State of the Industry Report: Chasing Dollars
On March 12, 2015, Standard Register Co. rocked the industry with some startling news: The Dayton, Ohio-based printing giant filed for Chapter 11 bankruptcy-court protection, with a $275 million buyout offer from existing lender Silver Point Capital L.P. The story took several surprising turns, starting in June when a committee of unsecured creditors sued Silver Point Capital and certain Standard Register Co. executives. The 45-page lawsuit charged the defendants with 15 counts of fraudulent transfers stemming from Standard Register Co.’s acquisition of WorkflowOne in 2013. (U.S. Bankruptcy Judge Brendan L. Shannon dismissed the case last month.) Shannon approved Mankato, Minnesota-based Taylor Corporation’s $307 million purchase of Standard Register Co. and its assets in June, after the company swooped in with a last-minute bid during an auction.
Riveting material, yes. But the bigger story here is how ongoing consolidation has affected the industry. While it’s created opportunities for certain product lines—including jumbo rolls—competition, overall, hasn’t eased, according to Andrew D. Paparozzi, chief economist and senior vice president of Epicomm, Alexandria, Va. “[There is] increased competition, as the Internet and digitization continue to break down boundaries, letting everyone into everyone else’s business,” he observed. “We’re no longer competing with companies that look just like ours anymore. That’s why competition hasn’t eased despite ongoing consolidation.
“... In every commodity market, your competition is no longer just the printer across town or across the state,” Paparozzi continued. “Rather, it’s the printer across the country or across the ocean, the non-printer who’s providing an electronic alternative to print, and everyone from the office superstore to the provider of fulfillment services who has added printing capabilities.”
Then, there’s the economy—a variable that historically has influenced the direction of our industry. The average post-World War II recoveries have lasted six to seven years, and the U.S. is now in the seventh year of recovery since the Great Recession hit, noted Dr. Ron Davis, senior vice president and chief economist for Printing Industries of America (PIA), Warrendale, Pa. In other words, recovery is in a very mature phase, which bodes well for print. “Print actually does best in the mature recovery phase, so this is one reason that print had a relatively good year in 2015,” Davis remarked.
In fact, print performed so well that Davis referred to 2015 as one of the “best in years.” “[Print] likely grew overall by 1 to 2 percentage points in line with our forecast,” he added, citing ongoing PIA research. “Major bright spots were direct marketing print, packaging and labels/wrappers.”
Epicomm’s “State of the Industry” Series revealed similar results, estimating that total commercial print industry sales (all sources) increased by 1.8 percent in 2015—just short of Epicomm’s growth projections of 2.0 percent to 3.0 percent. Paparozzi had mixed feelings about the protracted recovery. “On the one hand, that’s disappointing because heading into 2015, it looked like our industry was ready to step up to consistent 2.0 percent-plus annual growth. (Sales grew 2.4 percent in 2014),” he said. “On the other hand, it is encouraging because we have now grown four consecutive years—and that hasn’t happened in a long time. Sales (again, all sources) now total $81.5 billion, still 17.1 percent below pre-Great Recession levels, but up 6.0 percent from the 2011 low.”
So, here’s the million-dollar (or $81.5 billion) question: Will the print industry continue to cruise along its present path of growth, or will it pick up the pace? If print’s close ties to the overall economy are any indication of future success, 2016 could deliver underwhelming results. “It’s very unclear what might happen in 2016-2017,” Davis admitted. “The most likely scenario is a continuation of slow economic growth and stable print markets—nominal print sales might show no growth or grow at around 1 percent. However, there is a significant (30 percent) chance of recession, and that would certainly reduce printing shipments by 2 [percent] to 4 percent.”
“It’s very unlikely that the economy will strengthen enough in 2016 to give the industry a boost,” Paparozzi added, noting that Epicomm anticipates industry sales to grow 1.5 percent to 2.5 percent this year.
The 2016 presidential election almost certainly will contribute to that boost. “The old rule of thumb is that [an election] can add up to 0.5 percentage points of growth, and our research appears to verify this metric,” Davis commented. “The political industry recognizes direct mail for both campaigning and fundraising.” Davis also expects direct-marketing print, labels and wrappers, and packaging to maintain their good standing in 2016.
Paparozzi agreed that election season may give the industry a minor short-term boost, but said the incoming president’s agenda will have the greatest impact. “... In 2016, unlike many previous elections, the candidates differ profoundly in their views of what’s best for the economy.”
And with uncertainty, comes fear. “... There is extraordinary uncertainty about where the industry, economy and things, in general, are headed,” Paparozzi shared. “Uncertainty, whether economic or political, tends to dampen economic activity by encouraging companies to delay investment and hiring, and consumers to delay spending until the outlook clears.”
There is reason for optimism, however. “We have historic opportunity to get involved in our clients’ work easier, stay involved longer and satisfy a broader range of their communication needs,” Paparozzi said. “In fact, our challenge is not a lack of opportunity—it’s deciding what is and isn’t an opportunity for my company, given our resources, circumstances and goals because we can’t be chasing everything.”
A Common Thread Among Leaders
In recent years, industry talk has turned to extending the value proposition of the supply-chain partnership. Companies are no longer categorized as “manufacturers” or “distributorships,” but rather “marketing service providers.” Though Paparozzi believes every top performer has a unique story, he has observed a recurring theme among leaders: They are able to help clients communicate more effectively with their clients. “They excel at hearing the voice of the customer and responding to that voice,” he noted. “They maximize adaptability because nothing is more important to enduring success in our industry than the ability to adapt quickly and efficiently to rapid, disruptive change.
“They also recruit and retain the skills, from strategic planning and consultative selling to marketing and database management/analytics, now essential to profitable growth,” Paparozzi said. “They don’t do any one thing to sustain superior results; they do many things. And they are not companies of a particular size, equipment configuration or ownership structure.”
Paparozzi then pointed to the 39.1 percent of Epicomm’s “State of the Industry” participants who reported increased profitability in 2015. Interestingly enough, their good fortunes cannot be traced back to something the industry or economy did for them; instead, Paparozzi said, gains were a result of multiple initiatives that ranged from increasing production efficiency to capturing higher-margin work.
Davis reinforced these sentiments. He encouraged printers to think creatively, beginning with inside the plant. In particular, cost control, investments in productivity-enhancing equipment and software, and substituting capital for labor will drive sales, he said. And, of course, think outside the plant. “[Printers need to think] about their business strategy, why customers use them and their products, and becoming more than a printer,” Davis stressed.
Attention also should be paid to your people. “Typically about 40 cents of every dollar a printer takes in goes to pay people cost,” Davis noted. “Profit-leading printers spend more on training and education than profit challengers, so printers need to engage their people and practice smart HR.”
That being said, don’t get too comfortable—this is a business environment where change is rapid, thereby setting the stage for hungry players to take control. Paparozzi aptly summed up the new reality: “Back in the day, when change was orderly and gradual, feeling comfortable—feeling that we have it all figured out—could be our measure of success,” he said. “But change isn’t orderly and gradual anymore; it is rapid, disruptive and unpredictable. And, when change is rapid, disruptive and unpredictable, nothing is more dangerous than assuming we have it all figured out.”
Want to learn more? Print+Promo reached out to experts in four major market niches. Read on as they discuss additional bright spots, problem areas and strategies for growth.
ON PRINTED FORMS
The Expert: Jeff Russell, president, Major Business Systems Inc., Hillsborough, N.C.
What are your thoughts on the current state of the business forms sector?
Jeff Russell: Business forms are a direct economic indicator. Without transactions taking place, you have a flat or declining market, which is the state of our current economy. The net result for the industry is over-capacity, which brings pricing pressure, mergers and reductions. However, there are some niche markets and products that are performing well. (We find that wholesale distribution, governments and segments in health care are still very paper-based oriented.) Creating boutique products and services for these markets is a key to realize some net growth.
What do you think the biggest changes will be this year, and what will drive them?
JR: Continued diversification into nontraditional products and sales will be the driving force[s] this year. Our market will continue to remain flat until post-election time. The business sector lacks the confidence to make any growth decisions until it sees ... how the country acts to a new administration.
How is your company spreading the message that print forms aren’t dead?
JR: Our company has focused on niche markets that are actually exhibiting print growth and [are] somewhat impervious to the inroads of electronic technology. Our marketing strategy has been directed solely at these opportunities with an awareness campaign of the substantial value-added potential over and above the traditional commodity forms market.
How has the recent uptick in mergers and acquisitions and closures affected the forms market?
JR: There is no doubt that our industry is experiencing the effects of being in the “mature” cycle of business life. The net result will be a strong and versatile segment that will serve the industry well. Those players will be lean, flexible and adaptable.
How can the forms sector do a better job of attracting millennials?
JR: The print market is dynamic; however, the forms segment is not the more glamorous part, and it has been aggressively marketed against by technology suppliers. The focus must be that the opportunity to earn a better-than-average income does exist in our business. With the impending wave of retirements that our industry is going to face shortly, there will be ample employment opportunity as well. Our industry has been populated primarily with family-owned companies. This legacy has allowed subsequent generations to realize the value in it.
Based on past trends, what are your expectations for the short-term future of form products?
JR: I think, post-election, we will see a rebound in our market. Those who have adapted will be much stronger and will then prosper.
ON LABELS
The Expert: Bill Reid, vice president of sales and marketing, New Dimension Labels, Austell, Ga.
What are your thoughts on the current state of the label market?
Bill Reid: We produce custom prime labels, so I can only comment about this segment of the market. Our label sales have been growing year-over-year as more distributors educate themselves on selling prime labels to current accounts and new prospects. Selling prime labels that go in packaging can be a longer sales cycle. Once a distributor invests his or her time and is able to penetrate an account, then, in most cases, the end-user will continue to use the same vendor as long as the product continues to look and perform as promised. Changing vendors on a label product that is working properly can lead to label failure. A failure of a label (e.g., fading, cracking, peeling off, etc.) at any point in a product life cycle can be disastrous.
A problem area (not necessarily new) that we run into is that customers need labels in-hand quickly for drop-dead dates for product launches. The time from product inception to launch keeps getting shorter. Because of this, sometimes proofing and color matching is rushed. For example, we had a new product launch for a startup company where the end-consumer demanded and signed off on us to match ink colors from [its] website. [The company was] in a rush and ended up with color variations that could have been prevented if the proper time was taken in the proofing and color-matching stage.
What do you think the biggest changes will be this year, and what will drive them?
BR: We see growth in the requirements for printing on different substrates for unique applications. Printing on clear substrates is growing as younger consumers want to see the product they are purchasing through the packaging. Because of this we do more experimenting with different nontraditional substrates that can run through our digital equipment. We find we do more testing of stocks and working with our substrate supplier’s technical experts to provide solutions that will work on both our digital and flexographic printing equipment. That way we can provide fast-turnaround digital production for shorter runs and longer-run capability with our flexographic equipment.
What kind of plan or growth strategy has your company implemented in order to stay relevant and profitable?
BR: Our strategy has always been to continue to invest in our resale channel. What works best for us is finding better ways [to] support our distributors through the entire sales process. Since the prime label market has not been penetrated (as an overall percentage) by resellers, we feel that there is an abundance of growth opportunity for us and our customers. In many cases, it may be helping our distributor[s] penetrate an account where they are already selling document or commercial print products.
Digital printing certainly has taken off in this sector, but what limitations does this method bring? Are there any misconceptions among resellers?
BR: A major limitation in our digital equipment is that it is not economical for super long-run projects. This technology is changing and newer equipment coming out is better on long runs. The cost to purchase longer-run digital equipment must be weighed against flexographic methods.
A common misconception is that the price for a digital label is going to be lower than flexographic printing. Depending on the substrate and the quantity, this may or may not be true. Digital does not require printing plates [and] press wash-ups, and waste is minimized. But the investment in the latest digital technology can be costly coupled with click charges and maintenance agreements.
I think that, for the most part, our distributors and our company could do a better job of marketing the power that digital provides to small and midsize companies. For example, the Coca-Cola Co. had success with the “Share a Coke” marketing campaign. This campaign provided a buyer the ability to purchase a Coke variably [printed with] a consumer’s name and the names of family, friends, colleagues, or even the names of people they want to know better. The power to variable print packaging is also available to small to midsize companies and not just the huge multinational conglomerates. Smaller companies need to also take advantage of the ability to:
- Print variable labels or regionalized packaging depending on the demographics of the market.
- Support “cause marketing” campaigns (e.g., breast cancer awareness and patriotic campaigns) in their packaging.
- Quickly test market new designs.
- Take advantage of on-demand customization of labels in short runs. For example, setting up a website where the end-consumer can design and order customized packaging for an event. Consumers are drawn to customized packaging for events and special occasions.
What kinds of business conversations motivate you, and how do you and your supply-chain partners take those conversations to the next level?
BR: Any conversation that allows us to become closer and partner with a distributor and his or her customer, we have found, leads to a greater chance of success. Whether that involves a distributor and his or her customer visiting our facility; being involved with a project from the conception/testing; or visiting the end-user with our customer. It’s all about building trust. Once we build the trust we feel that in most cases success will follow.
Based on past trends, what are your expectations for the short-term future of labels?
BR: The trend we see not ending any time soon is for marketers to continue to demand high-quality labels with very short turnaround times. We need to continue to respond and accommodate these requirements.
We also see marrying label manufacturing with web-to-print technology as a way to help distributors differentiate themselves and better service label accounts. We are fortunate because our LaunchPad Technology Services division offers web-to-print mobile friendly portals to distributors. We can provide this solution all under one roof and do not need to bring in a third-party vendor.
ON PROMOTIONAL PRODUCTS
The Expert: Gary Biron, MAS+, CIL, vice president of marketing and vendor relations, Geiger, Lewiston, Maine
What are your thoughts on the current state of the promotional products sector?
Gary Biron: Technology has impacted the promotional product industry over the last several years, changing the way customers buy. Commodity items can be easily priced online with very little effort. The savvy online shopper (and who isn’t?) has access to any product at [his or her] fingertips, whether available through our normal channels of distribution or not. Technology has also opened the way to direct overseas purchasing. Pricing initially appears incredibly low. The inexperienced buyer is often unaware of the risks that are involved when dealing with offshore resources. Having said that, customers are still in need of the expert who can provide professional guidance with their promotional needs. The value of being a true promotional consultant to a customer is priceless. That person not only can offer creative ideas to assist the customer in making an impact, but can also guide the customer through the minefields of product safety and compliance.
What do you think the biggest changes will be this year, and what will drive them?
GB: E-commerce will continue to play a significant role in the way we go to market. It will be increasingly more important to have a true e-commerce presence with outstanding customer experience in order to compete with all the emerging online resources. We will see more channel conflict. The Internet makes it extremely easy for consumers to bypass the normal supply chain. And salespeople will need to become more consultative in their sales approach so that customers will recognize the value they bring to the equation.
Geiger recently received eight awards at the PPAI Expo—what does it take to be a leader in this industry? Do you have any advice for your peers?
GB: Geiger is fortunate to have a strong collection of extremely talented, professional sales partners. Many have helped their customers to achieve amazing results through their efforts as a promotional consultant. The PPAI industry provides an excellent opportunity to recognize and celebrate those achievements. We work with our sales partners to assess their achievements. Being a leader requires awareness of the results of your efforts. It is important to take the time necessary to evaluate results, determine the impact and work toward fostering continuous improvement in everything you do.
Product compliance and safety is an essential element in the support of customers’ good names. What steps has your company taken to make sure your sales partners and customers are educated about the laws?
GB: First and foremost, we have complete support from our senior management. [Geiger President and CEO] Gene Geiger has spearheaded a number of safety-related initiatives within our industry. His message on safety is continuously resonated throughout our organization. Secondly, we have a full-time associate dedicated to managing our product safety and compliance efforts. He is responsible for keeping abreast of information related to national safety initiatives and issues. He is also responsible for conducting ongoing education with our associates and sales partners. We require our production partners to provide us safety documentation to ensure we are working with resources that are aware of safety initiatives. Additionally, an internal taskforce was established to develop systems and protocol to identify and flag orders that require review and evaluation prior to processing.
Of the different misconceptions surrounding promotional products, which one frustrates you the most? Why?
GB: Tchotchkes, landfill, waste. People who do not recognize the power of promotional products are all too eager to diminish their value when taken out of context. What they fail to measure is the impact upon the recipient. How appreciated did that person feel once they received it? What other positive emotions were experienced? What degree of brand recognition or loyalty was fostered by this product? What educational message was shared that will make a lasting impression? What secondary messages were shared by the recipient with their friends and relatives? There is power in promotional marketing. We are charged with using it wisely.
Based on past trends, what are your expectations for the short-term future of promotional products?
GB: Short-term? Well, this is an election year. [There will be] lots of opportunity on a national and local level to use promotional merchandise to support a candidate or initiative. Also, with energy prices at the lowest they have been in years, customers have more resources to spend on marketing and building their businesses. We should expect 2016 to be a strong year for the promotional marketing industry.
Is there anything you would like to add?
GB: We work in an exceptional industry that fosters creativity, excitement and rewards. The beauty is there is not only one right way to accomplish success. Yes, there are more effective ways that harness technology, relationships and resources. Depending on how one measures success, there are many who are achieving various levels of greatness.
ON DIRECT MAIL
The Expert: Summer Gould, president, Eye/Comm Inc.,
Santee, Calif.
What are your thoughts on the current state of the direct mail sector?
Summer Gould: The biggest problem right now is the post office. Congress has not been able to pass legislation that allows the post office to reach financial stability, and that has them in the red every year. This has posed problems for postage rates and service times. The bright spot in direct mail is how effective it continues to be in all age groups, including millennials.
What do you think the biggest changes will be this year, and what will drive them?
SG: The integration of direct mail with technology will no longer be a luxury, but will be expected by recipients. It provides them with a smooth and quick user experience, which really helps increase response.
Because marketers need to spread their money farther and farther, what types of considerations need to be made with direct mail? Where are successful marketers excelling?
SG: The very first consideration for direct mail is cost. In order to keep costs down and returns on investment up, you must target every campaign you do to the correct people. You also need to make sure that you are not paying extra postage by designing without thinking about the postal regulations. Successful marketers are integrating direct mail with online content through mobile [and] providing a unique user experience that increases engagement.
What opportunities, if any, have marketers seen since Megan Brennan took over as postmaster general?
SG: Megan Brennan is a realist and has taken it upon herself to listen to and work with direct mailers. This gives us hope that she understands the struggles we have and will work with us going forward on service standards as well as postage rates.
If you could give marketers just one piece of advice, what would it be?
SG: Take your time with not only selecting your target market, but also in your design. You need to appeal to recipients but also meet postal requirements. Do not be afraid to enlist the help of a mail service provider to review your designs for postal issues before you print.
Based on past trends, what are your expectations for the short-term future of direct mail?
SG: Direct mail will continue to be used as part of a multichannel campaign and provide effective results. More technology will be added to increase engagement with customers and prospects.