Stationery, a core discount store department

Discount Store News, August 4, 1997

The Hallmark brand made its first appearance in the discount channel when its Expressions line rolled out earlier this year. Looking to capitalize on Hallmark's brand equity, Kmart and Wal-Mart agreed to put the Expressions line in hundreds of stores. Hallmark continues to offer the Ambassador line to discount retailers unable or unwilling to dedicate a specified amount of space to the program.

American Greetings announced a new marketing strategy: "All New American Way." The company plans to revamp 80% of its entire line during the next year, giving the program a fresh new approach. Several new businesses were created to further its competitive edge in the personal expressions category. Chief among its new programs, a line extension, is Learning Horizons, which is targeted at an estimated $630 million market for at-home educational products. Guild House is a new brand at American Greetings, which includes a variety of candles available in 14 different colors. In the spring, phase two of the product launch will take place .

The system of upfront payments and three- to five-year contracts in the greeting card industry will go away if Gibson Greeting's president and ceo Frank O'Connell gets his way. Such arrangements needlessly tie up capital and are not consumer focused, according to O'Connell. The Gibson solution is to pursue exclusive licenses and roll out theme park-like card shopping environments that will create excitement and increase turns.

Discount stores have a dominant share (38%) of the party goods market valued at approximately $1.5 billion, according to a study commissioned by American Greetings. Supermarkets have a 22% share, and party supply stores have a 21% share. Juvenile birthdays are the primary motivation for purchasing party supplies, cited by 29% of the 5,000 households surveyed.

Discount stores dominate the kindergarten through eighth grade school supplies market, but opportunities exist in other segments, according to research from Leo J. Shapiro and Associates. The market research firm reports 64% of households shop discounters for K-8 school supplies. However, in high school, only 52% of households report shopping discounters. At the college level, the percentage shopping discount stores drops to 28%, according to Shapiro.

The number of people with home offices hasn't grown much in the last two years, but those with home offices are spending more to supply them, according to Yankelovich Partners research. Annual expenditures on supplies by those with home offices increased to $350 in 1997 from $203 in 1995. Office equipment expenditures grew to $1,491 from $1,095, according to Yankelovich. Despite the growth of the home supplies megastores, discounters have still been able to reap a sizable portion of the office goods business, especially as a convenience stop for rushed executives of small businesses.

Party City has expanded the size of the greeting card departments in its approximate 200 stores, with those departments now ranging from 72 to 160 linear feet. The Big Party, with 23 stores primarily in the Boston area, looks to add 23 in the Tampa Bay area and has also doubled the size of its card departments to 80 feet. Even rapidly growing PetsMart is after a piece of the high-margin card business. The 340-store chain installed a 24-ft. section of pet-themed cards and gift wrap from the Carlton Cards division of American Greetings. More competition is coming from the 125-store Factory Card Outlet chain, which sells every card for 39 cents. It plans to add 50 stores next year in southern and eastern markets.

If discount stores in the South and West see the strongest growth in schools supplies, it will be because that is where school enrollments are growing the fastest. Between now and 2006, K-12 public school enrollments in Western states will grow 20.8%, according to IDC Consulting. The South will grow 10%, but Northeastern and Midwestern states' enrollments will increase only 4.1% and 2.6%, respectively.

Capturing Back-to-School season sales means merchandising the category earlier and earlier. The demand for products has moved into late June and throughout July, as school years now begin as early as mid-August.

Discounters are facing a more powerful foe in the mailing supplies category. Mail Boxes Etc., the franchise operation with nearly 3,000 units in the United States, announced in May it would be acquired by the rapidly expanding U.S. Office Products. Of concern for discount stores is how U.S. Office Products will leverage the MBE store base to make further inroads in the mailing supplies business. The deal has already been given a green light from the Federal Trade Commission.

Stationery Productivity

Department size     1,369sq. ft.
Sales per sq. ft.       $414.90
Turns                      3.16
Initial markup           40.68%
Gross margin             39.77%