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Hallmark Cards overhauls company to fight shrinking card sales

Updated: 2013-11-17T06:36:51Z

By DIANE STAFFORD

The Kansas City Star

Sandwiched between the trendy Apple computer and Lucky clothing stores on Kansas City’s Country Club Plaza, the HMK store is a bright and glittery new retail arrival.

Owner Hallmark Cards is counting on it to be an equally bright revenue contributor to the 103-year-old Kansas City company, which is working hard to remake itself because people don’t exchange as many greeting cards as they used to.

There’s only one HMK for now. It’s a test kitchen, an experimental mix of tree ornaments, tabletop decor, personal accessories and, yes, cards. More to the point, it’s part of Hallmark’s continuing — and sometimes painful — process to jettison slower-selling traditional business lines, consolidate operations, pare payrolls, and introduce new ideas.

Hallmark, one of the best-recognized brand names in the country, needs HMK to prosper. To do that, it’s getting as personal as when you hand a card to Aunt Betty in her living room.

At the HMK store, it starts when you walk in and an associate offers you a cookie from a warming drawer right inside the front door.

Choose a wood cutting board as a gift, and an associate will take it to the basement and laser cut a name or saying into it. Buy a scarf and you can get your recipient’s name embroidered on it, also downstairs. Buy a children’s book, and your child’s name can be printed into the story line.

Customization is key in Hallmark’s battle to win “social expression” customers, one by one if need be. And it’s what makes HMK different from Hallmark’s network of 2,600 Gold Crown card shops. The company sees it as a gifts-plus-cards store instead of a cards-plus-gifts store.

“We wanted to get credit for doing something buzzworthy,” said Jack Moore, Hallmark Gold Crown president. “We wanted our brand to feel younger and more exciting to today’s shoppers. We want the consumer to say, ‘Wow. This is different. This store will help me create the perfect, personalized gift that is not available anywhere else.’”

It was on the strength of such one-on-one expression that the company grew to become arguably Kansas City’s most revered corporate citizen. Hallmark remains the giant of the greeting card industry, selling slightly more than half of all paper cards exchanged, according to estimates shared in May at the National Stationery Show convention in New York.

By another measure, which includes online greetings, the research firm IBISWorld puts Hallmark’s U.S. paper plus e-card market share at 44.4 percent of the $5.4 billion industry. Its closest competitor, American Greetings, was estimated at 16.7 percent.

But even that hefty share of card sales isn’t enough to keep Hallmark thriving. The Greeting Card Association this year shaved its annual estimate of the number of cards exchanged from 7 billion, where it had hovered for about 10 years, to 6.5 billion.

Hallmark’s consolidated sales, including some profitable subsidiaries, hit a $4.4 billion high point in 2007 but slipped in 2012 to $4 billion. Making money from its paper-centric lines became harder and harder. This month, Hallmark announced it will exit the paper party ware business because its paper plates, cups and table coverings aren’t meeting revenue expectations.

Difficult changes

The company acknowledges it’s time for new ideas in an age when “hbd” messages — that’s happy birthday for the time-pressed — account for some of the 400 million daily Twitter messages, and “likes” posted by 1 billion Facebook users worldwide are considered social expression.

Add the Great Recession, when shopping mall traffic withered and many Hallmark Gold Crown card shops closed, and the challenges to Hallmark’s core business toughened.

As a result, Hallmark has cut jobs. Employment at its Kansas City headquarters is expected to be 3,100 at year end, with total U.S. employment at 6,800, and its global count at 11,000.

Three years ago, the comparable numbers were 3,700, 8,400 and 14,000. Thirteen years ago, headquarters’ jobs peaked at 5,600; global jobs at 21,500. U.S. employment had peaked at 13,500 in 1997.

“It’s hard,” Hallmark chief executive Donald Hall Jr. said in an interview with The Star. “We’ve not changed our values and our focus on people. Yet with changes in our core business and the need to change to be viable … well, it’s not easy.”

It’s not been easy, he acknowledged, for a company that in previous recessions didn’t lay off workers but redeployed them to nonprofit agencies doing charity work until the economy, and the company, pepped up again.

The pep hasn’t come back this time, though, in some of its business lines. Exiting the paper party ware business, after a half century, will eliminate as many as 150 jobs over the coming year.

An additional 100 jobs will be shaved by year end as the company streamlines its greeting card production process at headquarters. And in January it will begin to trim about 300 jobs from its Canadian operations.

Earlier this year it transferred 315 Hallmark employees to a business process outsourcer. It also closed its Topeka card and envelope plant, auctioned off manufacturing equipment, and consolidated work at its remaining Leavenworth and Lawrence plants. That pared the workforce from 1,300 at three Kansas plants to 1,000 at two.

Last year, Hallmark sought voluntary buyouts or early retirements from as many as 400 employees.

The recent cuts — and hundreds that came before — occurred in a company that used to regularly rank high on “best places to work” lists, largely because Hallmarkers reported contentment. Employee surveys haven’t been as effusive lately.

But national human resource experts say the company remains a best-in-class employer in employee benefits and other measures. And the company earns high rankings for diversity, care for the environment, family and child care assistance, and social conscience.

Mary Gentry, who has worked at Hallmark for 32 years, said she and many of her longtime co-workers grieve the job cutbacks and loss of the “old Hallmark,” but she said she also knows that as an employer, Hallmark continues to offer “wonderful benefits and corporate culture.”

Keeping morale up spawned a corporate pep rally of sorts last month. Don Hall Jr. and brother David Hall, who leads Hallmark’s U.S. operations, exhorted about 1,000 Hallmark managers to remember that good things still are happening.

Gentry, a retail product development director who attended the event, said she couldn’t remember a meeting that was as equally serious about the challenges and as inspiring about the possibilities.

“I felt truly an odd mix of grief, but at the same time was glad to have a clearly defined focus,” she said.

That is what Don Hall Jr. said he hoped to accomplish.

“We’re still excited about our core business,” he said. “We also need to emphasize being a good corporate citizen and being very active in the community.”

Hallmark, for example, was the founding corporate sponsor last year of the Mid-America Gay & Lesbian Chamber of Commerce, and Don Hall Jr. gave the keynote speech at its inaugural meeting, speaking passionately about the need for everyone to feel welcome and be open about who they are.

Civic heft

To its credit, Hallmark has been as open as any private company might be about its difficulties. Although the privately held company didn’t have to, it publicly announced each round of layoffs or reorganization plans, and it annually reports consolidated net revenues.

This year’s results will be published in March, and some strength is expected because of its Crayola subsidiary and its publicly traded Crown Media business, which includes the Hallmark Channel and Hallmark Movie Channel and is 90 percent owned by Hallmark.

Hallmark doesn’t reveal revenue and profit breakdowns for its subsidiaries (except for Crown Media) or for its internal business lines, but Don Hall Jr. did say this:

“Hallmark is a different company than it was five years ago. Today, it’s not predominantly greeting cards. But the core is still healthy. We’ve made difficult decisions. We’ve wrestled with unavoidable people decisions. We had to do it to stay viable.”

Hall and his brother are the third Hall generation to lead Hallmark. Two members of the fourth generation now work at Hallmark, too, but the family asks that they be able to keep a low profile while their careers are developing.

The family, ranking among the wealthiest Americans, owns about three-fourths of the company; the rest is owned by Hallmark employees through a stock ownership plan.

When employees leave the company, Hallmark repurchases the stock they’ve earned, and the stock is redistributed to remain owned solely by Hallmarkers. The stock repurchase makes for a generous departure package.

The Hall brothers, along with their company-founding grandfather, Joyce C. Hall, and their father, Donald Hall, count as civic royalty in Kansas City. They are known as self-effacing to a fault, but rarely does a major civic project get selected or funded without the Hall, or Hallmark, imprimatur.

The richly endowed Hall Family Foundation, the Hallmark Corporate Foundation and countless hours of civic volunteering by Hallmarkers create a philanthropic powerhouse.

That’s why the financial health of Hallmark is of outsized concern to Kansas City, where countless civic betterment projects wouldn’t have been realized or would have been far more difficult without Hallmark’s buy-in.

Don Hall Jr. vows that the company has its challenges well in hand.

“Our core business fundamentally is being challenged, but our range of options facing these changes are greater than for other companies, I think,” he said. “We can reach the consumer in so many different ways — in grocery stores, drug stores, independent stores, our own stores, and on the Internet, with our Hallmark brand and other brands, like Crayola. We are not locked into one defining product.”

Business diversity

Hallmark is a licensing giant. From Disney to Duck Dynasty, Hallmark has purchased rights to affix popular characters to cards, ornaments and other products. Thanks to trends or enduring popularity, such sales stay strong.

Hallmark owns DaySpring, a supplier of Christian-message products and Blessing Unlimited, a home party business for inspirational products.

It owns Hallmark Baby, an online seller of high-end kids’ clothing, and it has Hallmark Business Connections, which sells employee and customer recognition products and business-to-business communication materials.

Its digital foot also is in SpiritClips from Hallmark, a film subscriber service for mobile devices and streaming to TV. It has a selection of greeting cards on Shutterfly, an online service that allows personalization of photo albums and cards. And it this year teamed with CaringBridge, a service for people to post online condolences.

Hallmark’s TV stature is growing. Building on the long-running and award-winning Hallmark Hall of Fame productions, the company is seeing growth in its Crown Media business, which includes two 24-hour cable networks. Crown Media reported a 5 percent revenue gain in the first nine months of 2013 compared with 2012, and net income to common shareholders for the nine months was $41.4 million, up from $37.2 million the previous year.

Then there’s Crayola, a Hallmark subsidiary since 1984. It’s what Hallmarkers call the “sticks” side of the business, for its crayons and markers. Iconic products like Silly Putty also fall under that umbrella.

Finally, there’s Hallmark’s brick-and-mortar side, Crown Center Redevelopment Corp., the 85-acre commercial and residential development that envelopes Hallmark’s headquarters. Since its founding in the late 1960s, the Crown Center complex has added shops, hotels, offices, restaurants and visitor attractions like Legoland, an aquarium, a skating rink, and theaters.

Buffeted by the recession, Crown Center is undergoing yet another rebirth, part of which will include a remade Halls specialty department store. The company announced this summer that its Plaza store, a fixture since 1965, will close next year. Its current Crown Center store also will close in early 2014, paving the way for the revamped Halls.

Current challenges

Don Hall Jr. said that keeping all of the business lines contemporary and vibrant is a juggling act, but the company is keeping in the air the balls that make sense.

“Recordable story books and our Keepsake ornaments have been great successes,” he said. The annual introduction of new collectible ornaments draws crowds around the country that line up outside Gold Crown stores on the day they debut.

In recent remarks to a business school in Richmond, Va., David Hall said that Hallmark’s recordable books line — including 24 stories — has earned $100 million in sales since late 2009.

Like many legacy companies, the company holds too many meetings and has too many layers of management, some insiders and outside consultants agree.

And industry observers, such as Carl Franzen, writing a Hallmark assessment on theverge.com, think Hallmark was late to the online party. Franzen wrote that “electronic postcards” were invented in 1994, but Hallmark’s greeting card website wasn’t launched until 1996 and has wrestled for years about how to offer e-cards. As with other “dead tree to digital” businesses, it’s still wrestling.

“We have to change. We have to be more nimble, more flexible,” Don Hall Jr. said. “We had to go through workforce reductions, partly due to industry change and new technology.

“We’ve moved people around, and we retrained them. We prefer that when we can. We prefer to let normal attrition take care of staffing needs. We tried that like crazy, but the pace of change exceeded attrition, and we had to make difficult decisions.”

Again, Hall said, it wasn’t easy.

“We are an empathetic culture. Sure, people are disappointed and grieving” when staff cuts occur, he said. “But we think our greeting card business is still exciting. It isn’t growing, and we have to keep its cost proportional to the size of the business. But even in the digital world we have the antidote.… We believe in what unites people. That’s not going to change. That’s part of our brand.”

And there’s something else Hall wants people to know: Despite what you read on Twitter, Hallmark has never invented a holiday or occasion in an attempt to sell cards.

Hallmark employment anticipated at year-end 2013

Location 2013 2010 Peak
Kansas City headquarters3,1003,7005,600*
In the U.S. 6,8008,40013,500**
Globally11,00014,00021,500*

*2000, **1997

Source: Hallmark Cards

To reach Diane Stafford, call 816-234-4359 or send email to stafford@kcstar.com.

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