American Greetings Corporation Business Information, Profile, and History

Company Perspectives:

American Greetings helps people everywhere express their innermost thoughts and feelings, enhance meaningful relationships and celebrate life's milestones and special occasions.

History of American Greetings Corporation

Founded in 1906 as a small Cleveland jobber's shop, American Greetings Corporation, which advertises itself as "the world's largest publicly owned creator, manufacturer, and distributor of social expression products," is second only to Hallmark Cards, Inc. (a privately held corporation) in the increasingly competitive and tight-margin greeting card industry. The company's main U.S. greeting card brands are Carlton Cards, American Greetings, and Gibson, the latter having been acquired in 2000; the sale of everyday and seasonal greeting cards generates more than 55 percent of total revenues. Other product lines include DesignWare party goods, GuildHouse candles, and Designers' Collection stationery. Among the firm's domestic subsidiaries are Plus Mark, Inc. (gift wrap), Magnivision, Inc. (reading glasses), Learning Horizons, Inc. (supplemental educational products), and A.G. Industries, Inc. (display fixtures). Another subsidiary, Carlton Cards Retail, Inc., owns and operates about 600 card and gifts shops in the United States and Canada. The majority-owned AmericanGreetings.com, Inc. subsidiary markets online greeting cards and related products through several web sites and Internet services. American Greetings also creates, markets, and licenses characters, including the Care Bears, Holly Hobbie, and Strawberry Shortcake. Non-U.S. subsidiaries operate in Canada, Mexico, the United Kingdom, South Africa, Australia, New Zealand, and Malaysia, and American Greetings distributes its products through a network of more than 125,000 retail outlets in more than 70 countries. About 18 percent of sales originate outside the United States.

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 local outlets such 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 use self-serve 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 because of 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 renamed itself American Greetings Publishers in 1938, catapulted to national prominence with annual sales exceeding $1 million. In 1944 the family-owned and family-run business incorporated as American Greeting Publishers, Inc. Five years later the firm signed its first licensing agreement, with John Sands Pty. Ltd. of Sydney, Australia. Then in 1952, because of rapid population growth and subsequent plans for both acquisitions and expansion, the company went public as American Greetings Corporation, issuing 200,000 shares at $12 per share. American Greetings introduced Hi Brows, an innovative line of humorous studio cards, in 1956, and also established a Canadian subsidiary, Carlton Cards, Ltd.

Creation of Characters Beginning 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 in the 1940s) 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, Inc., 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. In 1969 American Greetings ventured south of the border via the establishment of a subsidiary in Mexico City.

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 1971 the company created a retail subsidiary called Summit Corporation (later renamed Carlton Cards Retail, Inc.) to operate its own card shops. 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 generated $500 million in retail sales in 1981 alone. The Care Bears soon followed, debuting in 1983; the Care Bears were even more of a phenomenon, accounting for $2 billion in sales within two years of introduction.

Increasing Industry Competition in the 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 ten-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 composed 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 1 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.

In 1992 American purchased 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.

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 reconfigure 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 that 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 of picture frames, and Wilhold Inc., producer of hair accessory products.

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, for $85.1 million. During the first several months of 1998 the company increased its share of the U.K. greeting card market from 11 to 20 percent by acquiring two London-based firms, Camden Graphics Group and Hanson White Ltd. Finally, in 1999 American Greetings gained a base in Asia through the purchase of a majority stake in a Malaysian greeting card company, Memory Lane SDN BHD.

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 10 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. In 1998 American Greetings' stock was switched from the NASDAQ to the New York Stock Exchange because of the greater exposure offered by the latter. In August 1999 the DesignWare unit was bolstered through the acquisition of Contempo Colours, a Michigan party goods firm whose licenses included Monopoly and Sesame Street.

New Century Struggles

During the 1990s net sales grew from $1.29 billion to $2.21 billion. While the fiscal 1999 results marked the company's 93rd consecutive year of increasing revenue, this streak came to an end the next year when sales fell 1.5 percent. About $100 million in revenues was lost that year because the company slowed shipments to retailers in order to implement a new inventory system that shortened the amount of time necessary to design, produce, and ship cards, thereby allowing the ongoing inventory to be reduced. Furthermore, greeting card sales had been flat for some time, and the Internet was providing consumers with plenty of alternative communication methods. Of course, American Greetings itself was involved online, but the AmericanGreetings.com venture had yet to show a profit. In June 1999 the company announced plans to take its online unit public, but the early 2000 tech stock meltdown forced the initial public offering to be withdrawn. Meantime, revenues came under further pressure from another price war, this one initiated in March 1999 by Hallmark, which introduced a new line of 99-cent cards. Forced to respond, American began selling more inexpensive cards at deep-discount outlets.

In March 2000 American Greetings won a long-sought-after prize, acquiring Gibson Greetings for $163 million in cash. The purchase price was much lower than the offer that had been spurned in 1996 because in the meantime Gibson's stock had plummeted as a series of setbacks reduced the company's U.S. market share to about 6 percent. Among other problems, Gibson had been forced to abandon manufacturing, and some of the firms that had been contracted as outsourcers had been unable to handle Gibson's massive orders. In addition to the Gibson card line, American also gained Gibson's fairly strong subsidiary in the United Kingdom, making American that nation's greeting card leader, as well as the company's 27 percent stake in Egreetings Network Inc., an online greeting card company.

In June 2000 Fruchtenbaum was fired from his position as president and COO after other company officials learned that he had violated the company's insider trading policy in December 1998 when he exercised options on some 30,000 shares of American Greetings stock and then sold them, just before the company made its announcement about the new inventory system (the projected drop in earnings sent the company's stock down by 32 percent on the day the news was released). Fruchtenbaum, who was alleged to have avoided nearly $500,000 in stock losses as a result of his actions, was later sued by the Securities and Exchange Commission for insider trading; he reached a deal with the commission in July 2003, agreeing to pay back nearly $80,000 of his gains plus more than $267,000 in fines and court costs.

Following Fruchtenbaum's departure, James C. Spira, a management consultant who was a longtime American Greetings adviser and a member of the board of directors since 1998, was named vice-chairman. His role soon became a pivotal one when he was charged with overseeing a massive restructuring that was announced in November 2000. American was forced to take drastic measures because of a host of factors: the stagnant retailing climate, fewer and more powerful retailers thanks to retail sector consolidation, increasing competition from lower-priced cards, and the negative effects of the Internet on greeting card sales. The company said that it would cut 1,500 jobs from the workforce, shutter six manufacturing and distribution centers, eliminate one of its four main U.S. card brands--Forget-Me-Not, and slash the number of different greeting cards it offered from 15,000 to 10,000. American also would begin to shift to scan-based trading systems with selected retailers. In the company's traditional system, it would record a sale when a retailer stocked a card on its shelf; in the new system, a card on a retailer's shelf would be kept on American's books as inventory, and it would only be when a card was scanned at the register that American would record a sale. Through the new system, American hoped to gain greater control over inventory, although the shift would be an expensive one. Overall, the restructuring would cost the company more than $300 million, and it sent the company deep into the red for both fiscal 2001 and 2002.

As the restructuring was being implemented in 2001, American Greetings made two Internet-related acquisitions. The company acquired the shares of Egreetings Network it did not already own for about $28 million, and it also purchased another online greeting card company, BlueMountain.com, from At Home Corporation for $35 million. American now operated four online greeting card sites (the fourth being BeatGreets.com, which offered musical greetings); combined, the sites were drawing 100 million visitors per year. However, American's Internet ventures were still operating at a loss, although the loss for fiscal 2002 was much smaller than that of the previous year.

During fiscal 2003 American Greetings suspended its dividend payments in order to free up more cash and pay down its $950 million in debt. Having generated $90 million in savings through the restructuring, American returned to the black that year with a profit of $121.1 million. In June 2003, a few months after this encouraging news was released, a major shift in the executive suite was effected. Morry Weiss named his sons, both of whom had joined the company about a decade earlier, to the firm's top posts--Zev Weiss became CEO and Jeffrey Weiss, president and COO. Spira retired but retained a seat on the board, still headed by Morry Weiss. Continuing the momentum that appeared to have been established during fiscal 2003 was the challenge facing the new leaders.

Principal Subsidiaries: AGC Inc.; A.G. Industries, Inc.; AmericanGreetings.com, Inc. (92%); Carlton Cards Retail, Inc.; Gibson Greetings, Inc.; John Sands (Australia) Ltd. (U.S.A.); Learning Horizons, Inc.; Magnivision, Inc.; Plus Mark, Inc.; Those Characters From Cleveland, Inc.; The Ink Group PTY Ltd. (Australia); Carlton Cards (Canada) Limited; Carlton Cards Ltd. (Ireland); Memory Lane SDN BHD (Malaysia; 85%); Carlton Mexico, S.A. de C.V.; The Ink Group NZ Ltd. (New Zealand); John Sands (N.Z.) Ltd. (New Zealand); S.A. Greetings Corporation (PTY) Ltd. (South Africa); Camden Graphics Group (U.K.); Carlton Cards (United Kingdom) Limited; Gibson Greetings International Limited (U.K.); Hanson White Ltd. (U.K.); The Ink Group Publishers Ltd. (U.K.).

Principal Competitors: Hallmark Cards, Inc.; Taylor Corporation; CSS Industries, Inc.; Amscan Holdings, Inc.; Factory Card & Party Outlet Corp.; Party City Corporation.

Chronology

• Key Dates:
• 1906: Jacob Sapirstein begins a card wholesaling business in Cleveland, calling it Sapirstein Greeting Card Company.
• 1929: The company becomes the first in the industry to use self-serve display cabinets for its greeting cards.
• 1932: The firm begins manufacturing its own line of greeting cards.
• 1938: The name of the company is changed to American Greetings Publishers.
• 1939: The first line of Forget-Me-Not cards is launched.
• 1944: The company is incorporated as American Greeting Publishers, Inc.
• 1949: The first overseas licensing deal is reached, with John Sands Pty. Ltd. of Australia.
• 1952: The company goes public as American Greetings Corporation.
• 1958: A Canadian subsidiary, Carlton Cards, Ltd., is established.
• 1967: Holly Hobbie first appears on a greeting card; the popularity of the character leads American Greetings into character licensing.
• 1970: The Soft Touch line of cards debuts.
• 1971: American Greetings establishes a retail subsidiary.
• 1978: Two new subsidiaries are formed: Plus Mark, Inc., maker of gift wrap, boxed cards, and accessories; and A.G. Industries, Inc., the nation's largest maker of display fixtures.
• 1980: Strawberry Shortcake character debuts.
• 1981: The company launches its first national television advertising campaign.
• 1983: The Care Bears characters are introduced.
• 1993: Magnivision, maker of reading glasses, is acquired.
• 1995: An 80 percent stake in S.A. Greetings Corporation of South Africa is acquired.
• 1996: John Sands, leading greeting card company in both Australia and New Zealand, is acquired; a party goods line is relaunched under the name DesignWare; the company enters the e-commerce realm with launch of a company web site.
• 1997: A line of candles is relaunched as GuildHouse; Learning Horizons, Inc. is created as a subsidiary specializing in supplemental educational products.
• 2000: Gibson Greetings, Inc. is acquired for $163 million; the company launches a major restructuring.