Fool's Eye View

[ April 4, 2000 ]

Get well soon, Clinton Cards

By Maynard Paton (TMFMayn)

Carburton Street, London -- Anyone who has read the Motley Fool Industry Focus 2000 (only £17.50!) will know my aversion to the General Retailer sector. The main reason for this distaste for this industry is that there's just too much competition on the High Street for any sustainable competitive advantage. Whatever computer games, sportswear or carpet you can sell, the merchant next door is more than likely to be able retail those items as well. When your competitor is offering the same, or similar goods to you, your only weapon is price. And for a long-term investment, a company constantly fighting on price to differentiate itself from its rivals is not a recipe for a long-term investment.

One other reason for long-term investors to stay away from the sector is the lack of repetitive purchase. Apart from food retailing, which as a sector is even more cut throat than "general" retailing, there are few goods that just have to be purchased time after time. How many pairs of discounted designer jeans do you need? How many times do you purchase a television? How often do you replace the sofa? Just to add to the commodity pricing woes, retailers can't usually guarantee a steady stream of customers flowing through their doors either. It's tough being a retailer.

But one item I do consider a "retail repeat purchase" is the greeting card. I mean, Christmas, Valentine's Day, Mother's Day and so on. You've just got to purchase a card for your loved ones for those occasions, haven't you? Just think of the overwhelming guilt you could have suffered, should you have forgotten to send your Mum a Mother's Day card (Er, it was last Sunday, by the way). Just think of the indignation from your Mum -- "My children don't care about me more! After all I've done for them" -- and your shame.

So you get the picture. It's best to get a card and save the grief. And it's the same with every other card occasion. Just get a card. Otherwise, it's not worth the hassle.

So, with greetings cards very much an guilt-inspired annual repeat purchase, those that retail them can have a slightly easier life on the High Street than most other operators. The biggest independent card retailer in the UK is Clinton Cards (LSE: CC.), who sent their results for the year to 30th January 2000 to shareholders this morning.

After floating in 1988, the group steadily expanded from 77 outlets to just under 300 in six years. Then started the acquisitions. Stores from Hallmark Cards, Carlton Cards and last year's Greeting Store Group purchase have bolstered the group over the last few years. After steadily rising to 300p last year, a poor Christmas trading statement detailing a decline in like-for-like sales of 4.8%, put Clinton shares into a nosedive. The shares have since languished around the 120p mark. In fact the company comment that the poorly performing share price "does not reflect the Group's current performance and prospects".

So, is there a recovery in store at Clintons? There looks to be some green shoots sprouting. The key indicator of a recovery, like-for-like sales growth, was 4.2% throughout the twelve months, quite an achievement when the Autumn had a negative performance. Indeed, Don Lewin, Clinton's Chairman, states that like-for-like sales growth has risen 5.3% in February and March. Things do look back on track after last year's wobble, but it's unlikely Clintons will quickly regain their former share price glory.

Firstly, saturation is close at hand. The company already has 722 outlets, with the company stating in previous years that the UK could manage about 1,000 stores. The main driver for historic share price performance, large like-for-like sales growth, is a thing of the past. Clinton, with the ever-present competition in the shopping malls, just won't be able to squeeze ever more like-for-like sales growth out of their stores.

But the real clue that the end of the Clinton's growth story is not far away, are the new occasions the greeting card industry keep dreaming up. After the ridiculous Grandparent's Day (this year, 23rd September), cards are now available for Nurse's Day (12th May), Secretary's Day (26th April) and Boss's Day (16th October. Don't get your hopes up though, Bruce). With greeting card manufacturers and retailers turning to these rather absurd occasions, investors have good reason to suspect that the industry is devoid of growth prospects.

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Related Links

• Clinton Cards discussion board
• Clinton Cards website