The Johnson acquisition, Schram says, “allows us to get more into the ‘electronification’ of printing.” A customer can go to the Johnson Web site to custom-create its own business cards, letterhead, or holiday cards. “Out at the other end in one of my locations, I literally will print your card and I don’t have to have any human touch it,” he says. “I call it a frictionless transaction. This is something Deluxe needs to get more into as we change from just being a check-printing company to being an electronified, services-oriented company.”
Deluxe’s heritage business—selling checks through community, regional, and national banks—now generates 28 percent of its total revenue. Deluxe prints approximately a third of the consumer checks sold through banks in the United States. Even though the overall market for checks has been sliding, it’s still a very important market for Deluxe. In fact, the company actually has been growing the number of check boxes it sells in recent years. Future plans for this segment include expanding the use of its call centers and providing services and products developed from the collaboratives. “It’s an expansion from what we do now, and we are good at it,” he adds.
Deluxe’s Direct Checks division, which accounts for 13 percent of the company’s revenues, sells checks directly to consumers under the Checks Unlimited and Designer Checks brands. The company has nearly 50 percent of this market nationally and sells checks via phone, mail, and the Internet.
“This is our highest operating income as a percent of revenue,” Schram says. “We make 30 percent operating margins on the revenue we generate in this segment.” However, the segment lost market share in 2006. “We believe the principal reason is [that] we stopped investing or investing as much in areas that keep the business moving forward,” he adds. In particular, it cut back on advertising. This year, Deluxe has bought more ads in newspapers. It’s also having its call center employees upsell when possible—asking customers who are reordering checks whether they want to add fraud protection or buy a new checkbook cover, for instance.
As Deluxe continues its transformation, it also must deal with the May merger of John H. Harland and Clarke American into Harland Clarke. “It’s basically been a three-player industry in check printing,” notes Charlie Strauzer, a stock analyst with CJS Securities in White Plains, New York. “Now it is going to be a two-player segment.” Strauzer adds that it’s too early to know what that will mean for Deluxe.
Still, like many investment people, Strauzer is happy overall with the Deluxers’ less check-driven strategy. “They’ve done a good job,” he says. “And the direction they are headed is the right direction.”
