American Road
Cleveland, Ohio 44144
U.S.A.
(216) 252-7300
Fax: (216) 252-6777

Public Company
Incorporated: 1944 as American Greetings
Employees: 21,400
Sales: $1.57 billion
Stock Exchanges: NASDAQ
SICs: 2771 Greeting Cards; 2671 Paper Coated & Laminated—Packaging; 2656 Sanitary Food Containers; 3999 Manufacturing Industries Nee

American Greetings Corporation, which advertises itself as “the world’s largest publicly owned manufacturer of greeting cards and related personal communications products,” is second only to Hallmark (a privately held corporation) in what has become an increasingly crowded, competitive, and tight-margin industry. Since its founding in 1906 as a small Cleveland jobber’s shop, American Greetings has enjoyed 86 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. One strategy by which American plans to expand this niche area as well as appeal to a new card-buying public is through its CreataCard vending machines, which allow shoppers to personally design and print their own cards, via touchscreen, both quickly and economically. The company operates 31 plants in the United States, Canada, the United Kingdom, and Mexico, and distributes its products through a network of 97,000 retail outlets in over 50 countries.

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 emigré 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 drug stores. 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.

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 has become 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.

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. However, more important than this increase in total revenue was American’s astonishing net income increase of 613 percent in a ten-year period. What the company had failed to do, unfortunately, was enhance its market share with respect to Hallmark.

Gibson Greetings, the No. 3 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 non-card 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. However, after hitting bottom this year with a devastating drop in profits from $63 million to $33 million, American rebounded in 1989 to $44 million.

Since then, American has more than doubled its net income and once again become a feisty contender for the No. 1 position. Although Hallmark’s revenues are roughly double those of American, American showed 10 percent growth in sales for cards and related goods in 1991 while Hallmark reported only 1 percent. At least some of this renewed vigor is due to the appointment of long-time employee Ed Fruchtenbaum as the fourth and first non-family president and the elevation of Weiss to CEO status. 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 is expected to further hone its day-to-day operations by placing special emphasis on its information systems (IS) technology. Through its IS department, the company creates 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 will be an indispensable component of Fruchtenbaum’s future plans, for pinpoint marketing represents the cutting edge of the industry. As Laurel Touby has 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 speculates 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. Although Hallmark, which owns Touch Screen Greetings and the Personalize It! method, has filed suit against American for patent infringement, American is confident that its video touchscreen system is not only unique but also superior. According to its own promotional copy, Creatacard is the only system that offers the customer complete control over the selection, design, and printing of individualized cards. The current format being test-marketed around the country features approximately 1,000 card options and is capable of producing cards for consumers, priced at $3.50 each, in less than 4 minutes. The company optimistically estimates that annual sales from CreataCard will approach $500 million within its first ten years of business.

American, as might be expected, will continue to fight for its market share not only through CreataCard but also through its Anytime Card lines, which include Kid Zone, 78TH STREET, and the Forget Me Not line. Guiding the company’s strategy will be an ongoing analysis of population figures, which according to its own appraisal will tend to favor new surges in growth. The Annual Report for 1992 asserts that, “throughout the ‘90s and into the year 2000, the Baby Boom generation will be irreversibly advancing into the age group categories that buy the greatest number of greeting cards per capita.” Furthermore, “this developing surge in demand is headed directly towards value priced retailers. That’s our primary market. And we are determined to ensure that we, and the retail accounts we serve, realize the optimum benefits.” Ironically, Gibson, the very company that helped precipitate American’s fall during the 1980s, may pounce again during the 1990s and possibly leave Weiss and Fruchtenbaum with only a modest and short-lived celebration of their swift corporate turnaround. Termed a “rapid climber” by Susan Caminiti, Gibson posted sales growth at twice the rate of American from 1987 to 1991. Although American reported impressive increases in total revenue and net income for the first half of 1992—an indication that neither Hallmark nor Gibson can dictate its financial performance—the company’s future is no less secure than it was a decade ago. To remain the Fresh Idea Company, let alone the clear successor to the card industry throne, American needs to repeatedly create “the future of greeting cards,” in advance of the competition, as it has claimed to have done with CreataCard.

Principal Subsidiaries

Acme Frame Products, Inc.; A.G. Industries, Inc.; Carlton Cards, France; Carlton Cards, Ltd. (Canada); Carlton Cards, Ltd. (UK); Felicitaciones Nacionales S. A. de C.V.; Plus Mark; Rust Craft Canada; The Summit Corporation; Summit-Canada; Those Characters From Cleveland; Wilhold.