Cover Story: 2012 State of the Industry

Optimism was in short supply as 2011 drew to a close, and it is pretty easy to see why. According to the most recent NAPL Trends Report on the quick and small commercial industry segment, sales are down on average, costs continue to rise, owners’ compensation is down, and uncertainty abounds—hardly a pretty picture.

However, the situation is not entirely bleak, especially for the progressive industry leaders. Somewhat hidden in the industry averages are some promising signs. Companies that grew (57.7 percent) during the study period outnumbered those that declined (42.3 percent). Top companies reported sales growth of nine percent and some 40 percent of companies expected at least some growth in 2011.

All of these findings are worse than they were at the first of the year, but they still are not as dismal as some might have expected.

What’s behind this sluggish performance? The economy certainly plays a role, but there’s more to it than that. The fact is that the industry is undergoing a fundamental change that pundits are calling “the new normal.” Of course, the industry has always been changing. I recall when the digital revolution was creating the last “new normal.” Back then the pundits called it a “paradigm shift.”

 

Consolidation

Much has been made of the accelerating decline in the number of shops, but shops have been going out of business steadily during the past 20 years. For example, in 1991 there were 5,454 franchise print shops, today there are 2,656. That said, average sales per shop grew from $370,000 to $617,000 in the same period. I believe that reflects the industry as a whole during those two decades.

What has changed is that the failed enterprises are no longer being replaced by new startups. In other words, the churning at the bottom of the industry is no longer taking place—hence, the increasing decline in shop numbers.

Printing companies are not the only entities that have experienced attrition and/or consolidation. Printing industry vendors also have been consolidating. Kodak has folded in a number of other companies such as ENCAD, NexPress Solutions, Creo, etc. Presstek acquired AB Dick, which itself had acquired Itek and AM Multi earlier in this 20 year survey period. Ricoh acquired IKON Office Solutions and InfoPrint. Canon now is consolidated with Océ. There also has been consolidation among associations and attrition in industry trade shows, largely due to economic considerations in a changing industry.

Profit Centers

However, consolidation and attrition are not the only factors at work. The very nature of what printers produce has changed dramatically and will change even more dramatically in the future.

In my presentation at Graph Expo 2011, I noted that: “The transition to digital, coupled with the increase of non-print products and services, has shifted the profit center landscape for quick and small commercial printers.” Here again, history speaks for itself.

It might be amusing for old timers and instructive for newcomers to see where sales were coming from for the Top 100 companies 20 years ago. Back then, one-color offset accounted for 19.9 percent of sales and multi-color offset brought in another 15.4 percent, for a total of 35.3 percent. High-speed copying (all analog back then) and color copying made up 28.4 percent and 2.9 percent of sales, respectively. Bindery accounted for 7.5 percent of sales and brokering for 6.1 percent. The remainder of sales was broken out as coming from art/layout, camera room/prep, convenience copying, typesetting, etc.

Today, offset accounts for 29.78 percent of sales, with only 5.81 percent being one-color offset. Digital output, which wasn’t even a category 20 years ago, makes up 35.5 percent, with 17 percent of that being color digital. Prepress brings in 7.27 percent and finishing accounts for another 9.64 percent. Mailing and brokering/other make up the remaining 17.34 percent.

Let’s look at the franchise segment again.

In 1991, offset accounted for 45 percent of sales for franchise quick and small commercial printers. Copying (analog) made up another 34 percent, while prepress (6.4 percent), bindery and finishing (7.8 percent) and brokering/other (7.6 percent) rounded out total sales.

Today, offset accounts for only 22 percent of sales while digital accounts for 42 percent. Other profit centers, such as bindery, wide-format, mailing services, brokering/other, account for 35.4 percent of sales.

 

Economic Realities

I led off with the latest findings from NAPL, which illuminate the obvious point that even in hard times some printers do better than others. Similar surveys over the years have found the same general reality. Some printers do well no matter whether the economy is vibrant or the economy is lousy. This isn’t going to change, but here different influences will continue to come into play.

Far too many quick and small commercial printers (and their larger brethren) have been sitting around waiting for the economy to get better so they can get healthy again. Such wishing happens in every recession and those who spend too much time wishing and not enough time working are the ones who falter and fail.

There isn’t any magic formula for being successful in hard times. You do the same things you always should be doing—but often don’t do—when good times and steady business make you comfortable. You work to get new customers and get more work from existing customers. You try to take market share from competitors. You keep an eye on weak competitors and either take work from them when they fail or acquire their assets. You also do all of the mundane business and financial stuff that needs to be done so you will know exactly where you stand. And you keep a close eye on change.

 

How Now?

What differentiates these particular changing times from those changing times of 10 or 20 years ago? We’ve already gone through the digital evolution as far as digital workflow and output are concerned. Now digital has brought us a once unanticipated change with the Internet and electronic alternatives to print. Digital has also driven down run lengths, enabled faster turnaround, and one-to-one personalization. Customers are doing more work in-house, but that’s been going on since the introduction of the personal copier and the fax machine. Postal costs are rising even as printed mail volume has fallen as a result of communication migrating to the Internet. Environmental issues are becoming increasingly important. Most of all, however, is that potential customers want to buy stuff that many quick and small commercial printers are unable or unwilling to provide.

Where is growth going to come from in 2012? Certainly not just from putting more marks on more paper. Successful printers will be able to create and sell cross-media campaigns. Some are already taking advantage of QR codes as a way to use print to drive traffic to the Internet. Some see an opportunity in managing social media for their print customers. Website design and maintenance is seen by others as a potential profit center. Mailing and fulfillment will continue to increase in importance, even though mail volume will continue to decline. There will be growth in wide-format to include signage, wraps, and finishing. Some printers may have the skill set to offer database management. Every franchise system in the country has rebranded its franchisees as marketing service providers, although there seems to be some confusion about just what that entails. And maybe sometime during 2012 printers will figure out how to sell the value of one-to-one marketing or personalized printing.

Bob Hall is senior consultant to the Cygnus Graphics Media Group, which includes Quick Printing. He has been active in the printing industry for more than 25 years. Contact him at browndawg@aol.com or 304-744-7022.

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