Cardsharp

cardsharp The Price is Not Right

As Cardsharp is writing this, the announcement had just been made that official Covid restrictions have become a thing of the past in England. Yet, two months ago, it looked like we may have been heading for another lockdown. How quickly we forget, reflected Cardsharp? Now the nation’s chatter turns to the ‘cost of living crisis’ or inflation as Cardsharp’s generation knows it as. And for the first time in many a year, it is hitting the greeting card industry and hitting it hard.

Time gives you a sense of perspective. When Cardsharp was a wee nipper in the 1970s, inflation frequently broke the 20% barrier, making our present predicted 6% seem quite puny in comparison. To keep in line the trade unions (then much more powerful and larger than they are today), demanded and in most cases achieved, wage increases in excess of inflation.

Even in the 1980s during the Thatcher era when inflation was supposedly tamed, it regularly ran at between 5%-10% per annum. This was just as the UK greeting card market was really starting to boom and demand was high. And how did the greeting card industry deal with this? Easy! Both publishers and retailers pushed their prices up by around 10% every year. This meant increased profits for everyone and everyone along the supply chain was happy. Because of some strange historical anomaly, the price hike was always announced by two publishers - Paper House (then under Peter Reichwald’s leadership) on the direct to retail side and Photo Productions (now defunct) on the wholesale side. Whatever they did, everyone just followed suit. No one was quite sure why, but they just did. Something to do with them having the dominant price coding that retailers and wholesalers tended to use.

The consistent and constant annual price increase of greeting cards did not stop the public lapping them up, until the late 1980s when you started to hear moans from some of the general public about the price of cards - “£1.50 for a folded bit of card!” Cardsharp sensed even then that things might change. Today, soccer fans watching

Manchester United live on television, will be familiar when the camera focuses on their legendary ex-manager, Sir Alex Ferguson, sitting up in the director’s box. It is usually at a time of United’s maximum discomfort, and the commentator usually asks the rhetorical question, what would Sir Alex have done in this situation? And invariably sitting close by on his right-hand side, is a familiar face. This man is Ron Wood, the ultimate Man Utd nut, and the person who arguably single-handledly changed the pricing of greeting cards on the high street.

Ron was a young greeting card wholesaler, who had clocked the huge improvement in the quality of wholesale publishers’ greeting cards, in particular those of the holy trinity of Simon Elvin, Kingsley Cards, and Hambledon Studios. With the financial assistance of a couple of his Man U. footballing mates, in particular its then captain Bryan Robson, he set about building a national chain of card

Right: The Price is Right TV game show (upon which this board game was based), hosted by Leslie Crowther first aired in 1984 which saw contestants guess how much items cost. Below left: With inflation in the UK at its 30 year high, the cost of living and how many people are going to cope is a real concern. Below right: During Maggie Thatcher’s era, even though inflation had reduced, it was often still running between 5%-10%.

Left: Oh for the heydays of the ‘small publisher boom’, led by Andrew Brownsword (far left, seen with Forever Friends creator Deborah Jones) when a 10% annual price hike was deemed acceptable. Below: Some cost expectations of multiples will squeeze all the juice out of publishers until there are just pips left. Below left: While Card Factory is still positioned as a value retailer, its prices have had to increase of late to reflect the surging cost increases. Bottom: Birthdays’ founder Ron Wood (centre) with former footballer Bryan Robson (far left).

shops called Birthdays that not only seriously undercut other specialist outlets, but from very attractive stores. Wholesale publisher cards, hitherto seen mainly on market stalls and newsagents were suddenly on the high street, offering a lower price alternative to the likes of Clinton Cards and WH Smith. Those who thought greeting cards were too expensive could and would shop there.

Cardsharp remembers that Ron eventually sold Birthdays for £85 million, meaning he could afford the best seat next to Sir Alex at Old Trafford for the rest of his life. Subsequently, Birthdays declined rapidly, eventually being acquired by Clintons, who eventually dispensed with this lower price model that could cannibalise its higher priced sales at its main Clintons chain.

But the genie was out of the bottle. Various other budget priced chains emerged in the late 1990s and early noughties, none of which survived the test of time. That was until Card Factory, founded by anther ex-wholesaler, Dean Hoyle, who hit upon his vertically integrated model, where he published, manufactured and retailed virtually all the cards themselves. He took all the margin and could therefore really go to town in keeping prices low.

Cardsharp thinks the success and presence of so many Card Factory outlets had a dampening effect on direct to retail greeting card price increases. You couldn’t just bung another 10% on prices willy-nilly every year.

But another thing was happening in the economy at large was having an even larger effect on greeting card price increases. By the late 1990s inflation had largely been tamed, 2% became the norm, sometimes even less. And with the Bank of England now independent of the government and with a mandate to keep inflation low, other than a brief blip when the £pound dropped in value dramatically in 2010, it all but disappeared until last year.

But to many greeting card publishers, this low level of inflation was not a bonus. Both retailers and publishers found it impossible to put up prices. In the good old days, there was almost an unholy alliance where retailers upped prices and so did publishers so everyone could make a bit more profit every year. With multiple retailers unable to raise prices to increase their margin, they started to work backwards and demand better terms…and better terms and then even better terms! Have you ever wondered why there are no double-tiered football pitch stands in the greeting card hall at Spring Fair anymore and why the greeting card section is a fraction of its former size? The answer is obvious, reflects Cardsharp. The major retailers have squeezed the pips out of the publishers, who have been unable to increase their trade prices.

Now considers Cardsharp, publishers face a new scenario. The huge cost increases last year, across raw materials, container prices, energy prices and employee costs have given them an inflationary nightmare. This would not be so damaging if it were not for the fact that most of the retailers are burying their heads in the sand saying they won’t accept significant price rises from suppliers. Yet they under their own inflationary pressure, they are trying to inch theirs up. Recently one major grocer implemented a 25% retail price increase to its shoppers, but insisted that suppliers not only maintain their trade prices, but made suppliers re-price and repackage all deliveries. And you can see the results. IG Design Group, the sector’s major AIM listed plc, has seen its profits and share price plummet, as it could not pass on its cost increases to its big grocer and retail customers. More and more publishers are reassessing their commitment to the resurgent independent sector, as making money from the majors and grocers becomes ever more difficult. One major direct to retail publisher has bitten the bullet and announced a significant trade price increase. It needs a few more to follow its lead.

Card Factory has even responded and some of its prices now, particularly for quality humour cards are not far below its high street competitors. If the UK greeting card industry is to continue to lead the world in design and creativity, it needs healthy profits from publishers to enable investment and this can only be done by trade prices rising. So, to conclude, Cardsharp thinks publishers in the present inflationary environment need to be strong. Put your prices up. Be bold! And explain and justify. And don’t let the retailers put their pain on you! Easier said than done, but the alternative is a lot worse.