What I like most about this investment is how easy it is to dismiss in ten seconds. I admit that was my
So do I hear you right? You’re telling me you’ve got a retailer in an economy threatened by Brexit whose
stock gapped down 30%. And they retail greeting cards? They run printing presses? Have you been
asleep for the last 20 years? Yeah, I got a bunch of newspaper stocks for you too – they’re cheap. Get
out of my office.
Everybody knows Amazon must be killing them, and everybody knows greeting cards are bought by
those same old people who buy newspapers. And print…don’t get me started.
If you take the next step (why would you?) you could look at the biggest competitor and see that they are
losing share and closing stores. That confirms it - the business is dying. We’re done, right?
The greeting card business in the UK is indeed being disrupted but not by whom you’d think. Who’s the
disruptor here? Do you buy greeting cards on Amazon? I don’t even though I buy nearly everything else
from them. No, it’s your mother’s birthday in three days so you stop at the store and buy a card. Hmm.
And what about e-cards? Internet “cards” I occasionally get by email on my birthday but it’s still rare
even 15 years after these things started to appear.
What do I know about greeting cards from my admittedly USA experience? They are stupid expensive.
$4, $5 for a printed card and an envelope. Why? Because American Greetings and Hallmark control
distribution and they’re greedy. This is true in the UK as well. Certainly looks like a business asking to
So once again, who’s the disruptor? In the UK, you’re looking at it – Card Factory. This simple business
with a boring name in a no growth category is running one of the most old fashioned and reliable
disruption schemes I know of. Take market share little by little from high priced competitors in a no
growth industry. It’s working.
Card Factory was founded 20 years ago as one little card store by a husband and wife. They have grown
organically and through a handful of very timely acquisitions (they acquired 80 stores from a bankrupt
competitor in late 2008 and acquired their printer in 2009) to get where they are today. The founders
exited to private equity, and the company came public in 2014. A new CEO started last year who is the
third to run this company. She does not appear to be changing the core strategy of vertically integrate,
gain share slowly, keep prices low.
Card Factory is the UK's leading specialist retailer of single cards (i.e. birthdays, anniversaries, Thank
You, Mother’s day, sympathy…), boxed (Christmas mainly) cards, wrapping paper and gifts. Single cards
is all that matters – that is about 55% of revenues and likely over 75% of profits. They are vertically
integrated and focus on the value and mid-market segments of the UK's single cards market with an
average card going for 99p, which is a fraction of the price charged by competitors. The customer
associates Card Factory with value and quality.
The last market share data we have is 2015 where they had 18% U.K. revenue market share in Single
Cards. This equates to 33% market share in units, demonstrating the price gap against competitors.
The market for single cards has been flat for 10 years. Card Factory’s like-for-like store sales have been
positive every year since the company’s founding. At the same time they have been adding stores year
after year. They currently have about 900 with a stated goal of 1200. 100 new ones seem easy – they just
opened their first few in Ireland which is a future 100 store market.