American Greetings Harvard Case Solution & Analysis


American Greetings Corporation (AG) was an Ohio based greeting card publisher and the 2nd largest company in the U.S. after the market leader Hallmark with annual revenues of around $1.7 billion through six brands. Every-day and seasonal greeting cards accounted for the bulk of these revenues while other items such as gift wraps, candles, party goods and other giftware accounted for nearly 25% of revenues. In addition to sales of traditional paper cards through retail channels, AG also sold electronic products through its website. The firm also generated additional revenue through licensing of rights to popular characters that AG held.

AG faced tremendous challenges after a steady decline in demand for traditional paper based greeting cards and responded to this change by starting to offer e-cards through its website. This move was expected to increase efficiency but lower profit margins. AG had also initiated a partnership with discount dollar store retailer where paper based greetings cards were still popular. However, this move also meant reduction of profit margins that were additionally being squeezed by additional marketing effort, which was required to stimulate future demand.

The company was still under management and influence of its founding family member as both its CEO and president were brothers from the family. AG shareholders totaled to more than eleven thousand shareholder with several institutional investors holding significant shares. Although, the firm dividend policy had been consistent with steady growth in dividends per share, in recent months its share price had nosedived from more than $23 per share in April 2011 to $12.51 by December 2011.

In the past, AG expanded through acquisitions and organic growth however, since 2005 the company had experienced negative growth.  Trend changes in 2010 and year to date revenues for 2011 had exceeded expectations. Nevertheless, this increase was accompanied by significant a marketing outlay of $10 million in the third quarter of 2011 that made operating profits to go under pressure.

Share price reduction meant that the firm was trading at lowest earnings multiples compared to its rival companies in the industry. This initiated consideration of a plan to buyback company shares as management believed that its shares were potentially underpriced and the time was right to buyback AG shares to defend the company against this drop in its share price. This $75 million share buyback program under consideration was subjected to future expectations and projections for the organization. This decision depended on the assessment that whether the stock price decline was a short-term phenomenon; if so then the buyback program was the right strategy. On the other hand, if the decline was projected to be long-term then it would not be prudent as all assets including cash would urge to be utilized to change course and implement revised strategy for the company.


Greeting card industry was faced massive changes as it had attained maturity and was now in decline. Overall greeting card sales had been contracting in the U.S. for some years and negative growth was expected in the next five years to 2015 (Exhibit 4).

Hallmark was the largest card company in the U.S. that was privately owned by the Hall family with $4 billion of revenues. The organization had expanded its operations in more than hundred nations and thus it was well-diversified geographically. Overall, the U.S. card industry was contracting with 9% reduction in last six years and the trend was expected to continue with a minimum of 4% decline over next 4 years and 16% in a worst case scenario. Major cause and diver of this decline in demand was changing social interaction norms and advent of alternative forms of communications through social networking and digital imaging. Increase in use of these alternatives by the populace to express their love and keep in touch with their close ones was reducing the need to send paper based greeting cards.

As a result, greeting card companies were increasingly moving to electronic card distribution through internet websites but the declining trend did not change much. Some companies were diversifying their business away from pure greeting card business to other related product categories. In this regard AG was trying to expand its sales through discount retail stores such as the dollar-store and was increasing investment in new technologies to enhance its presence in digital e-card segment through internet websites..............................

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