Congratulations On Your Big Earnings Increase!

Ed Fruchtenbaum often consults with a psychiatrist. But the newly appointed president and chief operating officer of American Greetings Corp. doesn't stretch out on a couch. Fruchtenbaum keeps a shrink and various other experts as consultants to help come up with new products for his $1.6 billion-a-year greeting-card company. The psychiatrist is good at identifying stressful situations when people have "a psychological need for a card," Fruchtenbaum explains. For example, the doctor has prescribed cards for people going away to college, quarreling with lovers, or looking for a job.

That's one card Edward Fruchtenbaum probably won't be receiving anytime soon. Five years ago, the Cleveland company's earnings were being shredded in a price war with its two major rivals, Hallmark Cards Inc. and Gibson Greetings Inc. Since then, Fruchtenbaum has helped turn around American Greetings' earnings by cutting costs and improving customer service so it doesn't have to compete on price. Earnings have more than doubled, to $97.5 million, since their nadir in 1987 (chart).

But American Greetings has more battles ahead. Hallmark, the largest card company, with more than $2.8 billion in sales, is a tough competitor. And unit sales growth in greeting cards, only 1% to 3% a year, is nothing to write home about. To keep his sales growing, Fruchtenbaum is targeting narrow consumer segments, such as college students, while continuing to beef up service to retailers. The company, whose assets include a picture-frame maker, a hair-accessory manufacturer, and a licensing arm, may also make more acquisitions in and out of cards.

One recent move that has the people at American Greetings cheering is the purchase of Custom Expressions Inc. The company makes kiosks, called CreataCard, where consumers can design and print their own cards in minutes. Fruchtenbaum has high hopes for CreataCard. Because of its presumed appeal to nontraditional card buyers such as men and younger people, the company expects CreataCard to reach $500 million in annual revenues within the next 10 years.

If Hallmark has any say in the matter, though, CreataCard will end up in the dead-letter office. The No. 1 cardmaker is testing its own kiosks and has asked the U.S. Patent & Trademark Office to explore whether CreataCard interferes with Hallmark's patent. American Greetings insists its patent will prevail.

PUSHING THE ENVELOPE. Shelving CreataCard would be the first big disappointment for American Greetings in a while. The company has come back strong from the price wars in the late 1980s, when "retailers perceived greeting-card companies as all alike," says Fruchtenbaum, 44. Every big cardmaker's profitability suffered in a discounting frenzy. Morry Weiss, who is now chairman and CEO of the company his father-in-law co-founded in 1906, began a major restructuring. He clipped away unprofitable subsidiaries and excess costs, and introduced just-in-time processes in manufacturing and card development that have pared inventories and reduced the time it takes to bring cards to market.

It was Fruchtenbaum, then senior vice-president for marketing, who masterminded the company's strategy to escape the price wars. He launched a series of ambitious customer-service programs to differentiate American Greetings from its competitors without cutting prices. Last year, for example, the company's new retail creative services department began working with customers to create seasonal displays throughout stores, not just in the card area, to boost traffic during holidays. Earlier this year, American Greetings formed a new information services department to develop software that analyzes retailers' sales patterns and tracks inventories for many different products.

Evidently, it's paying off. Last year, Hallmark reported a measly 1% increase in revenues from greeting cards and related goods such as wrapping paper, while sales of American Greetings' cards and related goods grew 10%. Fruchtenbaum is counting on CreataCard for even bigger gains. No word on what his psychiatrist thinks.

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