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The Midas Touch

Hallmark turns what it touches into gold - in this case, its Gold Crown franchise, the second largest specialty chain in the country.

Executives of Hallmark Gold Crown Stores in Kansas City, Mo., like to say the company has the best of both worlds - a product with widespread name-brand recognition and a network of committed, independent retailers to sell it.

Hallmark is one of the few major retailers to do business almost exclusively through franchising. The card and gift company maintains only 300 corporate-owned stores in a network of more than 7,500. The remainder are owned by individual entrepreneurs.

The strategy clearly works. According to company Marketing Director Wayne Strickland, the chain enjoyed 40 consecutive months of per-unit sales increases through October, with sales through mid-November indicating the trend would continue.

The chain's parent company, Hallmark Cards Inc., was founded in 1910 by Joyce C. Hall, who headed the business until 1966. His son Don Hall succeeded him and served as chief executive officer until 1986, when current President and CEO Irvine O. Hockaday Jr. took over the reins.

The corporation had net sales of $3.6 billion in 1996, placing it 35th on Forbes magazine's list of the largest privately held U.S. companies. It captured 44 percent of the greeting-card market, putting it far ahead of its nearest competitor. A 1997 study by EquiTrends ranks Hallmark among the top five brands in the world for name recognition.

For its first 50 years, the company sold its products exclusively through other retailers, but in 1962 it also established its own chain of specialty stores. In 1996, it created the Gold Crown network, consisting of stores that, in the words of company literature, maintain "the highest level of marketing, operations and service." The name comes from the company insignia, a gold crown, which appears on all Hallmark products.

Today, Hallmark has a network of 7,500 specialty stores, about 5,000 of which have the Gold Crown designation. Its card and gift lines are sold in more than 100 countries in 33,000 non-Hallmark outlets, including supermarkets, drugstores and other general merchandisers.

According to Strickland, Hallmark Gold Crown Stores is the second largest specialty chain in the United States. Only RadioShack has a greater number of retail outlets.

How Gold Crown works Gold Crown stores differ from standard Hallmark shops in several ways, says Larry Benson, director of real estate for Gold Crown. The stores are larger, averaging 4,000 sq. ft. in malls and 5,000 sq. ft. in strip centers, compared to 2,500 sq. ft. to 3,500 sq. ft. for standard outlets.

In addition, the company provides fixturing, signage and design elements, as well as sets design guidelines, to give the stores a uniform identity without turning each into a clone of the others.

Franchisees have some flexibility regarding which specific fixtures and elements they choose, says Benson, and they may even add some from other sources as long as the overall look fits corporate criteria. They can also decide their own layout, although the company provides free assistance, an offer most operators take advantage of.

To own a Gold Crown franchise, an entrepreneur pays an initial fee as well as an annual fee and signs an agreement to display the Gold Crown logo, participate in Hallmark marketing programs and purchase at least 70 percent of the store's stock from Hallmark Cards. Beyond that, says Strickland, the level of participation is flexible.

"[The individual franchisees] always have the latitude to do what they think works best," he relates. "We value our operators' independence. We believe they know the local market much better than we do. They know their customers' tastes. They know their patterns."

The latitude ranges from selection of merchandise to adoption of specific marketing programs to participation in nationwide promotions.

"Some of our operators make full use of everything we offer. Others pick and choose," Strickland reports.

To a certain extent, franchisees cannot help but participate in the marketing program, since it includes national advertising of the Hallmark brand and other bonuses, such as the parent company's sponsorship of the "Hallmark Hall of Fame" presentations on TV. All operators benefit from this effort at the national level.

They also benefit from specific efforts to promote the Gold Crown network. Strickland reports that Hallmark has spent $100 million on a consumer marketing program for Gold Crown.

"We've done a lot of work on consumer awareness of the network," he says. "Before we started, awareness was in the low 30 percent range. Now it's about 50 percent."

Real estate needs Individual franchisees are not given a choice, however, on store location. The corporate office makes all location decisions, and corporate representatives negotiate all initial leases.

According to Jerry Grecian, director of retail real estate for Hallmark, when the company finds a viable location for a new store, a field representative from one of the company's regional offices makes a deal with a landlord. Then the marketing department offers the space to a franchisee, who in most cases has been identified in advance. The franchisee then sublets the space from Hallmark.

Gold Crown stores can operate successfully in most types of retail settings, including enclosed malls, strip centers and downtown locations, says Grecian, who notes that landlords are usually eager to have Gold Crown as a tenant. "The store's appearance and construction add value to a center," he says. "It's a superb presentation, as good if not better than any other retailer's."

Consumer demand increases Gold Crown's attractiveness as a tenant. "Consumers want us. We're probably one of the most requested specialty store concepts that developers get," Grecian says, noting that Gold Crown stores average about 100,000 transactions each per year.

The company's marketing program has made the chain yet more attractive to landlords, he continues. "A good portion of our advertising for Gold Crown is spent bringing traffic to a center," Grecian says. "The individual store and location is named in every mailing that goes out. We don't send one mailing to everybody. We print separately for every territory. We're one of the few retailers that does this."

Hallmark has no hard and fast rules regarding location in a center. "It's important to us that we have great visibility and easy access, but otherwise we are quite flexible," says Grecian. "We don't specifically need an end location or a center. We can function at just about any position as long as we have visibility and access."

Neighboring tenants also are not a primary concern, although retailers that cater to a female clientele make the best neighbors because Gold Crown's customer base is 75 percent female, Grecian says. "But our stores are successful next to supermarkets, Barnes & Noble, Old Navy, Home Depot, you name it," he remarks.

A major advantage Gold Crown has over most other retailers, Grecian points out, is its ability to thrive in second- and even third-tier locations. "We can still be viable even if other national tenants exit a center," he explains, "because we operate through a network of independent retailers" who have more incentive to see the store succeed.

Quality over quantity At this point, the company is not anxious to open significantly more Gold Crown stores. "It's not about increasing the number of Gold Crown stores," says Strickland, "but making the stores we already have the best. We want to be sure we can consistently deliver what consumers are expecting."

To this end, several enhancements are planned for 1998, including expansion of the Gold Crown Card program, which awards regular customers points for every purchase, to be accumulated and redeemed for special gifts or discounts. Some 10 million cards were used in 1997, reports Strickland.

The cards have two purposes, he notes. On one hand, they promote customer loyalty. On the other, because the card application includes a detailed questionnaire, they help the company build a database that can be used to track purchase patterns by geographic and demographic parameters.

A branding program that will make greater use of the Gold Crown logo and the introduction of a Gold Crown uniform are on tap for 1998. Hallmark is currently testing new programs at 15 corporate-owned stores in Las Vegas. Programs that work will be rolled out throughout the network; those that do not will be modified or abandoned.

Company executives Strickland, Grecian and Benson all hope the company continues the unbroken string of month-to-month increases. But even if that does not happen, they anticipate an overall increase for 1998 over 1997. "With our expanded marketing effort," says Strickland, "we expect the stores to do better and better."

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