Card Factory Plc (CARD.L) is the UK’s leading retailer of low-value greeting cards and associated gifts. The Group has 814 stores across the UK, as well as two branded websites selling standard and personalised cards and gifts. The company is showing strong performance, with a total sales growth of 8.1% in the 11 months to 31 Dec 2015, particularly due to robust growth in non-card products.
Card Factory is the largest player in the retail greeting cards market by sales and store number, and has 17% market share by value, followed by Clintons with 15% (Mintel, 2015). According to Mintel’s 2015 Gifts and Greeting Cards report, Clintons attracts customers who value stylish cards (45%) and high quality (46%). However, 55% of people say cheapest prices are important to them, favouring Card Factory. As a result, Card Factory’s budget products mean it has much greater market share by volume; 48% people in the Mintel survey had bought a greetings card from Card Factory in the last 12 months, compared to 29% from Clintons.
Other than WH Smith, most direct peers of Card Factory are privately owned. These include Paperchase, Schurman Retail Group (owner of Clintons) and Hallmark Cards, as well as Moonpig.com and funkypigeon.com within the online sector. This makes it difficult to value the company on a peer comparables basis, but grocers make up 33% of the retail greeting cards market, so Card Factory’s performance can be compared to the likes of Tesco, Sainsbury and Marks & Spencer. Comparison to these peers indicates high P/E, P/BV and P/CF ratios. This suggests that investors are expecting higher earnings, book value and cash flow in the future. ROE is very close to the peer group average, and dividend yield is below the average, suggesting re-investment of earnings for further growth.
The wide availability of greetings cards mean that store location is of great importance. Card Factory’s dominance is the market is thus likely to be maintained by its ambition to open 1,200 outlets; 50 new stores were opened in 2015 and the Group remains confident of continuing this opening rate into the next year. Its high number of stores is influential in maintaining its position as the most used greeting cards retailer. Although, the online customised card retail market is expected to grow by c.10% per year for the next three years. Nevertheless, this sector only currently has a market share by value of 5%, meaning Card Factory’s market leading position (17%) is safe for at least the medium term.
But what of the market as a whole? In Mintel’s survey, 24% and 15% of adults thought they were buying fewer paper Christmas and birthday cards respectively than a year before. The market has grown weakly (4.8%) since 2010. However, it is expected to grow by 9.8% in the five years to 2019 to £1.6bn, driven by the growing UK population, creating opportunities for birthdays and other reasons to give cards.
Of course a great limitation on the market is the increasing use of electronic media and higher postage costs. Since 2009, the prices of both first and second class stamps have almost doubled, and changing habits due to increased smartphone usage provide a more convenient method for sending greetings. Ofsted (2014) finds that 21% of adults are posting fewer things than they were two years before, and more greetings are being sent via social media and text.
The ease of digital greetings may put particular pressure on higher price bracket card retailers – if it is free to send a birthday text, it is harder to justify spending large amounts on premium birthday cards. Paperchase is one high value card retailer feeling this effect; it is instead increasingly trying to cement its position as a fashion stationer by expanding its gift product range and pursuing partnerships with distributors such as ASOS.
Card Factory’s budget cards are safer in the face of digital media than Paperchase, but the trend still poses a problem for the market as a whole. Although people still show an enthusiasm for sending physical cards, it is a significant long-term risk that cannot be ignored. Card retailers should be exploring marketing avenues that remind consumers of the social value of sending a real card. Faced with the increasingly tech-obsessed consumer, the card industry should be on the defensive.