'Card'inal sins

Stepping into the head office of Archies Limited is like accidentally walking into a teenaged girl's bedroom "" stuffed teddy bears and pink-nosed rabbits, colourful coffee mugs, and foot-high greeting cards are on display everywhere. Even the annual report has faces of cute little dolls peeping from corners of the page.

Of course, this is not child's play; it is serious business "" one that involves tapping the Rs 500-crore "social expression" market. And Anil Moolchandani, chairman and managing director Archies Limited, is doing all he can to maintain his company's 50 per cent market share.

And there is no doubt that he is struggling. Despite creating the market for greeting cards in India, and remaining the market leader with a 50 per cent share, Archies' turnover has been sliding steadily in the new Millennium "" Rs 80.5 crore in FY2000-01; Rs 76 crore in FY2002-03; and Rs 66.8 crore in FY2003-04.

"Suddenly, e-cards were everywhere, even though people called each other up to find out whether they had got the card or not. It was a fad, but we suffered "" greeting card sales went down," sighs Moolchandani, a former saree retailer.

Now Moolchandani is planning to tap the same customer group to get his company back on track Archies may not be in the red "" some smart cost-cutting and rationalisation has seen net profit grow this year "" but the topline fall is one indication of the pitfalls of market creation: what some management gurus call the first-mover disadvantage.

Saying it with numbers                                                            (In Rs lakh)
	2003-04	2002-03	2001-02
Total turnover	6682.26	7622.47	8047.48
Profit after tax	532.88	307.16	753.16
Source: Archies Ltd annual report

Playing his cards right

It wasn't always like this. When Moolchandani set up Archies Greetings and Gifts Limited (as the company was known then) in 1979, greeting cards was a nascent industry.

In fact, Moolchandani didn't initially plan on this line of business. With an investment of just Rs 1,000 and 200 sq ft of mezzanine floor space in Delhi, he started out selling English song lyrics through mail order and expanded within months to include posters and blow-ups of pop singers and Hollywood and Bollywood stars.

In 1980 came the greeting cards, which used to be stored in small cardboard boxes in stationery shops. Customers wanting cards would be handed over the entire box to choose from the minuscule range.

Moolchandani was quick to realise the huge pent-up demand for greeting cards and quickly expanded the range of cards. "People may grimace when they see the cost but they will still pay up if they really like the card," he says.

In 1984 the company signed a licensing agreement with Walt Disney to use and produce their characters on paper products like planners, calendars, diaries, souvenirs, greeting cards and so on.

With little competition, business was booming. By 1987, Archies had a turnover of close to Rs 95.7 lakh and the company opened its first exclusive greeting card store in Delhi.

Over the next decade or so, Archies stuck to more or less the same business model. Promotions played a major role in the company's expansion, with ad campaigns and co-branding tieups with organisations such as Helpage and CRY.

New stores were constantly being opened, although Archies decided against the pure ownership route here "" the first franchisee store was opened in 1987 in Delhi. From two when it started in 1979, Archies had around 200 employees by 1994.

Cards in regional languages and for regional and local festivals such as Rakhi, Holi, Diwali and Baisakhi now formed part of the repertoire and by 1995, Archies had 124 outlets across India and turnover had crossed Rs 18.94 crore.

That year marked a watershed. For one, Archies went public the following year (its first issue in 1996 was oversubscribed four times) and ventured on its own into the gifts business "" until then franchisees ordered and sold gifts in the stores on their own initiative.

Meanwhile, competition had also come in from a couple of organised players who hoped to challenge Archie's monopoly. Hallmark Inc, the world's largest greeting card manufacturer, tied up with Vintage Cards and Creations in 1992 to enter India and by 2000, had 290 franchisee-based outlets across the country.

And ITC had started its range of greeting cards and paper-based gifts, Expressions, in 2001. Although the division does not have the strong retail presence that Archies' exclusive stores do, it reaches as many as 2,000 outlets in 700 cities.

As long as competition came in familiar, easy-to-recognise forms, Archies maintained its lead almost effortlessly "" credit rating agency ICRA assigned an A+ rating to Archies' commercial paper programme based on its healthy cash accruals.

In fact, by 2000 the company was confident enough of its position in the greetings cards business to be able to venture out. In 2000, Archies ventured into non-core activities like music cassettes and perfumes.

Of course, greeting cards still accounted for the bulk of the revenues: of its turnover of Rs 80.4 crore in 2000, cards contributed 70 per cent (Valentine's Day cards contributed an astounding 7 per cent).

The wild card

Then came the millennium. And with it, came the boom in telecommunications and the Internet. Suddenly, everyone had an email ID, people were discovering this new way of communicating and sending e-cards for every reason; sometimes, for no reason at all.

And all for free. There were even websites that allowed you to send photographs of bouquets along with a card, for no cost. At the same time, calls on mobile phones were becoming cheaper and everyone was messaging everyone they knew or wanted to know.

The rules of the game had changed, and Archies wasn't prepared. As greeting card sales dropped (from Rs 49.3 crore in 1999 to Rs 36.7 crore last year), for the first time since its inception, Archies posted negative growth figures in 2000-01 "" turnover dropped 5 per cent from Rs 80 crore to Rs 76 crore.

"The future was unsure and we didn't know where it would take us," recounts Youhan Darrab Aria, chief operating officer, Archiesonline.

Strategy next

Moolchandani's knee-jerk reaction reflects what is perhaps second nature to any entrepreneur "" take care of the bottomline first and let the topline take care of itself.

Business operations were promptly "rationalised". Loss-making ventures like Archies Music were shut down and Archies withdrew its distributorships from non-performing areas. Last year, the perfumes division, too, was hived off on a royalty basis. From 900 employees in 2002, staff strength came down to 630.

The cards business was also streamlined. Archies started making fewer cards and developed leaner inventories. Goods that were not selling or were slow-moving were written off the inventory and the production of paper products was brought down by almost 15 per cent.

Archies also decided to attack the challenger on its own turf "" the company went online in June 2000. The company invested about Rs 3 crore in the new venture and soon became the No. 2 e-card operator on Yahoo! Although the popularity meant increased visibility and brand awareness "" at its peak, the Archies website had 750,000 registered users "" it didn't translate into revenues. "We still had customers writing to us saying, 'I can't open my card. Your site sucks!' For God's sake, it was for free," says

Aria, throwing up his hands.

In 2002 the dotcom bubble burst and upended most of the free services. But Archies is still feeling the aftershocks. The Archies website is now a paid one, with about 8,000 users paying Rs 199 a year to use its services

The bricks-and-mortar stores were also given attention. Archies brought in new ranges of cards, hoping to attract an older, more sophisticated clientele.

Spot coatings, glitter and embosses "" Moolchandani tried them all. "Why should people stop giving cards to each other once they are married? I have to make products that will keep bringing them back to me" says Moolchandani.

The company tried other ways to lure people to buy cards. Recognising that many young people don't even know where the post office is, and older buyers may not have the time to post cards, Archies showrooms started stocking postage stamps in 2002. It had to stop soon, though, because government regulations do not allow it.

The next year, Archies started a courier service at some outlets "" now customers needed to pay just Rs 4 a card to have them delivered. In its second year, this service is available in only two or three outlets and hasn't really picked up; it does some business during the festive season when people send greeting cards in bulk.

Archies is making an effort to recover lost ground. Its efforts to resuscitate the cards business may pay dividends and meanwhile, it is shifting focus to the gifts business. After all, as Moolchandani says, "Being the market leader isn't enough."

What's on the cards

You'll never convince Anil Moolchandani of the advantages of SMS and MMS. "What's better than SMS?" he repeats. "A paper greeting card, of course!"

Yet, despite all his confident talk on how greeting cards will forever be in fashion, that the Internet is no longer a threat, and that people don't like to be greeted on their birthdays through SMSes, Moolchandani is tacitly admitting defeat.

Cards no longer form the thrust of Archies' initiatives "" the present 70:30 ratio in favour of greeting cards is likely to shift to a more equitable 50:50 or tilt even further in favour of gifts within the next couple of years.

By 2007, Moolchandani wants the gifts division to overtake paper products.

The company has already signed a licensing agreement with Walt Disney "" direct to retail "" which will let it procure a vast range of Disney gifts for sales within its retail network.

Archies is also using the Internet more wisely. Archiesonline.com has gone the e-commerce way "" customers can now send gifts and cards over the Internet.

Although he admits business is at present slow, Moolchandani hopes that it will soon pick up. "One in three people logging on to the site sends gifts abroad and to faraway cities. That would not have happened if e-commerce had not facilitated it," he says.

And as malls open at breakneck speed, Archies plans to open outlets in several shopping centres. "Ours is a sector that encourages impulsive buying," Moolchandani says.

He adds that Archies will open 35 managed outlets in 2005, and another 50 in 2006. "Exposure through retail is going to be the next big thing. So let's wait and watch."

 

ANALYST SPEAK

Arvind Singhal,
Managing Director,
KSA Technopak,

Arvind Singhal on the Archies gameplan

Greeting cards do face a threat from SMS and MMS services and a quick call. So it makes sense if Archies is leaning more towards the gifts division, which is growing at 10 to 12 per cent a year (A KSA Technopak study shows that the household spend on gifting has increased by 122 per cent from 2001 to 2003).

Also, there is still no big chain in India that is entirely gift-oriented. Given the kind of retail network Archies has, it should have a headstart in this business.

Exclusive gift stores in malls might just work, too, although Archies should watch out for competition from big and medium gift stores.

What a customer wants is uniqueness and individualisation in gifts, which can reflect on the person giving and getting the gift; innovation, good quality service within the stores, a strategic price point is important too, and the packing and wrapping.

A word of caution: entering the SMS and MMS arena in a big way is probably not a good idea. It will give Archies only a marginal revenue, with most of it going to the telecom companies.