2012 State of the Industry Report: Fundamental Market Shifts Underway

This isn’t your father’s sign and graphics industry anymore. Thanks to the recession in 2008, there has been a fundamental change in the way we do business. Old sales models don’t work and new sales models are still in flux. Some printing markets have been commoditized, leaving very small—if any—profits remaining for PSPs. Additionally, the recession has “removed the slack” according to Rick Moore, marketing director, MACtac Graphic Products. PSPs have been forced to be “leaner and meaner”, managing waste and headcount much closer than ever before.

Additionally, the recession has altered the landscape when it comes to the number of companies still doing business in the printing industry. According to a recent NAPL printing industry annual study, we’ve seen a decline from 30,230 US printing establishments in 2008 to 27,285 in 2011. This number, of course, also includes wide-format shops. “The consolidation of print shops is creating a dynamic where there are fewer customers, but those who are remaining are larger, and have greater purchasing power,” says Steve Bennett, vice president, digital finishing business, Esko.

But is it all doom and gloom? On the contrary, experts are very positive about industry growth—and for good reason. According to a recent survey by InfoTrends, Wide-Format Imaging, and Cygnus Business Media, things are looking much better than they have in a long time. “Dealers are reporting that they expect their wide-format business to grow an average of 14.8 percent, while manufacturers are expecting 6.2 percent growth in their wide-format business,” says Tim Greene, director, wide-format, InfoTrends. “Print service providers are expecting right around 14 percent as well, so the numbers look strong, which I think is because people that buy advertising recognize the value of wide-format signage and graphics as an effective advertising medium.”

“The overall sign & display market is performing solidly, growing versus last year, and certainly recovering since the recession,” says Xavier Garcia, vice president and general manager, HP Scitex Industrial Presses, Large Format Printing Division. “Although there are still many macro-economic uncertainties and currency is impacting companies with global businesses, the digital printing industry continues to grow.”

“Based on the activity we see from some of our largest customers, it appears that this industry is faring quite well considering the current economic challenges,” says Brian Phipps, general manager, Mutoh America. “The downturn in the economy that happened four years ago definitely effected the market negatively, but over the past few years we have seen some steady progress and healthy indicators within this group. The ability to enhance the digital or electronic sign market with printed graphics is also something many of the traditional sign shops have begun to incorporate into their business. It is a great way to capture the entire opportunity with some of the major venues and their signage and display needs.”


Where Do We Stand?

Considering the economic conditions, the market as a whole is doing reasonably well—better than most other print segments—and it is growing rather than shrinking.

“The heyday of the past was, in part, fueled by an unlimited flow of credit, and we will probably never see that again in our lifetimes—and that’s a good thing,” says Pat Ryan, general manager, Seiko Instruments USA - Infotech Division. “It supported unsustainable business models and created a false sense of success in many business management circles. Today’s market is more grounded in the fundamentals of business success—with a clear focus on serving customer needs and investing more carefully in capital equipment and personnel resources.”

Uncertainty, though, is still evident, even among the positive indicators. Business owners in this segment are very close to their customers. They know their customers well and watch their income and expenses carefully, but many will not invest or expand if they are unsure about the future. “Business owners typically want predictability and if they do not know what the future may hold with healthcare, taxes, ITC rollbacks, and other variables, they will be careful,” says Esko’s Bennett.

But are pre-recession numbers possible? According to MACtac’s Moore, it depends on how you frame the conversation. “Generally speaking, the recession took 20 to 25 percent of the volume out of sales numbers, transcending different industries. Some segments of the industry will never return to those numbers, while others have already surpassed that benchmark.”

According to Catherine Monson, CEO, FASTSIGNS International, it has already achieved 2007 levels as of July 2012 in regard to network sales (last 12 month total), and will exceed 2007 levels in regard to network sales at year end. In regard to average unit volume, Monson forecasts that it will achieve the 2007 level by the end of 2012.

Tom Trutna, president, BIG INK Display Graphics, also reports that his company will exceed its pre-recession sales this year. “It’s tough to know what changes are a result of the recession vs. long-term changes to our industry,” he says

You can “never say never,” according to Michael Robertson, CEO, SGIA, in regard to reaching pre-recession sales numbers. “I believe we will, but it’ll take time and new technology creating new opportunity in the marketplace.”

ISA’s president, Lori Anderson, is equally optimistic—but offered an important caveat. “I anticipate that we’ll see those sales numbers again, especially for companies that have been willing to ask the hard questions about their business operations, make the necessary changes, and take advantages of opportunities that are presented. Technology is driving additional change, which I see as only providing more opportunities for the sign industry.”

But that begs the questions: what technology is driving change and how is it happening?

The industry is in the midst of two key paradigm shifts, according to Seiko’s Ryan: the move to digital from traditional analog processes, and the expansion into other related industries that need the same types of products. “A perfect example is digitally printed vinyl graphics that replaced a lot of hand painted, cut vinyl, and screenprinted graphics. Then digital printing expanded into replacing paint in the fleet graphics and custom car business,” says Ryan.

HP’s Garcia offers some insight into where the growth is coming from. “Our estimations say that the digital sign and display market will grow 12 percent in terms of printed pages in 2012, achieving higher growth rates than in 2011 and demonstrating recovery in the industry.”


Market Opportunities, Emerging Markets

Digital technologies are creating opportunities and new potential revenue streams for PSPs. Digital imaging—which is ideally suited for short-run customization—and current market conditions have pushed print buyers to focus more on customization. As a result, we’ve seen increased demand for shorter runs, with the total number of daily jobs increasing and numbers of job copies decreasing; faster campaign turnaround time; and personalization and variable information including QR codes, variable maps, and B2C opportunities.

Because of digital technologies, there is strong movement in the analog to digital conversion as more applications, including emerging markets such as decoration and packaging, are printed digitally. “Technology is always a strong point in our industry, but what has helped bring the industry to its point now is more the clients need to differentiate themselves from the competition,” says Heidi Hall, marketing director, Ferrari Color.

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 was digital signage. “Hands down, I think the biggest growth market will be dynamic digital signage,” says ISA’s Anderson. “If our customers aren’t asking about it yet, they will be soon. We see really interesting possibilities for static sign companies to add this component to their business, to partner with others, or to sub-contract it out. Because dynamic digital signage uses a different method of delivery than we’re accustomed to, some in our industry have been cautious about diving in. But truly, this is just another form of signage, and our industry is top-notch when it comes to using signs as communication.”

Textiles and fabric, according to experts, were next in line when it came to picking growth markets in 2013. According to Ray Palmer, president, Signs By Tomorrow, this market “is still showing signs of growth due to the newness and sophistication of the products.”

Mutoh’s Phipps concurs. “I would keep an eye on the textile market and dye-sublimation applications as the market with the largest potential for growth in the coming years. The ability to print on demand soft signage and apparel is huge, and with new printers being introduced into this market at an affordable price point, growth will be rapid. Especially as more and more users adopt this technology and incorporate it into their business.”

Textile and fabric printing is also closely tied into the interior decoration market. From wallpaper to upholstery, customization is the key and digital technologies are up to the task. The interior decor market, according to Neil Felton, managing director, FESPA, was one of the top areas printers were looking to move into in 2012 when FESPA surveyed them for the Economy Survey.

According to HP’s Garcia, the retail and point of purchase segments are the fastest growing areas already in 2012 and are growing at a trajectory that is very likely to continue in 2013. “These segments represent more than 60 percent of the total sign and display print volume, but only 15 percent of is currently printed digitally,” says Garcia. “This means that the potential for these high-value pages to convert from analog to digital is high and growing due to increased demand for shorter runs, faster turnaround times, personalization, and reduced environmental impact.”

Packaging also has a huge opportunity to convert high-value pages from analog to digital. “As brand owners look at packaging more closely as a critical communication channel with end users, they are searching for creative ways to personalize, customize, and version by customer segment. The ability to produce short-run promotional campaigns, private label brands, and quick and changing messages to the market is appealing in today’s competitive and fast paced retail environment,” says Garcia.

“I think we’ll see opportunities for success in virtually all the markets,” says SGIA’s Robertson. “The real question is which companies will be successful in those markets. In other words, the competition within the various markets is increasing. The better managed companies will stand out. I think it will take a bit more effort to be successful, at least for awhile.”


Challenges Moving Forward

While the outlook may look positive, however, we may not want to kick back and relax. While growth is forecast, there are still several bumps along the road that could impede smooth sailing through the end of 2012 and into 2013.

One of the bigger issues in regards to technology is continuing to manage change and keep up with the ever-changing breadth of products and technology. Deciding when to upgrade and choosing the right equipment can be a challenge, especially when new printers are continuously added to the equipment roster with more and better inks, faster speeds, wider and—in some cases—narrower widths, coating options…the list goes on and on.

How do we manage this kind of change? “I think the best way that all of us in the industry can address these concerns is to continue to educate ourselves by reading industry news and attending industry trade shows regularly. These resources can help us to stay current,” says Jerry Hill, vice president of sales and marketing, Drytac Corporation.

Standards are also becoming a larger and larger issue in the market. “Good enough” color is no longer good enough. Customers are demanding that colors match across multiple platforms, technologies, and brands.

“Standards are a big issue, especially when it comes to blending with the rest of the graphic arts industry,” says Joseph Mergui, CEO, Caldera. “One way to address that point about how to approach color between the analog and digital printing industry would possibly be through G7 and ISO. Both are very good and articulated answers to that matter.”

But even more than color standards are needed, as MACtac’s Moore points out. Right now there is no set of universal standards that are driven independently with regard to consumable materials and applications. “The creativity that drives the sign and graphics market must remain on the front end of the campaign. However, there needs to be more rigor around industry best practices driven by a vested, independent third party; not manufacturers and printers,” says Moore. “You will see articles related to principles and best practices that everyone would agree to, but someday, for example, you should be able to see the industry specification for installing a window film with wet application.”

Regulations, too, pose another hurdle for shops. “This can be anything from getting a sign permit to install a sign down the street all the way to the halls of Congress, where a bill may be passed that adds cost to small businesses. Then add in keeping up with regulatory and code-making bodies. These issues have a tremendous effect on the day-to-day operations of sign companies,” says ISA’s Anderson.

In addition to government regulation, an area that we all need to watch is the potential lack of an educated workforce. “We’re in the beginning stages of shortages, which seems odd to say when unemployment has remained as high as it has for as long as it has,” continues Anderson. “But the shortage comes from finding trained and skilled employees. This is affecting all segments of manufacturing and our industry is not immune. It is becoming increasingly important for the sign industry to develop and train its own workforce. We no longer can rely on workers to come in our doors ready to go to work. An added challenge is the technology that is changing our industry. Workers must be trained to keep up. And the economic downturn proved that workers must be able to handle multiple tasks, which also requires training. This will require a commitment on the part of employers going forward.”

Margins, commoditization, and increased competition continue to be top of mind as we move into the end of 2012 and into 2013. Today, the vast majority of the sign and display market is still using analog equipment and competing based on pricing, which is driving revenues and margins down. As a result, print service providers are struggling to grow their businesses and maintain profitability.

“Digital imaging has leveled the playing field in terms of image quality. Because of commoditization, profitability becomes a challenge. Margins are tight,” says Robertson. “Sign and graphics companies need to find value points, in addition to imaging, in order to stand out from the crowd and win business. The successful businesses are redefining their role in the marketplace.”

“As an industry, our focus should be on selling value and purpose rather than selling on price,” says Ray Palmer, president, Signs By Tomorrow.

“Constraining costs and improving profit is probably at the forefront of everyone’s mind,” says Jim “JT” Tatem, president, SIGNARAMA. “Obviously, sales have to come first. That’s the hallmark of any successful business. After that, being able to maintain profit levels by reducing expense and becoming more efficient has to be front of mind. Competition is also growing with products being imported from China and other countries. It’s also apparent that some staple products have become more commoditized. That means profits are eroding, and in some product lines it has become a price war.”

“Our industry is already beginning to compete with lithographers and screen printers. These companies are very good at what they do, and because they work in an industry that has seen much consolidation, they truly know the meaning of efficiency,” says Gary Schellerer, vice president of operations, Bloomingdale Signs by Tomorrow. “This type of competition will force our industry to take a hard look at the inner workings of our business from a standpoint of efficient workflows.”

“Addressing the issue of price competition requires some fundamental changes in how companies do business,” says InfoTrends’ Greene. “If you are a shop that gets the majority of your business by responding to RFPs then you are always going to be price-shopped, that is simple. The key is to work with client companies at a higher level, where you will be offering your expertise as a signage and graphics supplier but also as a service provider, a design consultant, an installation expert, a materials advisor. Working with clients at a higher level should make you stand apart and above the price-shopped print-only company.”

“Printers need to assert themselves and become more competitive, continually looking for new opportunities and ways to add customer value. They should be aiming to move out of commodity markets,” says FESPA’s Felton. “The areas in which printers judged themselves before—i.e.: quality, speed, service—are all a given in today’s market. Printers need to do things differently to really stand out. They need to help their customers by offering innovative solutions that go beyond print to help them meet their business objectives. Understanding what your customers need so that you can deliver a quality product is crucial. It’s not enough just to do as you always did; you have to see things from the customer’s perspective.”

“The digital print transformation is unstoppable,” says HP’s Garcia. The market will continue shifting analog pages to digital, moving to very short runs and niche applications and mass personalization. B2C Web-to-print offerings will continue to grow as wide-format continues its march toward mainstream. But one question remains: are you prepared to change and move with it?