Welcome
Sharon Little, GCA General Manager, welcomed the delegates to the House of Lords, thanking Lord Stanley Clinton-Davis for hosting the meeting.
Sharon stated that the last year had been a very busy and exciting one for the GCA, the first half spent in anticipation of the implementation of PiP, while the second half, breathing a sigh of relief that the transition seemed to have gone relatively smoothly and that it hasn't so far affected the industry adversely.
She reminded members of one beneficial aspect of the changeover day to PiP - that greeting cards were thrown into the spotlight with lots of press coverage including newspaper, radio and TV - BBC News with Declan Curry on the morning of the changeover and Peter Sissons in the evening. The GCA got the greeting card message across that 90% of cards would be unaffected, that thickness of cards now affected the price of postage and drew attention to the GCA PiP logos.
In February the new GCA website went live and boosted the number of people visiting the GCA online to 3,000 a week. The site had helped to grow the membership to 372 member companies and buyers were using the site to source new product from members who now had their own page on the site.
She explained that there had been a big change in the way the GCA was now run. The site effectively provided the GCA with a new automated membership department, with its interactive membership database, as well as a new online billing system, which will go on-stream in February 2007.
Membership subscriptions had been frozen for the 12th year in a row, with the site expenditure being met by the increase in members and savings in other areas.
Sharon announced the not such good news that the industry would now be without market figures. Hallmark had decided not to continue funding the Harris Interactive research (its monies had underpinned the consumer survey with the GCA paying a small top up amount) that was presented at the AGM the previous year. The 2005 figures would still available to members on the GCA website.
She also announced that there would be a GCA Golf Day in June (being organised by GCA members Derek Sim of Washington Green, Bill Greeno of Quitting Hollywood, Lee Hartley of Medici and special advisor William McCracken).
President's Address
David Orr, GCA president, welcomed the delegates and the speakers. He stated that, at last year's AGM Pricing in Proportion and the effect it would have on the industry, was discussed. David Dale, Royal Mail's PiP project manager would be bringing the meeting up to date, on the implementation. David thanked William McCracken the GCA's special advisor, for the excellent job he had done representing the industry to Postwatch, Royal Mail, and Postcomm. The GCA would of course maintain its links with Postwatch and the Royal Mail in the future.
He spoke about how, in the last year, publishers had again come under pressure to hold or reduce prices leading to some publishers walking away from unprofitable business, or trying to maintain margins by moving more production to Eastern Europe or the Far East. He went on to predict that this approach may turn out to be a short-term solution as prices from southern Chinese factories are beginning to move up due to wage increases driven by, believe it or not, lack of workers. Many of the southern-based factories were now moving to northern China in an effort to recruit more people and keep costs down, he explained.
Placing this into a wider context David highlighted how some issues are common to card publishers all around the world, as evidenced by the views shared by overseas publishers and distributors at the GCA-hosted World Alliance meeting which took place earlier this year. Every single country, with the exception of Russia (which was experiencing excellent growth), faced the similar problems that we have had in the UK. Supermarkets taking market share; growth in the value stores as well as sale and return, were all cited as issues that transcend country boundaries for publishers, but the biggest threat that everyone had was that the largest customers would, if they could, go direct to China or Eastern Europe and cut the publisher out. However David said he did not see that happening yet, as factories in the Far East definitely do not do 'sale or return'!
GCA Business
- 1. Report of the AGM 2005
Proposed by Ian Hylands
Seconded by Derek Sim
With a vote of hands the Report of the AGM 2005 was approved by the AGM as being a true and proper record. - 2. GCA Accounts
Chris Holmes, GCA Treasurer introduced the GCA 05/06 Accounts in his own inimitable style with plenty of puns. He said that, although the last year had seen some pretty heavy spending on the Harris Market Statistics and the GCA website, the GCA had still managed so show a small profit. The GCA office had been run efficiently and other expenditure had been kept to a minimum. The GCA had a healthy bank balance and, now that it would not be paying for the statistics for next year, the outlook for the GCA finances was for another increase in its reserves.
Proposed by Chris Holmes
Seconded by Paul Woodmansterne
With a vote of hands the GCA Accounts 2005/06 were approved by the AGM as being a true and proper record. - 3. GCA Election Announcement
David Orr announced that, this year, the GCA had received six nominations to the Council:
Lisa Pallilo - Hallmark
Robin Sellers - Hotchpotch
Graeme Derby - Medici
Tim Mason - Paper House
Stephen Baker - Pigment Productions
Robin Bradley - Phoenix Publishing
Short biographies of the new Council members are attached. As the number of nominations was fewer than the number allowed on the Council it was unnecessary to hold a ballot vote at the AGM, and all the nominees joined the Council.
David Orr thanked Peter Reichwald, for all his hard work on behalf of the GCA. Peter was a past President of the GCA, who had recently retired from Paper House and stepped down from the Council. Unfortunately he was unable to attend the AGM, but the delegates gave him a round of applause in his absence.
Election of Officers
The incumbent officers of the GCA stepped down: David Orr (President),
Ian Hylands (Vice-President), Alan Hawkes (Secretary).
In-coming Officers
The following Council members stood unopposed as officers and directors of the association:
Ian Hylands (President) - Noel Tatt
Alan Hawkes (Vice President) - Paper Rose
Bill Greeno (Secretary) - Quitting Hollywood
Chris Holmes remained in his post as Treasurer.
Unfortunately, due to a family bereavement, Ian Hylands, the new GCA President, was unable to be present at the meeting.
The New GCA Council
Beverley Cunningham - Abacus Cards
Gary Rowley - Carlton Cards
Lisa Pallilo - Hallmark
Robin Sellers - Hotchpotch
Chris Holmes - Kingsley Cards
Graeme Derby - Medici
Ian Hylands - Noel Tatt Group
Tim Mason - Paper House
Alan Hawkes - Paper Rose
Tim Porte - Paperlink
Jeremy Neave - Perspectives Photographics
Stephen Baker - Pigment Productions
Robin Bradley - Phoenix Publishing
Trevor Paulette - Powell Publishing
Bill Greeno - Quitting Hollywood
David Orr - Simon Elvin
Andrew Valentine - Valentine Marketing
Paul Woodmansterne - Woodmansterne Publications
Presentations
David Dale - Royal Mail
Royal Mail's David Dale, the project manager of Pricing in Proportion, had been in dialogue with the GCA for the last eight years over the change to the new postal tariff system that came into force on August 21. During this time he has listened to the industry's gripes about PIP and made changes where he could - for instance by excluding square cards from being penalised as they are elsewhere in the world. With the new system now in place David talked delegates through its implementation and also touched on the issue of surcharging for greeting cards with insufficient postage.
Considering the magnitude of the change over to PiP - which David described as a 'Big Bang' affecting 60 million people, 27 million households and 3 million businesses he said the launch went 'pretty smoothly'.
He claimed that by the end of September consumer awareness of the change to PiP was 92%, which he felt would rise further still when the advertising campaign for Christmas posting got underway.
Royal Mail had witnessed a slight drop in the sending of postal items that were now classified as requiring large letter or packet postage while normal letter post increased slightly.
Royal Mail was now considering whether to start surcharging post with insufficient postage before Christmas. At present some 8% of items posted bore incorrect postage (3% is underpaid or no stamps and 5% is overpaid).
During questions, Lisa Palillo of Hallmark reminded David that Royal Mail had given the GCA assurances that surcharging would not be imposed until the percentage of incorrectly stamped mail had reached a 'normal level', with a 4% tolerance being cited in the past. Taking this on board, David also pointed out that a move to surcharging would involve agreement from Postwatch, the Government regulatory body for postal issues.
Prompted by a question from Jarle Tatt of Noel Tatt Greetings, David clarified that greeting cards could now be 'pulled through' the 5mm thickness slot on the PiP template to qualify for the letter rate (size allowing). Previously the industry had been told that cards would have to drop through this slot easily. Some members also voiced that they had received conflicting advice on this from Royal Mail's own staff.
David urged publishers to feature the PiP logos, devised by the GCA, on the backs of their cards. He explained that Royal Mail had not made any reference to these logos in its marketing due to the fact that there is not deep enough penetration at retail of cards bearing these logos as yet.
David Dale's full powerpoint presentation can be downloaded from the members' resources section of the GCA website.
Richard Bailey
Steeles
With agents and the legislation that affects their employment of major relevance to many publishers, Richard Bailey, the GCA's own 'legal beagle' was back, by popular request to share any updates.
He provided a potted history of developments in commercial agency case law in England and Wales:
- The Commercial Agents (Council Directive) Regulations 1993 ('the Regulations') came into effect on 1st January 1994.
- First major case on the calculation of compensation is King v Tunnock Ltd 2000. Scottish case, considered the origins of the words "compensation" and "indemnity" (French and German law respectively) and imported into Scottish law the French practice on calculation of compensation, which customarily calculated compensation on the basis of two years' purchase of gross commission. Also held that the agent is not required to mitigate his loss.
The beginning of the move away from the two-year rule
- Barrett McKenzie & Co Ltd v Escada (UK) Ltd, QBD 2001.
Considered that it was not appropriate to apply the French two year tariff, or indeed French law in any form. Instead, the court felt that various matters need to be considered in assessing compensation. These were:
- Duration and history of agency
- Its precise terms, whether written or oral
- Where there was any security of the agreement
- Regular repeating client base or series of one-offs
Interesting to note that the judge considered "one is valuing the agency ... at the time of or immediately before termination and it is really a question of compensating for the notional value of that agency on the open market, somewhat similar... to the value of the goodwill that one might have in a business". Has recent case law really changed the fundamental approach to compensation?
- Ingmar GB Ltd v Eaton Leonard Inc, QBD 2001.
The judge felt that King v Tunnock was "laying down not a principle of law but a guideline". Awarding compensation based on two years of gross average commission of the previous three years would result in injustice to the principal and a windfall to the agent "way above the value of the agency" on the date of termination.
The judge took into account more factors:
- Length of agency
- Inevitable lack of profitability in early years
- High degree of engineering and sales expertise of agent
- Degree of profitability at time of termination
- Tigana Ltd v Decoro, QBD 2003
Went further in listing factors to be taken into account:
- Intended and actual duration of agency
- Terms and conditions of agency
- Nature and history of agency and of market
- One-off or repeat business
- Exclusivity or non-exclusivity for both agent and principal
- Benefit to principal after termination
- Regulation 8 claim
- Way in which agency terminated/expired
- Contribution of agent and principal to goodwill during agency
- Breach of contract or duty
Confirmed that principles of mitigation have no part to play in the assessment of compensation
In this case, the amount of commission awarded under Reg 8 was to be taken into account in calculating compensation
However, judge also confirmed that he was not bound by decision of Scottish court and that no "tariff" was applicable under English law for determining compensation under Reg 17
- Abbott v Condici, County Court, 2004
Retirement at 65, agent fit and healthy
Agent entitled to compensation
Held that if the agent was at a reasonable retirement age, he did not have to prove much more
An agent could not reasonably be required to continue his activities beyond what was recognised to be his appropriate retirement age. 65 was "embedded as a retirement milestone".
- PJ Pipe & Valve Co Ltd v Audco India Ltd, QBD 2005
Judge confirmed that the relevant approach to be applied when assessing compensation will be largely fact dependent and judges should be free to identify those matters that are relevant to the circumstances of a particular case
This agent introduced clients for large one-off contracts. The judge considered that one further contract would have been gained in the remaining term of the agency and therefore based commission on that one order (around $118,000)
Since the last GCA AGM there had been two new cases that provided hope for publishers:
- Lonsdale v Howard & Hallam Limited, CA, Feb 2006
The judge considered that the basis of assessment of compensation was the value of goodwill in the agency at the time of termination.
He confirmed that questions of mitigation do not arise
The judge did " not think that the two year's compensation rule can be supported even as a broad guideline " as in his view the court could not award an amount of compensation unrelated to the damage which the agent had actually suffered. He confirmed that the court's task is to assess the value of the business to the agent at the date of termination, and therefore rejected the various factors considered in the earlier case of Tigana. However, the state of the principal's business is a factor relevant to the value of the agency.
- Tony Vick v Vogle-Gapes Limited (t/a Town and Country), QBD 2006
The principle issues were establishing precisely how the agency had terminated, and whether the clauses within the contract which allowed the principal to reduce Territory and Market if the agent failed to "optimise sales" were valid under the Regulations.
The agent was consistently poorly performing and difficult, on one occasion swearing at an employee of the principal. The principal tried to resolve the situation repeatedly with little success.
The agent wrote a letter stating that the agency was untenable, and that he would claim compensation for the loss of the agency. The principal replied confirming the agent's termination, and asking him to respond immediately if this was not the agent's intention. The agent failed to respond and it was therefore the agent who terminated. An agent is not entitled to compensation where he terminates the agreement unless the situation is one of constructive termination. This was held not to be the case here.
The judge found that the principal would not have been able to rely on his alternative case that termination was justified by the agent's repudiatory breaches, as the principal had repeatedly affirmed the agency.
The judge considered what compensation he would have awarded had it been relevant. The nominal compensation sum of £2 was based on the agent's failure to adduce evidence as to the value of his agency. However, the judge commented that:
- Compensation is based on the value of goodwill
- Mitigation would not be relevant to the assessment of compensation, although other agencies of the agent, may be relevant to the valuation of goodwill
- Compensation under Regulation 17 "includes so far as is appropriate the period which would otherwise have been covered by a notice [period]"
The judge also considered Regulation 8, and agreed that nothing in the Regulations prevented the parties from agreeing in the contract what amounted to a reasonable period under Regulation 8.
Milton Guffogg
CEO Greeting Card Group
Not quite a year into the job at GCG (which trades under the Cardfair and Card Warehouse brands) Milton Guffogg delivered what he described as the newcomer's view of greeting card retailing today and tomorrow.
In overview he saw a fantastic industry - but one which was a deeply fragmented, where the supermarkets were taking a bigger market share - Tesco with 16% was now number two in the market. Setting the scene, he detailed how greeting card distribution is now dominated by three types of retailer: card specialists (with a 39% share), supermarkets (29% share) and general retailers (25% share).
In terms of the speciality shops Clintons continued to face trading challenges, GCG had had its moments and Card Factory appeared to be growing successfully. But Milton saw an industry where cheap no longer equated to value and quality, an industry where customer service often meant a sales person sitting behind the cash desk looking bored, disengaged and with no commitment at all to what she was selling.
Not pulling any punches, he went on to state that the greeting card retail industry was under huge pressure - from rising costs, price deflation, the growth of the supermarkets and the growth of alternative channels to market.
Not a man adverse to challenges, he shared his approach as to how he intended to turn GCG around by keeping tight control on costs to achieve its margins and drive profits, but adding, to the relief of the audience, that these cost savings would not come through squeezing suppliers on prices. His aim was to maintain value, without being a discounter. The future for GCG lay in increasing ATV (Average Transaction Value), to sell the customer not just a card, but also additional purchases such as gifts and party products.
He took the audience through his focus for GCG that he divided under the four headings of People, Customer, Process and Profits.
Being GCG's biggest investment, Milton told how he felt it was critical that his staff felt engaged in the business, quoting that in the past year it had halved its staff turnover rates across the whole business.
He stated that people were a retailer's key differentiator - why should a customer buy a card on the high street as opposed to one of the supermarkets - not just because of choice, but because its employees engage with them, know the product, find what might suit the customers needs and give them more ideas. Card buying was a personal purchase and retailers needed capitalise on making their experience a personal one too.
On the customer front, Milton accepted that shopping habits had, and continued, to change, describing consumers as being very promiscuous in their shopping habits. The key was value, quality and choice.
The retailing environment needed to be inspirational, fun and interesting. Customers wanted new ideas about their purchase and to be able to find what they wanted easily. He complained that it wasn't easy to find what you wanted in card shops.
He revealed how GCG had recently refitted two of its stores (in Bolton and central Liverpool). Improved shop environment and training of staff had resulted in sales from these two shops shooting up by over 50%.
The use of technology also played a large part in the process at GCG, which had just completed installing new EPOS in nearly 500 stores in six weeks.
Milton saw it as critical that sales data should be openly shared with suppliers, even if it meant that one supplier could see how another was performing. He explained that working with his suppliers in real partnership was something he was passionate about.
Summing up, Milton laid down his cards: "I welcome the competition; it sharpens my mind, makes me think about how to do things differently. I welcome the challenges because with every challenge there is an opportunity. And that's very much what retail is about, forecasting the challenge. We need to understand our customer and their needs, provide great service and an experience they will remember you for through an inspiring environment. Engaging with our people, embracing technology and forging close working partnerships with suppliers is what is vitally important. The future, while challenging, is a bright one."
Lunch
The meeting ended at 1pm with a slap up lunch on the House of Lords Terrace, after which Lord Clinton Davis made a short speech, concluding with the words, "You are involved in a very special industry. You make people laugh, sometimes you make people cry a bit, but best of all, you make people remember!"
Print this page
