Hi Tein. Glad you liked the summary and good questions.
Firstly click and collect. I believe the management is very much trying to 'Amazonise' purchasing at Card Factory, in other words make buying so easy and conveinient the buyer wants go nowhere else. Click and collect is liked by many that work in the week in my opinion. It's easy for people to sit at home at the weekend, see something they like and purchase it then pick it up in their lunch break or on the way home from work meaning they save the postage cost. I looked up some details by Googling and was surprised at the answers:
"Almost nine in ten retailers (87 per cent) say Click & Collect is their fastest growing delivery option, with seven in ten shoppers (68 per cent) now choosing to pick up online orders in-store." This sounds unbelievable to me.
An article from Drapers says "Click-and-collect orders will be worth £42.4bn in 2022, 8.4% of the UK’s total retail spending, new research shows" This sounds more realistic. What you have to ask is if click and collect wasn't available would they purchase anyway? Some might have done so the customer gain may be less on that basis but note they say 8.4% of total retail sales, not online sales, so that is a much higher proportion of sales. If the likes of Moonpig can't offer click and collect then there may be customers to steal. The second thing is if you are getting an extra X% online customer via click and collect, these people are being fed into physical stores where they may very well add to their purchase and sample the store and become a regular. Let's say CARD can pick up an extra 8.4% total sales by introducing click and collect and upsell to customers too when they come in to collect then that might be worth double that sales gain I guess. I'm sure if they trialled it then put it into action across all stores so rapidly there must have been significant gains to be had. Young people seem to have embraced click and collect the most and it was interesting to see in Card Factory's presentation that 16-22 year olds (I think that was the range) were the fastest growing demographic of card buyers. Click and collect may be convenient for the customer but for the retailer with physical stores the big gains over online only is the up-selling opportunities and replacing returns with a substitute rather than a refund. When you look at it across the round, click and collect has greater bottom line gains than people might assume imo.
As for the added risks from gifting then yes, it's not like vertically integrated and own produced cards in that they are buying in stock. However they seem to have managed well so far with operating margins at nearly 14% when gifts are now 53% of sales. The new ERP (Enterprise Resource Planning) inventory management software that has come online partially will improve stock management and the second phase will go online soon letting them, track stock everywhere in the business. Listening to Darcy in the presentation he seems fully focussed on buying in cheaply and selling at very competitive prices rather than marking up too a point where they aren't viewed as cheap. I think he really 'gets' retail from listening to him, 9 years heading Costcutters and 20 odd years in franchising means he has the experience required imo. Ex Gregss CEO Roger Whiteside is onboard as a non-exec who must also be great counsel to have for advice given his wonderful track record in my opinion. I am prepare to back good management and the presentation gave me even more confidence here.
I guess we all do click and collect, in fact I did an online order collection myself at Holland and Barrett today and took the opportunity to do a quick recce to my local Card Factory a few yards away. I got the usual friendly service when I impulse purchased a 'Peppa' jigsaw set for my pink pig obsessed granddaughter, (4 jigsaws in one box, £4.99 (so above their card pricing), and Ravensburger so a top jigsaw brand). When I told the lady on the till how well Card Factory was doing she immediately converted that to job security and was most pleased. Unfortunately less than a hundred yards away a full service M&S, Iceland, Poundland and River Island have all bit the dust in little more than six months. That does bother me as the parlous state of some of our town centres is outwith an individual company's sphere of control. Footfall in this particular town, Macclesfield, must be hurting.
Good and concise summary Richard, thank you for all your thoughts here and in recent interviews. I premise these comments by saying I don't hold Card Factory but have my finger on the trigger having been in the same place last summer and then holstered again, I got spooked by some analysis and should have trusted my instinct. However with gearing significantly improved, and forecast dividend for next year suggested by Stockopedia to be 3x covered this stock is looking ever better.
I was very impressed with the management team in the strategy presentation - focused, motivated and on a roll. Stores are always busy, but then you need to be with such low ticket items. Staff are unfailingly pleasant in my experience. I think there are question marks, for example how much can click and collect really contribute, surely it's quicker to just go and buy a card? I also wonder about customer profile and how relevant click and collect is, but accept it as part of a wider multi-channel trading format especially if trying to win new customers. I also wonder about how customers can be won from established online sellers, for example how will Card Factory win over my daughter from Moonpig, or maybe they don't feel the need to?
Gifting is a great opportunity to increase average item value and average transaction value but something they can't afford to get wrong - they're experts in value greetings cards and have shown themselves to be expert, for example, with balloons, but gifts will add stock cost and risk and they must be careful not to water down the core offer or gross margins. Adding a greater element of gifting may also add shrinkage risk, someone might want to shoplift a teddy whereas a card seems an unlikely if easy target. Thankfully Card Factory seems happy to test, test, test with its initiatives. That's important as central London perhaps isn't working out quite as planned.
Finally I think Card Factory should be looking to de-risk from Royal Mail, certainly so far as getting product into store is concerned. There's obviously a year on year upside opportunity for consumer Christmas card mailing by post this autumn so long as Royal Mail settles down, but there's been strife there on and off for some years now. I wonder how much long term damage has been done to traditional card sending.
The thing I like about this market is that cards are an also ran convenience/ margin opportunity for so many bricks and mortars retailers (the mighty Aldi can't even bother doing it for themselves, though that might change), whereas Card Factory live and breathe them and can't exist without them.
M&S are moving to larger out of town superstores in a lot of places and this will affect high streets but I think there is good news too. Princes Risborough High Street seems reborn near me, it has many more imdependents and fewer charity shops. I hope the betting shops start to follow banks and go more and more online to save costs, this will also improve high streets imo.
Cards work if they are vertically integrated and the margins are excellent. I actually think that and the excellent cashflow make CARD a prime takeover target for perhaps WH Smith who own Funky Pigeon or one of the large retailers like Aldi, Tesco etc, or a private equity co but hope that's a way down the line. A bid here would take them out at way too low a valuation.
Thank you for the great work. I visited yesterday the new store in Tottenham Court Road and I think that more work is required there. A the moment it is just a small gallery of cards and does not have any vibe. Staff are young and don't look experienced. More creativity is needed. Richard, if you are in touch with the management... I am long CARD.
Yes, in the presentation Darcy said they are trialing 3 stores in London but they need to get them right and they are all experiments with different ranges, layouts and store sizes to see if they can be profitable. The range has less cheap bottom end cards in their too. only 3 stores in 1032. He said in the presentation they are making sure they have something that works before thinking about rolling them out rather than make a big mistake.
I see "ESQUIRE RETAIL" (Clinton Cards) extended their accounting period, and now their accounts are showing as overdue at Companies House...... probably worth noting.
I think actually the previous owners of American Greetings are acquiring them back to take it private. That may be part cause of the delay. If so there may be a lot more knife-work on Clintons imo
Hi Tein. Glad you liked the summary and good questions.
Firstly click and collect. I believe the management is very much trying to 'Amazonise' purchasing at Card Factory, in other words make buying so easy and conveinient the buyer wants go nowhere else. Click and collect is liked by many that work in the week in my opinion. It's easy for people to sit at home at the weekend, see something they like and purchase it then pick it up in their lunch break or on the way home from work meaning they save the postage cost. I looked up some details by Googling and was surprised at the answers:
"Almost nine in ten retailers (87 per cent) say Click & Collect is their fastest growing delivery option, with seven in ten shoppers (68 per cent) now choosing to pick up online orders in-store." This sounds unbelievable to me.
An article from Drapers says "Click-and-collect orders will be worth £42.4bn in 2022, 8.4% of the UK’s total retail spending, new research shows" This sounds more realistic. What you have to ask is if click and collect wasn't available would they purchase anyway? Some might have done so the customer gain may be less on that basis but note they say 8.4% of total retail sales, not online sales, so that is a much higher proportion of sales. If the likes of Moonpig can't offer click and collect then there may be customers to steal. The second thing is if you are getting an extra X% online customer via click and collect, these people are being fed into physical stores where they may very well add to their purchase and sample the store and become a regular. Let's say CARD can pick up an extra 8.4% total sales by introducing click and collect and upsell to customers too when they come in to collect then that might be worth double that sales gain I guess. I'm sure if they trialled it then put it into action across all stores so rapidly there must have been significant gains to be had. Young people seem to have embraced click and collect the most and it was interesting to see in Card Factory's presentation that 16-22 year olds (I think that was the range) were the fastest growing demographic of card buyers. Click and collect may be convenient for the customer but for the retailer with physical stores the big gains over online only is the up-selling opportunities and replacing returns with a substitute rather than a refund. When you look at it across the round, click and collect has greater bottom line gains than people might assume imo.
As for the added risks from gifting then yes, it's not like vertically integrated and own produced cards in that they are buying in stock. However they seem to have managed well so far with operating margins at nearly 14% when gifts are now 53% of sales. The new ERP (Enterprise Resource Planning) inventory management software that has come online partially will improve stock management and the second phase will go online soon letting them, track stock everywhere in the business. Listening to Darcy in the presentation he seems fully focussed on buying in cheaply and selling at very competitive prices rather than marking up too a point where they aren't viewed as cheap. I think he really 'gets' retail from listening to him, 9 years heading Costcutters and 20 odd years in franchising means he has the experience required imo. Ex Gregss CEO Roger Whiteside is onboard as a non-exec who must also be great counsel to have for advice given his wonderful track record in my opinion. I am prepare to back good management and the presentation gave me even more confidence here.
I hope that answers your questions somewhat
Good points Sir!
I guess we all do click and collect, in fact I did an online order collection myself at Holland and Barrett today and took the opportunity to do a quick recce to my local Card Factory a few yards away. I got the usual friendly service when I impulse purchased a 'Peppa' jigsaw set for my pink pig obsessed granddaughter, (4 jigsaws in one box, £4.99 (so above their card pricing), and Ravensburger so a top jigsaw brand). When I told the lady on the till how well Card Factory was doing she immediately converted that to job security and was most pleased. Unfortunately less than a hundred yards away a full service M&S, Iceland, Poundland and River Island have all bit the dust in little more than six months. That does bother me as the parlous state of some of our town centres is outwith an individual company's sphere of control. Footfall in this particular town, Macclesfield, must be hurting.
That's interesting - cheers.
They definitely look in a mess imo
Good and concise summary Richard, thank you for all your thoughts here and in recent interviews. I premise these comments by saying I don't hold Card Factory but have my finger on the trigger having been in the same place last summer and then holstered again, I got spooked by some analysis and should have trusted my instinct. However with gearing significantly improved, and forecast dividend for next year suggested by Stockopedia to be 3x covered this stock is looking ever better.
I was very impressed with the management team in the strategy presentation - focused, motivated and on a roll. Stores are always busy, but then you need to be with such low ticket items. Staff are unfailingly pleasant in my experience. I think there are question marks, for example how much can click and collect really contribute, surely it's quicker to just go and buy a card? I also wonder about customer profile and how relevant click and collect is, but accept it as part of a wider multi-channel trading format especially if trying to win new customers. I also wonder about how customers can be won from established online sellers, for example how will Card Factory win over my daughter from Moonpig, or maybe they don't feel the need to?
Gifting is a great opportunity to increase average item value and average transaction value but something they can't afford to get wrong - they're experts in value greetings cards and have shown themselves to be expert, for example, with balloons, but gifts will add stock cost and risk and they must be careful not to water down the core offer or gross margins. Adding a greater element of gifting may also add shrinkage risk, someone might want to shoplift a teddy whereas a card seems an unlikely if easy target. Thankfully Card Factory seems happy to test, test, test with its initiatives. That's important as central London perhaps isn't working out quite as planned.
Finally I think Card Factory should be looking to de-risk from Royal Mail, certainly so far as getting product into store is concerned. There's obviously a year on year upside opportunity for consumer Christmas card mailing by post this autumn so long as Royal Mail settles down, but there's been strife there on and off for some years now. I wonder how much long term damage has been done to traditional card sending.
The thing I like about this market is that cards are an also ran convenience/ margin opportunity for so many bricks and mortars retailers (the mighty Aldi can't even bother doing it for themselves, though that might change), whereas Card Factory live and breathe them and can't exist without them.
Best wishes,
TEIN
M&S are moving to larger out of town superstores in a lot of places and this will affect high streets but I think there is good news too. Princes Risborough High Street seems reborn near me, it has many more imdependents and fewer charity shops. I hope the betting shops start to follow banks and go more and more online to save costs, this will also improve high streets imo.
Cards work if they are vertically integrated and the margins are excellent. I actually think that and the excellent cashflow make CARD a prime takeover target for perhaps WH Smith who own Funky Pigeon or one of the large retailers like Aldi, Tesco etc, or a private equity co but hope that's a way down the line. A bid here would take them out at way too low a valuation.
Thank you for the great work. I visited yesterday the new store in Tottenham Court Road and I think that more work is required there. A the moment it is just a small gallery of cards and does not have any vibe. Staff are young and don't look experienced. More creativity is needed. Richard, if you are in touch with the management... I am long CARD.
Yes, in the presentation Darcy said they are trialing 3 stores in London but they need to get them right and they are all experiments with different ranges, layouts and store sizes to see if they can be profitable. The range has less cheap bottom end cards in their too. only 3 stores in 1032. He said in the presentation they are making sure they have something that works before thinking about rolling them out rather than make a big mistake.
I see "ESQUIRE RETAIL" (Clinton Cards) extended their accounting period, and now their accounts are showing as overdue at Companies House...... probably worth noting.
I think actually the previous owners of American Greetings are acquiring them back to take it private. That may be part cause of the delay. If so there may be a lot more knife-work on Clintons imo