State of the Industry Report: 2011 – The Year of Transitions

Without a doubt, the sign and graphics industry—much like every industry—has been in turmoil since the beginning of the recession. Over the past few years, we’ve all been forced to take steps to keep our businesses afloat and have ended up, in many cases, doing much more with much less. “It’s still a constant push to make more with less—money, skilled workers, and customers who are skittish at best,” said Patrick Palmer, president, Copies Today SpeedyLitho.

“This year has been a real roller coaster. I think the biggest stress is the fact that all the old graphs and charts no longer have any credibility for projecting future business. It seems that many more businesses are living paycheck to paycheck,” said Kevin Messina, president, Stripeman Graphix, Inc.

The “weak and uncertain economy” has played a large and important role in shaping the current market climate. According to a recent Wide-Format Imaging Innovators Panel Survey, 98.75 percent of respondents cited the national economy as a “very important” (71.25 percent) or “important” (27.50 percent) primary business concern in 2011. Maintaining margins came in a close second with a total of 97.5 percent of respondents listing it as a “very important” (66.25 percent) or “important” (31.25 percent) business concern. Sales growth was also high on Innovator’s list of concerns, with 63.75 percent listing it as a “very important” and 35 percent as “important”.

“There is a lot of uncertainty and volatility in the market right now. The economic and political landscapes are not good here in the US or abroad. That does not make for a prosperous time. This is not just related to products for advertising. It is a general theme overall for all businesses, not just decorative graphics,” said Rick Moore, director of marketing - merchant and graphics products, MACtac.

“In general, the sign and graphic industry is experiencing moderate growth in 2011. With the overall economy growing at an anemic pace—Blue Chip Economic Indicators forecast real GDP growth for 2011 to be 1.6 percent—our industry is performing slightly better,” said Catherine Monson, CEO, FASTSIGNS International. “Along with the slower economic recovery that we are experiencing across the board, we are having the same challenges in the sign and graphics industry as small businesses in all industries: limited access to credit, increasing government regulations, and uncertainty about the future. Until consumers and the business community have overall confidence in the US economy, businesses will be slow to invest in the marketing efforts that drive stronger growth in the sign and graphic market segment.”

“The US market for signage and graphics has stabilized for the majority of the country, but we still are experiencing difficulties in some markets,” said Ray Palmer, president, Signs By Tomorrow. “Pent up demand and the economic recovery for the first half of 2011 have contributed to top line sales growth, but as an industry, we are not experiencing ideal profit margins for many products and services. Cost controls and technology improvements are the key to achieving continued bottom line growth through 2011.”

“No one can ignore the impact the economy has had on the industry over the past few years. Long established sign shops are no more. The print-for-pay business that has survived has done so by cutting costs while demonstrating versatility to provide a wider range of output,” said Rick Scrimger, vice president and general manager for Roland DGA Corp. “Basically, what the ‘new economy’ means for sign shops is that they have to work harder today to compete for business. To be successful, businesses need to expand their market reach with new applications that differentiate them from their competition.”

A Transitional Year

Over the last two years, industry experts and innovators have been cautiously optimistic about the market’s recovery, but many point to 2011 as a transition year. The Innovator’s Panel survey really showed the uncertainly in the market, but the future outlook seems positive. While only 30 percent of respondents felt the current market was faring better than 2010, 43.75 percent indicated it was “the same as expected” while the remaining 26.25 percent indicated it was “worse than expected”.

Looking ahead, however, to the close of the year, panelists were more optimistic, with 36.35 indicating the year would end “better than expected” and another 41.25 percent predicting it would end as expected.

“I see 2011 as a transitional year, where companies that survived the economic downturn began reinvesting in their businesses,” said Patrick Ryan, general manager, Seiko Instruments USA.

Sal Sheikh, vice president, marketing, Océ North America, offered similar sentiments. “2011 will be marked as a year of transition. Many companies have weathered the financial impact of the rough economy and have diversified their business models to adjust with the technology and the changing markets. The economic conditions have forced many companies to reinvent themselves. However, many realize they must invest in new technology to remain competitive in the services they offer to their customer base.”

“We estimate the overall sign and graphics industry will likely end 2011 up around three percent over 2010,” said Monson. “Of course, the industry is made up of those companies with significant growth and those whose sales are flat or in decline. Price competition, commoditization of certain products, and margin pressure continue to challenge the industry. We anticipate that the industry will see further consolidation as some ‘print for pay’ providers that do not have the cash reserves, access to credit, or do not innovate to expand into higher margin products and services make the decision to exit the business. It will be those organizations that have made the harder, right decisions and taken the necessary steps to control expenses, maintain cost of goods, and have focused on higher margin business that will benefit as the economy continues its fragile and uncertain recovery.”

But will the market every get back to pre-recession highs? The Innovators panel was positive the market would rebound and recover, with 45 percent indicating it would, 37.5 percent uncertain, and 17.50 percent indicating it would not get back to those pre-recession sales numbers.

The real question, though, was brought up by Messina. “We will make it back to pre-recession sales numbers, but the real concern is, whether or not we will get back to pre-recession profits.”

As we know, economies are cyclical and fluctuations should be anticipated. “Sometimes we forget that every recovery still has some measure of peaks and valleys. Despite that, we do anticipate that, in the long term, we are in for an extended growth period,” said Scrimger. “That growth curve may not be as steep as we like—it never is—but if we hold the lessons of the past few years close to our strategy, we can come out of this more profitable and more nimble.”

“While I don’t think anyone has the foresight to understand exactly what volumes are possible, the economy will dictate what equipment is purchased over the next 12 months,” said Reed Hecht, product manager, Professional Imaging, Epson America, Inc. “I think we are about to see a resurgence in sign and graphics as companies look to replace older, outdated equipment in favor of new technology and more versatile equipment that will allow them to produce higher-quality output as well as extend their offerings to accommodate new markets they may not have been able to address previously. Strategic investments in hardware are critical to sign shops looking to stay ahead of the competition down the street.”

“Despite the rate of growth progressing slower than many in the sign and graphics market would like, sales numbers seem to be steadily climbing. Although the industry has yet to return to pre-recession numbers, we expect to see a more rapid rate of growth once the uncertainty about the economy diminishes,” said Ed McCarron, director of sales and marketing, InteliCoat Technologies.

“It will take time for the economy to rebound,” said Brian Phipps, general manager, Mutoh America. “But the demand for printed signs and graphics has not gone away. The interest and desire to have these materials by the consumer is there, but it is driven by the money they have to spend. The need for printed graphics and signs remains strong, once the economy comes back the number of print providers may be fewer, but the overall health and revenue dollars being generated by and spent on signage will be strong once again.”

“We will all need to look outside the typical customer base and look for ways to educate prospects about the impact large-format graphics can have on their business as an alternative advertising source,” said Jason Metnick, vice president, new business development, LexJet. “With the fragmentation of electronic media, potential large-format print buyers are looking for targeted, cost-effective, alternative messaging that reaches the consumer directly, whether it’s at the point of sale, a trade show, or a special event.”

“The industry will certainly reach the sales numbers that the market enjoyed in 2007, but it will be reflected in more lean suppliers and with a variety of product mix,” said Monson. “The successful providers will focus on an expansion of product offering and becoming more of a broad solutions provider of communication challenges rather than relying on historical product mix.”

Growth—Where?

“The successful providers in the sign and graphic market will shed the ‘traditional only’ sales and will strive to be a full service provider participating in the customer’s decision process early with design, fulfillment, and finishing,” said Monson. “New non-traditional solutions will become critical as the customer’s needs have migrated to Web-marketing, e-commerce, and social marketing. The desire to have a single vendor for all of the clients communication’s needs will also drive a new dynamics how sign and graphic market provider supplies solutions to their customers.”

“The market place is clearly changing. We see opportunities for growth in very different places, compared to a few years ago,” said Steve White, chief operating officer, Signs Now.” And while we are disappointed to see some old market segments fade, we are very excited about the new opportunities that are emerging all around us.”

As a “broad solutions provider” in the new economy, a mixture of new and old market niches seems to be the magic bullet when it comes to growth. Industry experts and innovators indicated several industry niches that they feel hold the most promise for growth in the coming year and the highest on the list—with 72.5 percent of respondents indicating growth for 2012—was digital signage. And we can already see evidence of the industry’s growing interest in the market through the special floor section at the SGIA Expo 2011 and the growing number of exhibitors in this market segment at the ISA Expo.

There is a note of caution, though, from Rich Reamer, director of product marketing for the large format division, Canon USA. “The major concern facing the industry is the ability for print providers to achieve long-term growth as we move more into the environmental and digital age. With increased scrutiny over sustainable trends and a strong push to provide digital only content, it becomes very hard to stay relevant.” This will be a continuing challenge as the market moves toward more digital signage.

Fabric graphics was next in line with 68.75 of respondents predicting growth in 2012. “More and more short-run designer and soft signage applications are cropping up,” said Phipps. “As new fabric materials are being introduced with quality direct to print results you will see increased growth for both machines capable of this technology and inks that support it.”

“From our view,” said Steve Bennett, vice president, Digital Finishing Business, EskoArtwork, “digital print and digital signage (LED signs) is growing.” And he’s not alone in his view. LED signage was third in line—at 58.75 percent—and is tied in tightly with the number one growth market, digital signage.

“LED displays offer so much more in instant messaging and visual eye appeal, that should really take off if LED can become affordable to more communication outlets and advertisers,” said Steve Weaver, owner, Steve Weaver Arts.

Messina pointed toward LED displays as well, but noted that “there will be a struggle with regulators in the ability to market the product.”

Window graphics—with 51.25 percent of respondents predicting growth—was the forth area of interest for 2012. This market niche really allows PSPs and creative agencies to put their best foot forward. Window graphics represent new media spaces that didn’t exist a few years ago, and also offer cost-effective ad placement for marketing messages. Few other media deliver as much impact as a mini-billboard-sized graphic positioned right next to the door of the retail store or company it is promoting.

The wide area of specialty graphics—with 46.25 of respondents indicating growth in 2012—was next in line, but in this segment, creativity and differentiation are essential. “To use a football analogy, a wide receiver has to get separation from his defender to get space and give himself an opportunity to catch the pass—to make something happen. That’s what will grow, so call it ‘specialty’ products,” said Moore. “What can you put together that your customer hasn’t thought of? What value can you bring? Can you listen carefully enough to hear the one thing that is an opportunity in disguise? Most of those will be unique, multi-faceted engagements that will also be profitable, and help you build deeper relationships.”

POP and retail graphics came in next with an equal percentage of respondents—46.25 percent—indicating it would grow and stay the same in 2012. HP’s David Murphy, director of marketing, Americas, Graphics Solutions Business, feels this market has one of the biggest opportunities for PSPs and gives strong reasons why this market especially should see growth in 2012. “HP believes the point-of-purchase and retail vertical is two times bigger than the opportunity for outdoor signage. This market started with outdoor signage, solvent, and billboards, which are currently 65 to 70 percent digitally printed, but the POP and retail vertical market is the opposite. Currently, it’s only 20 to 22 percent digitally printed, and the digital portion of the market is growing by double digits. For this reason, the wide-format graphics market should focus on this POP and retail vertical, which has a strong need for the personalization and on-demand printing capabilities provided by digital printing technologies.”

“As business owners and managers, we share the same concerns as business owners in all industries: a weak economy challenged by the looming debt crisis, burdensome government regulations, tax uncertainty, the unknown cost of government mandated health care coverage, etc. Concerns specific to our industry include lack of sales growth, margin pressure, and increased competition. The competitive landscape is blurred with different sectors (screen printers, offset printing, sign and graphic providers) vying for the same customer base. Because all of these sectors have excess capacity, maintaining margins is difficult,” said Monson. “To compete successfully, sign and graphics providers must transform their business from a traditional sign and graphics business to a cross-media solutions provider, using multiple technologies to meet their customers’ needs. The most successful in our industry are taking a more proactive sales approach, implementing smarter marketing, providing better customer service, and driving increased efficiency in the manufacturing process.”

Loading