Paramount Cards: Frisky Business

By David F. Carr  |  Posted 2004-10-01
View the PDF -- Turn off pop-up blockers!

Paramount Cards 400 Pine St., Pawtucket, RI 02860

Business Makes greeting cards.

Key Business Executive CEO Hamilton Davison

Key Technology Executive CIO Bruce Conforto

Project Streamline inventory and distribution processes.

Objectives Lower inventory costs for the card maker, its CardSmart retail franchisees and other retailers.

Technology Used Homegrown software, mostly created with Microsoft development tools, in combination with manufacturing systems on IBM's iSeries platform, plus the iSeries version of WebSphere.

How it gave edge over bigger companies Allows cards to be sold at a steep discount, while remaining profitable.

In the small Rhode Island town of Johnston, the CardSmart store sits in a strip mall, adjacent to a well-trafficked Super Stop & Shop grocery, a hairdresser and a woman's clothier called Fashion Bug Plus.

With a "$" in its logo, "Card$mart" calls out to the bargain-minded shopper. Every card is promoted as "50% off"—compared to Hallmark, the industry giant, or its rival, American Greetings. The messages, selection and artwork of the cards, and even the layout of the store, may seem familiar. But this is creative mimicry from Paramount Cards, now the third-largest maker of greeting cards in the United States and creator of the CardSmart chain.

Paramount grew by about a third in 2000 when it bought Canadian card maker Image Craft. But the rest of its growth has come from pursuing a "value" strategy, whether promoting a half-price campaign at CardSmart stores or 99-cent cards at grocery outlets.

The premise: A shopper who has just spent $50 on a gift doesn't want to spend another $5 on a card. Yet that shopper still wants a card that looks like the $5 item he might buy elsewhere.

"Nobody wants to compromise an important relationship by sending a cheap card," says Paramount CEO Hamilton Davison.

To remain profitable at lower prices, Paramount has used information technology, lean manufacturing and supply chain improvements to get more efficient. "You don't cut the cost in half, do everything else the same and stay in business," Davison says.

Even at half-price, the guerrilla attack, through both business and technology strategies, is paying off.

Hallmark and American Greetings control 85% to 90% of the market, although solid numbers are hard to come by in this industry. Hallmark is a private company that doesn't release sales totals, and so is Paramount.

But market research estimates by The Leading Edge Group put Paramount's 2003 card sales at $130 million to $140 million, compared with $4 billion for Hallmark. In an earlier study, the same research firm pegged Paramount's 1996 sales at $20 million. According to Davison, the 1996 estimate is "a little low" while the 2003 one is the "right order of magnitude," putting Paramount at about 3% of Hallmark's size.

"In some ways, it's not a David versus Goliath story," he says. "We try to not get in a fight with Goliath. We try to find market niches where we can rewrite the rules and be dominant."

The Sentiment Factory

Paramount traces its history to a card and novelty company started in 1906, four years before the birth of Hallmark. Its headquarters occupies a former thread mill, built in 1872, in the Providence suburb of Pawtucket.

When Davison's father, Charles, bought the company in 1983, Paramount was primarily selling acetate cards, where artwork is printed on a translucent cover attached to the paper card.

But in the 1980s, acetate cards fell out of fashion. At the same time, Hallmark began to squeeze all but its own cards out of its franchised retail stores. That shut off Paramount's primary sales channel.

"The company, by all rights, should have become extinct," Davison says.

Paramount instead diversified its product line and sales channels, selling into food, discount and, ultimately, its own franchised stores.

And if the company were to survive, it would also have to become more efficient. When director of information systems and technologies Paul Choquette joined the company in the early 1990s, "just to fill out an order would take a week," he recalls. Now orders that come in by 2 p.m. are shipped out the same day.

Paramount also offers its retail customers the chance to lower their inventory cost through "scan-based trading," a relationship in which the card maker retains ownership of cards on the store shelves, automatically restocks them and only gets paid when the cards actually sell.

"We try to find market niches where we can rewrite the rules and be dominant"

But that only works if the retailer's point-of-sale system can capture a 5-digit "sidebar" bar code on the back of each card, in addition to the standard 12-digit Universal Product Code. While the 12 digits provide everything needed for a scanning cash register to ring up the proper price, the sidebar tells the store's inventory system exactly which card has just disappeared off the shelf. So a store that only scans the UPC must go through a less automated process of recording which specific cards are selling and need to be reordered. A store with a more sophisticated point-of-sale system automatically detects when there is only one card of a given design left on the rack, triggering an automatic reorder for a new pack of six.

The Sentiment Store

In 1995, Davison's first year as CEO, he set up Paramount's initial company-run discount store as a laboratory for testing new designs and strategies.

By 2001, CardSmart was a business in its own right, with Petter Etholm, a former chief operating officer of the NutriSystem diet franchise, as its president. Last year, Paramount also hired as chief information officer Bruce Conforto, a former CIO of Bradlees Stores (a defunct New England retailer), to improve the technical infrastructure supporting CardSmart and other retailers. By the end of this year, Paramount expects to have about 220 CardSmart stores, with all but eight owned by franchisees.

Through the doors of the Johnston CardSmart, shoppers find a wide variety of freshly produced cards. In August, the Paramount card line located in the prime spot at the front of the store was Frisky Business, which features goofy animal pictures on "to the pet" and "from the pet" cards. A basset hound wearing Groucho glasses wishes a "Happy Birthday ... from someone who's crazy about you!" Other cards fill the full range of sentiments from mushy to romantic, goofy to sarcastic.

With more than 4,000 designs in circulation, keeping the right cards in stock is still a challenge. When the racks get picked over, shoppers are likely to walk away frustrated.

To keep that from happening, Paramount has driven up the availability of cards ordered from the warehouse. The availability rate had been in the low 90s a few years ago, and anything below 95% creates big gaps on the retail racks, Davison says. Through a program of continuous improvement, including both technological and management changes, Paramount has pushed the availability rate to over 99% and held it there for the past four years.

For its own CardSmart stores, Paramount uses a point-of-sale system called The Assistant Manager (TAM) from Lode Data Systems. After trying and discarding a couple of better-known retail systems, Paramount found TAM a better match for its franchise model because it is affordable for franchisees and allows those who run multiple stores to do their own consolidated sales analysis, according to Conforto. Paramount also found that the system's software architecture, based on Microsoft standards, made it relatively easy to customize to support Paramount's replenishment requirements.

Most of Paramount's replenishment, inventory and manufacturing software has been custom-developed by Choquette's team of developers, either working with Microsoft tools like Visual Basic and FoxPro or writing programs for the IBM iSeries (also known as AS/400) platform. By taking advantage of the iSeries version of IBM's WebSphere application server, the team now creates Web pages for running their order entry systems. That allows Paramount's Toronto operation to tap into the same order and inventory database used at the Pawtucket headquarters, over the Internet. The goal is to allow retailers to enter orders and track deliveries themselves on a Web browser, Choquette says.

Picking and Choosing

How does Paramount pick up market share? By cementing new relationships, such as with Fred's Stores, a Memphis-based retailer with 530 stores in 14 states. Paramount executives call Fred's "our Wal-Mart" because it's their biggest set of stores run by one customer.

Fred's hadn't tried scan-based trading, Conforto says, "but we held their hand, and they've done a great job." Besides providing technical assistance and advice, Conforto recommended a former colleague whom Fred's wound up hiring to help with the work. "The partnership is deeper than 'here are some UPCs, now send us some money,'" Conforto says. Fred's has also become an important reference customer, opening doors for Paramount at other retail chains, he adds.

But technology isn't always the way to gain ground on Hallmark or American Greetings. Paramount's Pawtucket warehouse, for instance, is relatively low-tech. Boxes of cards sit in trays on slanted shelves, so that a new box will slide forward whenever an empty one is removed.

Warehouse personnel who fill orders get bonuses based on the accuracy of the card shipments they put together for customers. They face random checking of orders at the warehouse. But their work is even checked, automatically, at the cash register. An error caught at a customer's checkout lane can be traced to the individual who packed the order, through the carton's bar-code.

This system of rewards and verification is so successful that Paramount officials have grown skeptical of inventory management vendors promising performance improvements.

"We're close to 99% accuracy, and we can't justify the cost to pick up another half a percent," Choquette says. Paramount's Toronto warehouse, by contrast, has a more mechanized and automated order picking operation, and its performance metrics don't appear to be any better.

As Davison points out: "We love technology and we've made a lot of technology investment, but as a small private company, we've had to pick and choose."