Good on paper
While many other sectors ditch paper for pixels, Britain’s greeting cards industry continues to grow.
Nobody sends cards like the British. Figures published by the Greeting Card Association show that Brits buy more cards than anyone else worldwide.
No wonder the sector employs some 100,000 people and made revenues last year of £1.6 billion. Britain’s greeting card industry even boasts its own Oscars – the annual ‘Henries’ is named after Henry Cole, the man who sold the first commercial cards in the mid-19th century.1
Buying practices range widely, argues Chris Field of Majedie Asset Management – while women buy an average of 34 cards a year, your typical man buys just three. Commercial practices vary too. Most of the UK greeting cards market is dominated by two US suppliers, one of which owns Clinton Cards. Yet that dominance is under threat from a lower-cost local competitor: Card Factory.
“Back in 2004, the company had just 2% of market share, but that share has since risen to 28%,” says Chris Field. “That growth reflects the fact that the company sells cards at a 50-70% discount to other retailers but without compromising on quality.”
Card Factory is able to offer lower prices because, as the name implies, it makes most of its cards itself. As for the remaining stock, the company draws up the designs itself, simply leaving the shipping to foreign companies. Thus it has a much greater level of vertical integration than its chief competitors, who squeeze the local card retailers.
Card Factory also makes significant profits from gifts – candles, photo frames and the like account for 41% of group sales. In recent years, the company has been adding 50 stores annually, and Field believes it will benefit from cheaper rates when rent renewals come due over the next five years.
“The company’s market share growth should continue as scale is now proving to be a material barrier to competition coming in,” says Field. “There is no reason why Card Factory’s market share should not exceed 40%. At some point the company could even afford to increase prices by a few pennies, but still be offering a massive discount to competitors.”
Yet if the British still love to send paper cards, presents at least can be ordered online. Thus Card Factory also owns gettingpersonal.com, an online personal gift business that, according to Field, is currently growing by around 15-20% per year.
“Card buying has been very stable historically and e-cards, whilst growing, seem to have only limited potential, given that both senders and receivers like the personal touch,” says Field. “This stable demand makes the shares very defensive – plus the business is good at generating cash.”
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The opinions expressed are those of Chris Reid and are subject to market or economic changes. This material is not a recommendation, or intended to be relied upon as a forecast, research or advice. The views are not necessarily shared by other investment managers or St. James's Place Wealth Management.
1 Greeting Card Association, accessed 11 May