2012 Sign Franchise Review Commentary

1. How is the overall franchise segment of the sign & graphics industry faring in 2012 over 2011?

Catherine Monson, CEO, FastSigns: From talking with our friends in the industry, both franchise and independent, as well as our vendors and the industry associations and trade publications, we understand that our industry is off to a better start than 2011; however, the industry is still not at our pre-recession performance numbers.

Ray Palmer, Jr., president and CEO, Signs By Tomorrow: Although we cannot speak on behalf of the entire segment, all indications point to increased same center revenues across all brands within the signs and graphics industry.

Steve White, COO, Allegra Network: Based on the conversations I have had with executives from the other sign and graphics franchises, it would appear that we are all doing well. It sounds like the first quarter of 2012 has been the best sales growth period since before the Great Recession. I believe the franchise segment of the sign and graphics industry was able to withstand the recession better than many because of the strength of our systems and programs.

2. How is your franchise faring in 2012 over 2011?

Monson: 2012 is off to a very strong start. FASTSIGNS has experienced eight consecutive months of double digit same center sales growth. This is partly due to the slightly improving economy, but more so the result of the prior years' efforts to differentiate ourselves from the competition, increase the number of outside salespeople in our outside sales program, and broaden our products and services. That effort is showing results in new customers every day. FASTSIGNS also invests in national marketing, including television, which has a direct impact on web traffic and center sales. The FASTSIGNS Undercover Boss episode aired May 4 and we have experienced an immediate increase in web traffic, calls, new customers and sales growth. Our new brand positioning of "More than fast. More than signs" is resonating with customers and prospects. We are also experiencing a very strong year in franchise sales, domestic and international, both with new centers and with conversions.

Palmer: Signs By Tomorrow is experiencing a strong 1st quarter. This growth is attributed to pent-up demand, warmer weather across the country, and the expansion of our products and services due to advancements in technology and materials.

White: We saw a return to sales growth at Signs Now at the end of 2009 and have experienced steady sales growth since that point. This trend has continued into 2012 with good growth through the first quarter. We fully expect 2012 to be our best year ever.

3. What technological changes and developments have helped to move the industry forward?

Monson: Latex printers, flatbed printers and contour cutting have broadened the service offering and improved efficiency. Workflow efficiencies and electronic communications with customers including online proofing and job status reporting have helped suppliers better engage with customers. In addition, Integrating bar codes such as “QR codes” into traditional static signage that take the user to mobile web sites has increased the value add proposition.

Palmer: The continued improvements to print technology and the introduction of new materials are the keys to our industry expansion and growth. The introduction of latex print technology and the ability to print on fabrics has assisted us in providing our clients with greener yet sophisticated graphics solutions.

White: Over the last decade, CNC routers have put three dimensional sign production within the reach of many smaller operators. Laser engravers have also greatly expanded the boundaries of products and substrates that can be successfully engraved. Large format printers, along with their ink sets and substrates have steadily improved in efficiency, image quality and reliability. It’s now possible to put graphics on virtually any surface you can imagine; from under-ice hockey rink signage to accurately printed company logos on the tops of cupcakes.

Additionally, the advent of environmentally friendly latex ink printing technology makes it possible to produce effective indoor and outdoor signs and graphics products with little or no pollution using materials that can be recycled.

4. What market segments / niches / technologies do you think will have the biggest growth in 2012?

Monson: Digital signage is one of the biggest growth opportunities as our customers look for new, innovative solutions to more effectively communicate with their customers and prospects. Having a wide range of digital solutions is required to cover the broad base of customer needs from simpler "plug and play" to fully interactive digital signage. We also see opportunities in textile printing as customers move away from petroleum based products (vinyl) to a greener and lighter-weight materials; the savvy sign and graphics provider will offer these solutions to customers proactively. A third area of growth is in the area of direct to rigid substrate printing with contour cutting and finishing for the point of sale market segment. We continue to see opportunity in point-of-sale materials, event marketing, and fleet graphics. Through effective outside sales efforts, these areas will deliver the most significant growth.

Palmer: Flatbeds, routers and cutters have really made an impact within our system and our Franchisees continue to invest in these technologies to expand their product mix and increase efficiencies.

White: We see growth opportunities in many areas but are especially excited about the increase we see in the areas of point-of-purchase (POP) and building graphics.

With regard to (POP), we know that good graphics at the in retail businesses make a tremendous impact on product sales. The marketing spend for the graphics we produce is a bargain when compared to the cost of advertising. As the pressure to produce higher sales with fewer dollars increases marketers are quickly becoming aware of this.

As far as graphics for buildings, we see the need for good wayfinding systems increasing every day. Those who operate facilities required to comply with the Americans With Disabilities Act (ADA) are forced to move in this direction, but we also see a wide variety of other facilities embracing them as a better, more efficient way of directing people to where they need to be.

5. What are the primary business concerns for franchises in the sign & graphics market?

Monson: We believe the concerns are the same for both franchise and independent sign and graphics business owners. Consistent, profitable sales growth is the primary concern. At FASTSIGNS, we have been experiencing double digit growth for 8 months, but with uncertainty in the economy—especially with the election just around the corner—there is concern whether this double-digit growth will continue. Rising substrate and other costs and continued pricing pressure puts pressure on margins. Other related industries continue to add signage to their offering to broaden their product and services. Some products, such as banners, can become commoditized. The traditional suppliers in the sign and graphics market need to promote the value of design and solution-based offerings. We believe that FASTSIGNS has been successful in building solution-based selling processes that incorporate a wide range of products and services that add value to the customer, helping ameliorate margin pressures.

Palmer: The continued recovery and growth of the economy will remain a concern for the signs and graphics market. Until the credit markets stabilize, Franchises and Franchisees will continue to face the challenges of securing capital for future expansion.

White: Our number one priority is to provide great value to our customers. We believe we need to stay close to them and work hard to understand their needs. We are working diligently to help our franchise members determine the needs of their customers before the customers themselves do. By recognizing what clients really need, our franchise members can recommend innovative, cost effective solutions that help them achieve their goals.

6. What is the biggest issue facing the franchises in the sign & graphics industry right now and how do you think it should be addressed?

Monson: I have a difficult time identifying just one "biggest issue" facing our industry. I think there are a few. Certainly the economy is a concern; the uncertainty of the eurozone and what impact it could have on our financial markets, the upcoming election, and our country's continued debt problem all have the potential to negatively affect our still fragile economic recovery. Tax uncertainty makes planning difficult. The increasing burden of new government mandates, government regulations, and the new health care law are concerning to all business owners. As far as how do we address them: each business owner needs to remember the lessons of 2009: manage cash and expenses, proactively build sales, and maintain a healthy quick ratio.

Palmer: Properly conveying our breadth of products and services to the marketplace continues to be a challenge. In order to be successful the signs and graphics industry must embrace a proactive consultative sales approach to business rather than a retail product oriented reactive position.

White: The biggest issue we all face is running a great business in this economic climate. When I say running a great business, I refer to being a company that delivers great product and service in a way that yields sufficient financial results to improve the lifestyle of our franchisees and enable them to reinvest in the continued growth of their businesses. This is the ultimate goal

Yet, we are faced with the challenge of doing this all on our own. There have been no bailouts for small business. Nobody has done anything to improve access to capital that small business owners need to expand and grow. We are finding ways to accomplish our goals but frankly we’re disappointed that small business has not been a higher priority for our elected officials.