Commercial Printing Outlook : Bootstrap Time for Printers

When the late, great President John F. Kennedy uttered the famous phrase, "Ask not what your country can do for you, ask what you can do for your country," little did he realize how prophetic and timeless his statement would be. More than 50 years later, the U.S. government can't make up its mind whether it intends to help the populace or stay out of the way and let the natural machinations of capitalism grind out a better future.

Americans have become frustrated with Congress' inability to do anything more than portray the opposing party as a hindrance to economic recovery and prosperity. It's evident that senators and house members alike are keenly aware of this reputation. The most recent election reflected this; it was nearly impossible to identify party affiliation during the campaign, as signage, literature and advertising seemed to be missing elephants and donkeys. Candidates didn't want to be seen as being one of "them."

The country isn't likely to do anything for you at the moment, except coerce you into purchasing health care coverage from an ineffectual online system that, at press time, was promised to be fully functioning at the end of November. Observers pointed out that there was no reason the online insurance purchasing interface could not be as streamlined and effective as those of, say, Amazon or eBay…it took more than 10 years of tweaking and honing for those online behemoths getting to where they are today.

What Congress and the Obama Administration seem intent on delivering can be found at your local home improvement center: tape and spackling. Washington's version of the Punt, Pass and Kick competition offers fixes and temporary solutions to an operating government, as opposed to budgets and long-term game plans. Postmaster General Patrick Donahoe might as well wait for Godot while he's anticipating postal reform; even bipartisan support for an overhaul can't bring a bill to the mark-up stage.

Economy Continues Drag

In short, the economy is largely on its own. It is still recovering very slowly, and the final numbers for 2013 should see it posting less than 2 percent Gross Domestic Product (GDP) growth, notes Dr. Ronnie Davis, senior vice president and chief economist at Printing Industries of America (PIA). His office measured $156 billion in printing-related activities for 2012, and it took a strong second half in 2013 for the printing industry to reach that same level.

From a 2014 standpoint, Davis is a bit more optimistic, projecting 2.5 percent growth for the U.S. economy. He sees more positive sentiment from the business and consumer ends than witnessed in '13 and, as the recession becomes smaller and smaller in the rearview mirror, the confidence should continue to grow.

"One wild card is the issue of the global economy and how it could impact things," Davis says. "The good news—energy development is a positive for the U.S. economy, and that's certainly pushing the numbers up."

While Davis cautions that the United States is in what he calls a mature economic recovery, he believes the stabilized recovery should help yield about 1 percent growth for the printing industry, adding $1.5 billion in terms of nominal printing sales. The printing industry is like the car at the very end of a long traffic jam; although the economy has been plodding along slowly for the past few years, movement for the printing industry comes much later.

"The $1.5 billion in nominal print doesn't mean gravy time for printers because it's going to remain very competitive," Davis points out. "They're still going to fight for sales and market share, with new business models focused on integrated print. With continued restructuring in terms of the decline in the number of printing establishments, we'll still see some drop (in total companies).

"We have seen printers' profits improving the past few years since we bottomed out in the recession. I look for printers' margins to improve marginally. About 25 percent of printers make solid profits, and 75 percent operate basically on a break-even basis."

Davis sees the most profitable of segments being what he calls print logistics—labels, wrappers, packaging—reaping a 3 percent increase for 2014. Marketing print and promotional printing (direct marketing, direct mail and catalogs) project a 1 percent rise, while communication printing—books, magazines and newspapers—could fall between 2 percent and 3 percent.

Growth for GDP

Andy Paparozzi, vice president and chief economist of the National Association for Printing Leadership (NAPL), notes that the 2013 Blue Chip Economic Indicators consensus (through Oct. 10) expects GDP to grow 1.6 percent in 2013. The NAPL forecasts total commercial printing sales—all sources, not just printing—to grow slightly, at 0.5 percent to 1 percent for 2013, in the same neighborhood as 2012's 0.6 percent rise. Paparozzi says that level is still far shy (20 percent behind) of the pre-Great Recession level of 2007, as well as the all-time high of 22 percent in the year 2000.

Moving forward, the Blue Chip consensus expects GDP to reach 2.6 percent in 2014, which is still below the economy's average annual growth of 3.2 percent for the 10 years prior to the recession. Overall, Paparozzi doesn't expect the economy to provide any more help in 2014 than it did this year.

"Pressure on prices and margins will continue because, despite record consolidation, our industry is getting more competitive, not less competitive, as the Internet and digitization let everyone into everyone else's business," he says. "The single most important factor for everyone in our industry is not what the economy or industry at large is going to do, but rather what are you going to do to create your own recovery? What are you doing to become more competitive? More efficient? More valuable to your best clients?"

While Paparozzi sees the U.S. economy healing at a maddeningly lethargic and inconsistent pace, he does anticipate it continuing down the recovery path in 2014. One positive aspect revealed in the "NAPL State of the Industry" reports is that printers are taking an assertive stance at the ownership level to ensure they are making every effort to evolve and prosper.

"During periods of uncertainty the tendency is to wait for clarity," he contends. "The opportunity is to create our own clarity."

In creating their own clarity, Paparozzi notes that printers have undertaken a number of initiatives to maximize their own value, as well as the relationships with their clients. Some steps include:

• Establishing themselves as experts. In a world of shrinking margins for error, clients and prospects look for the expert who can get it right the first time.
• Documenting their contributions to the customer's success. It isn't enough just to understand the client's problem and solve the problem. Printers also have to document their contribution to that client's success—i.e., how much money have they saved the customer? How much time? How much has the printer increased traffic to the client's Website or the return on their direct mail campaign?
• Identifying the most valuable customers, so that printers can spend more time with them and less with marginal clients.
• Defining competitive advantage precisely and in terms that are most meaningful to the target market. For example, competitive advantage isn't "great customer service," it's having 80 percent of clients recommending your company to a colleague and 40 percent of your business coming from customer referrals.

Remember, ask what you can do for your company. PI