HOT MARKETS AT MID-YEAR — ECONOMIC DEFICIT DISORDER

THE ECONOMY is irration-ally exuberant. Consumers are borrowing and spending in advance of expected higher prices, and businesses are robustly investing in both productivity (read “down-sizing”) and market development. This year is on track for nominal GDP growth of 6.5 percent, with printing sales up more than 5 percent.

As economic power concentrates, nearly half the power of print will coalesce into finance, publishing, health and technology (nine of the top 25 demand sectors). Salespeople: focus below and cash in.

Banking and Insurance ($2.9T in revenues; with over $15B to print, +8 percent) is the biggest buyer and beneficiary of print. Sub-prime lenders and direct insurers are nearly doubling mail drops to $4B and print ads to $0.7B. Revenue leaders tell the results: Capital One (+38 percent), The Hartford (+27 percent) and MetLife (+16 percent). Regional banks (+14 percent) continue to merge and, along with the rest of the sector, are acquiring digital/business forms ($4.7B) and outdoor/point-of-sale ($2.3B).

Related at #11 is Investment Brokerage ($839B in revenues; with over $8B to print, +6 percent), the second fastest growing sector at 26 percent. Goldman Sachs (+60 percent) and both Morgan Stanley and Merrill Lynch (+28 percent) are setting year-to-year records as their second-tier participants lose share.

The soaring Dow and searing spate of M&As, including those of the exchanges, are setting records for digital printing and commercial web and sheetfed: $5.2B is the yield.

Within publishing, health and technology, printing is selectively robust by segment. In #2-ranked Publishing ($106B in revenues; with $14B to print, +2 percent), professional and educational books lead the sector at 8 percent. McGraw Hill (+26 percent) and Scholastic (+17 percent) are the bestsellers as federal spending and state adoptions increase.

Periodicals ($46B; with $7B to print, -6 percent) are shrinking in titles and run lengths. The USPS, however, which mails about one-half of all periodicals, reported equal weight through March. More ad pages! But don’t be content; new non-traditional publishing (+17 percent) must be developed by full-web printers ASAP.

Medical Products/Pharmaceuticals ($360B in revenues; with $12.3B to print, +8 percent) and Healthcare ($>2T; with $7.5B to print, +35 percent) are, respectively, #3 and #16 as buyers. Write the sales prescription: packaging ($7B), as well as digital and other commercial ($>5B each). Taking on healthy living is #17, Personal Care ($302B; with $5.7B to print, +5 percent). Hygiene and sanitary products (+24 percent) lead the sector with heightened fears of contamination and an impending pandemic.

Sales to hair, skin and suncare (+23 percent) categories are marketing to the aging population. Slow in growth, but one-half the sector spend, are color cosmetics, toiletries and fragrances (+7 percent). Deluxe packaging, POP/POS, scratch-off bound inserts and other mostly sheetfed printing could account for nearly $6B in sales.

In tech, Computer Software ($315B; with $10.4B to print, +4 percent), Telecom Equipment/Services ($989B; with $10.1B to print, +3 percent) and Consumer Electronics ($690B; with $4.3B to print, +9 percent) are ranked #5, #6 and #20, sequentially, in print demand.

Hosting/information (+14 percent) is slowing as Google (+86 percent) and Yahoo! (+39 percent) can’t continue their meteoric rise. Print sales to this segment should include catalogs and magalogs, direct mail and loyalty programs.

No surprise, Energy ($>2.4T; with $2.7B to print, 0 percent) is the hottest sector, but low-octane in print spend, tied at #25 with Government/Federal and State. Petroleum (+21 percent), with after-tax profits at 8 to 12 percent of revenues, needs zero advertising, except to assuage the wrath of consumers.

Pain at the pump has, curiously, not yet curbed consumer spending for other commodities. In fact, “now-or-never” anticipatory purchasing (or denial) is rampant in three areas. Foremost is Fashion ($450B; with $8.5B to print, +7 percent) at #10, dressing up in luxury accessories (+10 percent) and jewelry (+17 percent).

Clothing, footwear, intimate apparel and hosiery (+3 percent) aren’t wearing well for lack of investment value. Printed color catalogs, spectaculars and ROP will be a la mode on heatset web and sheetfed presses during the next few months, along with theme retail signage for digital and screen shops, sizing up to $5B.

The other two contrarians are #21 Food Service ($614B; with $4.1B to print, +5 percent) growing revenues at more than twice the rate of #7 Packaged Foods ($649B; with $9.9B to print, +16 percent).

Push-through packaging is getting more enticing, and pull-through merchandising more aggressive. FSIs, coupons, in-store, outdoor and direct mail promotions of home delivery and themed events will combine shopping with energy savings, nutrition, environment and anything imaginable that multiplies perceptions of value. Look to Whole Foods Market (+28 percent) as the model.

Beverages ($330B; with $8.8B to print, +5 percent) are mixed drinks at #8. As the population ages, wines and spirits (+48 percent) are bubbling while dairy products (-8 percent) are spoiling. Both categories, remarkably, are in preconsolidation and are thirsty for print media to build their brands now for buyouts later. The best, big marketers in-between are Molson Coors (+23 percent) in beers and malts (+5 percent), Starbucks (+22 percent) in coffees, as well as Pepsico (+10 percent) and Coca Cola (+9 percent) in soft drinks (+5 percent).

The second and third well-positioned sectors, but declining in print, are #16 Discount Retail ($1T; with $5.6B to print, -25 percent) and #22 Gambling/Wagering ($436B; with $3.5B to print, -2 percent). Most print salespeople and managements, regrettably, are no match for the procurement acumen in these sectors. Don’t bother trying to sell them unless you have previous experience in these sectors.

Oppositely, two other discretionaries facing impaired consumer spending will buy more print: #15 Travel/Hospitality ($699B; with $5.7B to print, +2 percent), and #18 Entertainment ($646B; with $4.7B to print, +9 percent). Along with #19 Leisure Activity ($186B; with $4.5B to print, -8 percent), heatset web and large-format sheetfed/digital work will reach nearly $8B, principally in bind-in inserts, outdoor, POP/POS, mini-catalogs, FSIs and loyalty programs.

Wrong are the economists. Home-owners are continuing to buy, sell and upgrade because it’s their only common investment option. And, after fixing up primary residences, some one-fifth are buying condos (+29 percent) or other second properties, especially among those “baby-boomers” who have recreation and retirement in mind.

Therefore, #4 Real Estate ($1.9T; with $11.9B to print, +19 percent) and #14 Home Improvements ($908B; with $7.5B to print, 0 percent) are purchasing some $4.6B worth of business forms/digital sheets, $3.3B of catalogs/directories and $3.1B of POS/outdoor. Hurricanes, past-year and predicted, have prompted the recent settlement of the softwood lumber dispute with Canada.

In the driveway, though, there’s lesser interest in improvement. Automotive ($1.7T; with $8.4B to print, +4 percent), at #9, is idle in both print and sector revenues. The only growth segment is finance and insurance (+5 percent), though off-road vehicles (-18 percent) are coming back, notably in construction and farm machinery. Business forms, dealer signage, brochures, instruction and parts manuals (in multiple languages), decals and other OEM items are immediate sales opportunities.

The politics of fear are dreadful enough, but #25 Federal/State Governments ($4.3T; with $2.9B to print; -20 percent) are scarier. Many states are running deficits, and Congress has raised the federal public debt “ceiling” to more than $10T at over 75 percent of GDP. Worse, it is spending the borrowing “power” this fiscal year.

There’s no provision for covering entitlements as the baby-boomers retire, and all social costs are rising. GPO and other government procurement of printing are slashed, and electronic alternatives are being mandated. Education (+17 percent), though, is benefitting book manufacturers through ambitious programs like “No Child Left Behind” and new initiatives in math and science.

Defense and homeland (+11 percent) is no longer print-intensive, but its private sector equivalent is. Ranked #13, Security ($480B; with $7.5B to print, -8 percent) is tight, sales-wise, but is improving with imminent scientific applications. Nanotechnology and biometrics are finding their way to smart (and clean) pressrooms and binderies. Product and personal identification (+20 percent) will be over this sector’s print spend by 2007. Got UV?

Higher Education ($123B in revenues; with $3.1B to print, +7 percent) gets good grades at #23 for sheetfed, screen and digital work as cultural and athletic events (+18 percent) overshadow spending toward tuition (+11 percent) and development (+4 percent). While public and private institutions are cheering for their teams, however, alternative and proprietary education (+21 percent) are stealing market share by using intensive outdoor, direct mail and FSI advertising. Get the salespeople off-campus and into for-profit education.

Finally, at #24, is Religion/Charity ($358B; with $3.0B to print, +4 percent). Revenues are down 2 percent after two successive years of disaster-related situational giving and huge, one-time donations by philanthropists. Worst off and, therefore, the best prospects for direct mail and intercept programs are environment (-36 percent), society benefit (-28 percent), arts and culture (-21 percent) and human service/education (-16 percent). Religion (-6 percent) continues as the most blessed, collecting nearly 60 percent of all giving.

On a sacred note, make the “25 Hot Markets” your selling bible. Pro-rate business development resources according to the presence of each sector and category in your region. Take a census if you can’t find one, or refer to the “Hot Markets” supply-to-demand statistics, available free at your trade association.

About the Author
Vincent Mallardi, C.M.C., is a printing forecaster and presenter at major industry meetings. He has also been the author of “Hot Markets” for the past 26 years. “Hot Markets 2006-2007” is available to new subscribers by calling (877) 585-7141 or e-mailing vince@pbba.org. PRINTING IMPRESSIONS publishes quarterly summaries of “Hot Markets.”