Clinton Cards’ new owner American Greetings will have to make radical changes to return the retailer to profitability.

Good luck cards will be winging their way to American Greetings after it sealed the deal last week on acquiring the Clinton Cards business – the brand and 397 stores – out of administration, securing 4,500 jobs.

But American Greetings is likely to have a tough job on its hands as it prepares to revive a company that has been corroded through a lack of investment over a long period.

Clinton’s previous management had recognised the need to implement wide-ranging change. Former Starbucks boss Darcy Willson-Rymer was appointed chief executive last October – the first boss of the retailer from outside the founding Lewin family – and was leading a strategic review focused on four pillars: customer experience, the store portfolio, efficiency and the digital offering.

Willson-Rymer’s much-awaited vision for Clinton was never to be realised or even publicly published. It is said that his plan, scheduled to be unveiled in April, failed to impress American Greetings, a key supplier.

American Greetings’ route to ownership of Clinton was dramatic. The supplier was the catalyst that pushed Clinton Cards into administration when it bought £35m of bank debt and then immediately called the loan in.

Last week, following a bidding process that included WHSmith, Card Factory and investment firms OpCapita and Endless, American Greetings through subsidiary Lakeshore Lending offered about $37m (£24m) for Clinton’s assets in the form of a credit bid, using a portion of the outstanding senior secured debt owed to American Greetings by Clinton Cards to pay.

The $19m (£12m) remaining senior secured debt held by American Greetings is expected to be substantially repaid through the liquidation process. It is possible, however, that there may not be sufficient proceeds, net of administration costs, to cover the entire outstanding sum.

Mission to reduce rents

A priority for new boss Dominique Schurman will be to tighten the product offering

A priority for new boss Dominique Schurman will be to tighten the product offering

Dominique Schurman, chief executive of the greetings card retailer Schurman Retail Group, in which American Greetings holds a 15% stake, replaces Willson-Rymer as chief executive of Clinton Cards.

The question being asked by observers is, what will Schurman do to turn around the business that Willson-Rymer was unable to?

The first action will be, as Willson-Rymer had identified, to create the correct store portfolio.

Numis analyst James Dilks-Hopper says: “The main problem was that Clintons was paying a lot in rent. I would have thought they’d keep the stores they have acquired and take advantage of buying it out of administration to renegotiate leases.

“Looking across the sector, some retailers achieve up to a 40% discount when they do renegotiate [stores out of administration]. It does depend on particular store locations. There is potential they’ll downsize some stores or relocate in the same area.”

It is understood that Schurman hoped to meet landlords this week to renegotiate rents.

Law firm Jones Day helped to advise American Greetings. Partner Michael Rutstein says: “A lot of these stores are not commercially viable at the moment. Many are over-rented.”

If the landlords are not interested in renegotiating “then a difficult decision will have to be made” in the form of potential closure, says Rutstein.

Until Clinton collapsed into administration last month it had a 750-store estate and it was clear that that was the largest drain on the retailer. After it collapsed, administrator Zolfo Cooper launched a plan to shut 350 stores.

“Clintons had a ‘cunning plan’, but it was a plan not highly developed,” says Rutstein, referring to the pre-administration possibility of a company voluntary agreement (CVA) to offload a chunk of stores.

He explains: “In the right conditions, a CVA is a good way of getting rid of stores. Clintons needed two things that it didn’t have and that’s time and money. Even a simple CVA can take six weeks to two months. It would’ve been very time consuming and very difficult to do.

“Who was going to provide them with the money to tide them over? It was not practical.”

Clintons stores were often tired and old-fashioned, too, while refurbishments to a new model could not be rolled out owing to the expense.

After stores, American Greetings’ next priority will be to tighten Clinton Cards’ product offering.

A source close to the situation says: “There will be a clearer offering but over a broader range in terms of value to premium. They will have a better range and better product disciplines. It will be a significantly more relevant business.”

Schurman Retail’s Papyrus chain has positioned itself as a more premium greetings card retailer, akin to Paperchase and Scribbler, which is likely to influence the product at Clinton Cards as it seeks to distance itself from the cheaper wares sold in supermarkets and at its rival Card Factory.

“Papyrus is a quality operation,” says the source. “American Greetings will bring some of that hard-nosed quality [of management] that Clintons has been lacking.”

The rapidly expanding Card Factory, which found its niche in the market with a value offering, had put pressure on Clinton Cards, which tried to combine a value-led approach while still attempting to offer a premium product.

Independent retail analyst Nick Bubb says: “I think American Greetings will probably make the stores less card-focused [and more gifting] because it is a point of difference.”

Clinton’s lack of development online has also been cited as a failing of the previous management. It has lost out to rivals such as Moonpig and WHSmith-owned Funky Pigeon.

“Online is a fundamental game changer,” says the source.

“There is not much that American Greetings can do to make Clintons innovative. It is not a market that lends itself to that, it lends itself to discipline. The previous Clintons management didn’t do [online well] and that’s a significant issue.”

Dilks-Hopper says the multichannel opportunity remains: “With such a strong store base you can use it to push the online business.

“Moonpig and Funky Pigeon have a big marketing budget, which has meant Moonpig has been the leader in this market with card personalisation very popular.

“When you think about getting a card online, you don’t think of Clintons.”

Race to stem losses

American Greetings is also likely to look at Clinton’s back office and supply chain operations, which are likely to need an overhaul because old IT systems struggled to keep up.

The source says: “Clintons had an appalling stock management system and a creaking back office.

 “It was doing things like putting three stores in a shopping centre but it couldn’t get things done quickly enough. Warehouses and stock management are what US retailers do brilliantly.”

However, American Greetings may experience a shift in its UK distribution channels. There have been whispers that supermarkets are wary of American Greetings, their greetings card supplier, becoming such a large retail rival.

The source says: “This is a gamble for American Greetings but a very, very well calculated gamble. Look at it from the outside – if they move away from supermarkets, whatever they lose in wholesale they should make up in the retail business.”

But Schurman must work quickly to try to stem the losses at Clinton. In its last interim update, Clinton posted a pre-tax loss of £3.7m compared with a profit of £11.7m in the corresponding period the previous year.

By then Willson-Rymer was four weeks into his role and had to report that the outlook for the second half of the year was poor. He said at the time: “Since joining Clintons I have embarked on a journey of change, with a single-minded focus on the customer.

“With the store portfolio undergoing significant restructuring and the management team and the board strengthened, the business now has the ability to be stronger.

“However, the legacy of the business cycle means that significant impact will only begin to come through from the end of the second half of the financial year.”

Bubb observes: “Losses are increasing and Christmas is key for Clinton Cards. American Greetings has got to do something radical but time is getting on.”

The source agrees that Christmas will be American Greetings’ first key deadline to get changes in place, with January a key indicator for any new strategy.

“American Greetings saw the opportunity and the value in the 350 stores, head office and brand,” says the source.

“They paid £100,000 per store, which is phenomenally cheap. It was opportunistic and they saw a great opportunity to use their skills.

“I absolutely do think American Greetings will be successful.

“I think American Greetings will do more in the next six months than Darcy and his gang would have been able to do.”

The hope is that with a strong company and market experience behind Clinton, the wishes of good luck will become reality.

Dominique Schurman profile

The new Clinton Cards boss has years of experience, having joined her father’s company, greetings card and gifting chain Papyrus, in 1982.

Dominique Schurman had not thought of working there until her father revealed more than 20 years ago that he was selling it, it has been reported.

Schurman asked him not to and instead began working there, first answering phones in the office and working her way up to be chief executive.

Now she leads the 430-store Schurman Retail Group, which comprises the American Greetings, Carlton Cards, Paper Thread and Papyrus fascias.

The Papyrus business was founded by her parents, Margrit and Marcel, in the 1950s.

They imported cards from Europe and sold them on.

Schurman described her management style to Jewish Woman magazine in 2010 as “informal and interactive” as she takes part in design meetings and visits stores.

She has been keen to expand Papyrus’ international footprint and develop online opportunities, but is confident the market has not left cards behind.

She told the magazine: “When the internet started, people said that greeting cards would be finished. Now we know that an email can never replace a handwritten card.”