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.