|
|
Reality Check: Do 2008 Sales Indicate The New Normal?
By: Rick Ebel, Saritha Kuruvilla and Richard Alan Nelson, Ph.D.
Issue: 2009jun
Last spring when the economy still looked flush, six out of 10 U.S. distributors told us they expected their 2008 sales to be better than the previous year. For the industry as a whole, it didn’t quite turn out that way.
In our annual survey to develop PPAI’s 2008 Estimate of Distributor Sales, responses from member and nonmember distributor companies projected across the entire distributor population totaled $18,101,298,808 in promotional products revenue for the year.
While this number is still a nice volume of business, it is, nevertheless, 6.89 percent—or about $1.34 billion—less than the sales figure reported for 2007. However, put in context, 2008 sales are the third highest on record. Only sales in 2006 and 2007 were higher.
Bigger Isn’t Always Better
Companies in the large-distributor bracket with sales of $2.5 million and more took the biggest hit last year, according to the survey. Posting $8,048,909,308 in sales, this group was down 13.8 percent over 2007 and its market share was down as well, to 44.5 percent.
The smaller-company segment managed production of $10,052,389,500 for a slight slippage of less than half a percentage point. However, there were more small distributors out there last year to split up the revenue pie—21,500 vs. 20,500 in 2007. Consequently, the sales mean for distributors in this category dropped from $492,575 in 2007 to $467,553.
For distributors interested in comparing their progress against others in the industry, know the following: The median for all distributors doing between $50,000 and $2.5 million in sales was $250,000 (which excludes the 350 distributors doing less than $50,000). The median, the point where half the distributors are doing more, half less, was $275,000 in 2007.
Trends Behind The Numbers
Probably few industry pros are shocked and awed by the industry’s case of prosperity interruptus. The signs were all there, underscored by the January epitaph of Cyrk Inc., which only a few years ago was the industry’s largest distributor.
Mike Hohenwald’s firm, Spartan Promotional Products (UPIC: SPAR0001), managed to stay even last year, but he says he’s heard a lot of dire estimates from others. It doesn’t seem to matter whether companies specialize in orders from the marketing department or human resources, “Sales are down for a variety of reasons,” Hohenwald declares. In addition to the sour economy, distributors have also been affected by, among other things, regional natural disasters and plummeting pharmaceutical sales, compliments of the Pharmaceutical Research and Manufacturers of America’s voluntary restraints on buying promotional products. (And don’t forget the 18.4-percent reduction in overall ad budgets among pharma companies last year.)
Table 1: Five-Year Industry Performance |
2004 | $17,311,730,376 | 2005 | $18,013,763,752 | 2006 | $18,779,654,661 | 2007 | $19,440,837,547 | 2008 | $18,101,298,808 |
Table 2: U.S. Mega Distributor ($20 Million Plus) Performance |
| Difference 2007-2008 | No. Of Distributors | | Sales Increase | 11 | | Flat | 4 | | Sales Decrease | 20 | | *Numbers do not include distributors gaining sales via acquisitions/mergers or consolidations. |
Many distributors are engaged in activities outside of promotional products. In 2008, this extraneous business accounted for about a quarter (24.3 percent) of revenues for the small-company group.
Although distributor sales declined last year, the volume of business these firms placed with non-industry suppliers rose significantly—12.6 percent to $3,243,752,746. “Non-industry” is defined as firms not listed with PPAI, ASI or SAGE|Quick Technologies. That particular statistic may be of interest to suppliers. Table 3 indicates some significant movement in external shopping by small distributors—steady for a few years and then boom!
Table 3: Five-Year Industry Performance |
| Distributor Size | 2004 | 2005 | 2006 | 2007 | 2008 | | Sales Under $2.5 Million | 9.3% | 9.4% | 11.3% | 8.7% | 17.9% | | Sales $2.5 Million Plus | 17.4% | 15.8% | 15.5% | 14.9% | 17.9% |
Distributors reporting 2008 business maintained the modestly upward trajectory of sales made online. The small-company cohort reported 14.9 percent of their sales came via the internet; for bigger firms that figure was 17.1 percent. Altogether, online business represents $2,878,046,304 of distributors’ revenue intake.
Table 4: Average Percent Of Online Sales |
| Distributor Size | 2004 | 2005 | 2006 | 2007 | 2008 | | Sales Under $2.5 Million | 10.0% | 10.4% | 13.6% | 13.2% | 14.9% | | Sales $2.5 Million Plus | 12.3% | 13.8% | 15.4% | 17.2% | 17.1% |
Although internet business is trending upward, many distributors see it as a useful accessory but not likely to become the dominant piece in a haute couture wardrobe.
“One thing that we are not looking at that we thought about was e-mail marketing, because I think people get too many e-mails—they just don’t read them,” opines Ellen Allentoff of Small Wonders (UPIC: SMAL0004). This thinking reflects her experience. Does she get a lot of supplier e-mails? “Too many,” she replies. “Most of them go into my spam filter. There is such a thing as too much information.”
Nevertheless, the importance of having a website and its companion, search engine optimization, in this or any other business should not be dismissed.
How Competing Media Performed
Distributors were not alone in their disappointment over 2008 earnings; other media shared in the bad news. As Table 5 indicates, most media failed to make their revenue projections. Newspapers (- 17.7 percent), radio (- 9.0 percent) and consumer magazines (- 7.8 percent) led the drop parade. Even event marketing and the new-media star, internet advertising, registered gains that were less than stellar. On the bright side, trouble for other media (particularly those with high investment costs) means new takeaway opportunities for proactive promotional products distributors.
Table 5: Assessment Of Expenditures For Selected Media And Methods |
| Media/Method | 2007 ($ 000) | 2008 ($ 000) | % Changed | | Direct Mail | 54,800,000 | 56,100,00 | 2.3 | | Television | 46,556,594 | 46,385,364 | -0.4 | | Newspaper (Print Only) | 42.209,000 | 34,740,000 | -17.7 | | Consumer Magazines | 25,501,793 | 23,652,018* | -7.8 | | Radio | 21,310,000 | 19,478,000 | -9.0 | | Promotional Products | 19,440,838 | 18,101,299 | -6.9 | | Point-Of-Purchase Advertising | 20,331,000 | 19,111,140 (est.) | -6.0 | | Event Marketing (Sponsorships) | 7,470,000 | 8,788,000 (est.) | 10.6 | | Cable TV | 24,100,000 | 26,600,000 | 9.9 | | Internet Advertising | 21,100,000 | 23,400,000 | 10.6 | | Yellow Pages | 14,300,000 | 13,227,750 | -7.5 | | FSI Coupons | 7,219,000 | 6,843,000 | -5.2 | | Out-Of-Home (Billboards) | 7,280,000 | 7,000,000 | -4.0 | | Business Magazines | 10,740,224,432 | 9,954,125,859 | -7.3 | | | | *Based on rate card revenues; however, magazine advertising sales were heavily discounted in 2008. | | | Expenditures for selected advertising media and promotions methods were compiled for Promotional Products Association International by Richard Alan Nelson, Ph.D., Louisiana State University, and Rick Ebel, Glenrich Business Studies. Sources include Newspaper Association of America, Television Advertising Bureau, Radio Advertising Bureau, Direct Marketing Association, Publishers Information Bureau, Interactive Advertising Bureau, Outdoor Advertising Association of America, PQMedia, Monitor-Plus/Nielsen, TNS Media Intelligence, Point-of-Purchase Advertising Association/The Lost Boys Consortium and American Business Media/Business Information Network. |
Last summer, the Association of National Advertisers (ANA) surveyed its members and found that about half (53 percent) were forecasting decreases in their budgets for the following six months. Actually, 71 percent subsequently wound up with budget reductions. Media is an industry with almost as many forecasts as rate cards, and most other prognosticators had to revise their expectations downward.
For the so-called traditional media, namely print and broadcast, 2008 was a bummer. However, network TV was surprisingly resilient despite notions that it is a dinosaur on the way to extinction. And cable TV was impressive. Indeed, some oracles see the economy as a boon to the tube this year, suggesting that strapped consumers are going to stay home more and entertain themselves by viewing their TV and computer screens.
In at least one way, the 2008/2009 recession differs from previous economic downturns. Today we have much more advertising inventory for buyers with leaner budgets from which to choose. In the current economy, many marketers are going to “skew their media mix towards promotional spending and direct marketing,” predicts Bob Liodice, president of ANA. If so, that could affect promotional products favorably, just as it seems to be helping couponing. Thirty-seven percent of Americans are using coupons more to ease the pain of smaller or nonexistent paychecks, according to a Time magazine poll published in April.
Where’s The Relief?
Under the headline, “Marketers Gear up for Crappy Year,” Thom Forbes in Marketing Daily writes, “Welcome to 2009! Now for the grim news…”
In another periodical, Marketing News, we are told of a survey of chief marketing officers that showed CMO pessimists outnumbering optimists by a ratio of eight to one.
Although promotional products distributors face challenges similar to other media, the industry is certainly distinct in many ways from mass media. For example, many distributors made out pretty well in 2008. For Dallas, Texas-based Tic Toc (UPIC: CASE0001), business was the best ever, reports CEO Paul Gittemeier. He admits to a flat first quarter for 2009, but he remains optimistic. “I guess these days you could call flat the new up,” he says.
Another interesting facet of the industry that distinguishes it from most others is what we researchers call the “12 percent conundrum.” No matter how good or bad the economy is, 12 percent of the distributor population (and company size doesn’t seem to matter much) shows no gains or losses over a given three-year period, according to PPAI’s triennial Distributor Business Survey reporting going back many years. In most industries, such stagnation would be a precursor to going out of business. Perhaps this curiosity can be attributed largely to the widespread use of independent contractors.
Mary Kilburn, partner in Westminster, Colorado-based industry consultant DinoMar, Inc. (UPIC: DINOMAR), suggests it’s a matter of salespeople and owners settling on a lifestyle; once it’s achieved, they feel it suits their business and they’re content to coast. “[The owners] only think about growing if they want to sell their businesses,” she declares. That opinion seems to be shared by many others.
Any assessment of the prospects for 2009 might take the following into account:
• Customers are still buying, distributors tell us; they just aren’t buying as much. And their purchasing trends to lower-end products. Long-term relations seem to mean less to them, according to Molly Beavers of Newton Manufacturing (UPIC: NEWTON). Customers are more prone to put their orders up for bid.
• Customers—most of them anyway—understand the need to advertise and promote in tough times. Or, as American Business Media puts it, “When times are good, you advertise. When times are bad, you must advertise.” The problem is, when the customer has a choice of cutting the marketing budget or firing the crew, the former is much easier to swallow.
• As a corollary to the aforementioned, respondents to a Yankelovich/Harris survey say 95 percent of company executives maintain a high interest in learning about new products through advertising and promotion in a downturn. That’s so they can be first to buy theirs when things start turning around.
• Downsizing the work force doesn’t come without risk. An example is the demoralization of the surviving employees. Somebody (e.g., distributors) and something (e.g., appreciation gifts and loyalty rewards) are the assets management can deploy to reassure and recognize the faithful.
• Location, location, location is more than a real estate agent’s credo. Not all regions are affected equally. Nor are all account lists. Some customers and prospects are doing well either despite or because of the economy. It pays to find out who they are.
• With leaner budgets in store, marketers’ strategies for 2009 are to stick to the basics. Referring to a Marketing Executives Networking Group study, Beth Snyder Bulik writes in Marketing Daily that the most important marketing concepts will be customer satisfaction (79 percent), customer retention (76 percent), marketing ROI (65 percent) and brand loyalty (61 percent).
Asked what their expectations are for 2009, distributors’ responses reflect company size. Those in the small-company camp are considerably more optimistic than respondents from the larger firms (see Table 6). Perhaps it’s not surprising, since that cohort fared much better than the large-distributor segment last year.
Table 6: We Predict Our 2009 Sales Will Be ... |
| Forecast | Distributors < $2.5 Million | Distributors $2.5 Million Plus | | Greater Than 2008 | 38.5% | 19.1% | | Same | 27.5% | 20.9% | | Less That 2008 | 34.0% | 60.0% |
New Landscape For Business?
In the meltdown of 2001-2002, distributor sales over a two-year period shrank 13.4 percent before the turnaround began. Recovery this time around may be sooner or later (pundits’ speculations abound), and the structure of it may not quite resemble what we’ve experienced in recent market corrections. We’ve all heard suggestions that the age of consumer excess that began after World War II has come to an end.
That would factor into the “new landscape for business” expressed by Brad Ness, CEO of Fargo, North Dakota-based S & S Promotional Group, Inc. (UPIC: SSPROMOG), who sees recovery complicated by things such as government regulations, product liability and taxes. “Industry sales figures for the last few years have been wonderful, but we may have to adjust our expectations,” he says. “We’re going to have to be more creative, more professional and produce results for our clients.”
That prescription has always worked before. It’s important that it does again, because distributors are not in line for a government bail-out.
How The Numbers Were Figured
To compile PPAI’s 2008 Estimate of Distributor Sales, traditional methodology was employed that involves surveying by mail a large sample of the entire distributor universe, both members and nonmembers. The database was accumulated from a merge/purge of lists provided by four organizations plus PPAI and Universal Promotional Identification Code (UPIC) lists. Distributors were asked to report their sales of promotional products for the calendar year ending December 31, 2008.
Because some distributors have such a large book of business, omission of any one of them could distort the statistics. Therefore, a census is taken of all companies doing $2.5 million or more in promotional products sales. For smaller distributors, a sample of 12,288 firms was surveyed. The census plus sample totaled 15,502 companies.
Questionnaires were mailed twice to distributors, who also received weekly e-mail reminders. Replies collected by mail, fax, internet and phone produced 2,312 usable responses for a response rate of 14.7 percent versus 13.48 percent for 2007. The margin of error (+/- 1.93 percent at the 95 percent confidence level) was well within accepted statistical norms.
The mean computed for sales reported by small distributors—$467,553—was multiplied by the small-distributor population (21,500) and added to sales of the large-distributor group. The sum of both groups was $18,101,298,808.
View rankings on program categories, historical data and more survey findings.
Rick Ebel is principal of Glenrich Business Studies, a marketing communications and research company in Corvallis, Oregon. Saritha Kuruvilla is PPAI’s manager of research. Richard Alan Nelson, Ph. D., is a professor in the Manship School of Mass Communication, Louisiana State University, Baton Rouge, Louisiana.
Behind The Numbers
In these company snapshots, principals explain their take on the new business landscape.
Brad Ness, President
S & S Promotional Group, Inc.
UPIC: SSPROMOG
Fargo, North Dakota
Company: The distributorship was formed in 1979 and currently has 20 salespeople; eight or nine are full-time. Previously in retail management with Osco Drug, Ness joined the firm in 1981.
Business: With a diverse customer base, S & S has a mix of account sizes: corporate, although there are few really large firms in Fargo, and small businesses. Three universities in the city and the rest of the local school market are among those the company serves. This spring, the city suffered a devastating flood. “No question, business has taken a pause here to save our city,” Ness declares. “As we finish that, we’re going to have some construction companies, landscaping companies, plumbers—they’re going to be doing well.” Prominent businesses in the city’s restoration will get Ness’s full attention. “One thing about being a smaller company is that we have to remain agile enough to focus our sales efforts on those companies we believe are doing well.”
Outlook: “We may not have the highs that other areas of the country have, but we don’t go down so far,” Ness says. North Dakota is largely an agricultural state, and farmers are getting good prices. The state economy is relatively stable, thanks in no small part to the demand for energy, which includes wind power. So Ness is far from being in a jumping-off-the-building mode. “What we’ve found is that a lot of clients in a down economy may not be in a position to spend as many total dollars on marketing, but they have to look at the customers they have and figure out how to market directly to them. And that’s where promotional products are just a wonderful medium. You can’t find a more cost-effective medium to let those clients know that they’re appreciated.”
Ness agrees that 2009 is likely to be a challenging year. “There are some people on the fringe who are going to be weeded out.” He doesn’t plan to join them. He says he and his salespeople plan to make sure their presentations to clients leave a good feeling as to what promotional products can achieve, whether or not ROI can be directly measured.
Mitch Gale, Vice President And Co-Owner
CAM Inc.
UPIC: CAM-INC
Overland Park, Kansas
Company: Formed in 1980, CAM is a full-service agency, specializing in promotional products, graphic design, decorated apparel, corporate gifts and awards. Having a warehouse in the center of the country, the firm can provide cost-efficient, timely distribution throughout the U.S. Its website contributes about 25 percent of the firm’s volume, much of which comes from company store catalog business. The firm has 10 salespeople who are experienced and have their own websites.
Business: Among larger clients are those in industries such as utilities and energy, automotive, publishing, hospital and healthcare, food and restaurants and philanthropy. As an example of the latter, CAM is the official authorized online company store and promotional vendor for Habitat for Humanity International. By job title, CAM’s customers tend to be marketing managers and brand-strategy managers along with a mix of HR, procurement, sales and project managers.
Outlook: The company’s numbers in 2008 were about the same as for the previous year, and so far, 2009 remains spotty. The number of orders and quotes are down, but the business coming in tends to be in bigger chunks. “Given the economy, we are aggressively marketing for new clients, especially marketing brand managers,” says Gale. “We are doing more research on particular market segments where there is new business potential.”
Ricardo Deliz, President
Hall Puerto Rico Inc.
UPIC: HALLPR
Guaynabo, Puerto Rico
Company: Deliz, who has a marketing background, bought Hall in 2005. His father had worked in accounting for the firm. The company, which dates back to 1971, has 10 sales reps. Two of them work on advanced commissions designed to encourage more aggressive sales efforts and consulting roles to help clients achieve their objectives. Principal new-business targets are marketing and human resources departments, and like many other distributors, referrals are an important component for growth.
Business: Hall’s account list covers many industries—education, government, pharmaceutical, hotels and small business. Restraints on pharmaceutical marketing have given the distributor grief, but healthcare and education (particularly universities) remain a steady source of income. One-fifth of the firm’s business comes from a client in private healthcare. For this client, Hall works with the marketing department to reach the elderly at health fairs and other educational events and to maintain relationships with doctors. Promotion of government-sponsored tourism constitutes another major piece of business. Most of Hall’s clientele come from customers on the island, but its internet marketing has drawn sales from the Dominican Republic and interest from other businesses in South America. Regarding Hall’s online capabilities, Deliz says, “We position ourselves so that if you plug in productos promocionales in a search engine, we pop up at the top of the list.” Given the growth of the Hispanic market in the U.S. , Deliz believes distributors might benefit by reaching out to this group. “You might be surprised,” he says, “at how much new business you could develop by having some bilingual salespeople.”
Outlook: Sales in 2008 advanced slightly over the previous year, but 2009 gets Deliz excited. When we talked with him, he said sales were already 20 percent above last year’s levels. “Bottom line—I have to work harder than before,” he states. “Sales are good, but money is still not coming in as fast as we’d like.” The plan is to be more flexible with each client, provide more options and expand the customer base.
Ellen Allentoff, Owner
Small Wonders
UPIC: SMAL0004
Rockville, Maryland
Company: This is a smaller distributor, and Allentoff says there are “just the two of us.” She has been in the industry 10 years, and prior to that was marketing director of Marriott International.
Business: The firm’s customer base has a spread that is heavy in hospitality, credit union and other financial, retail store, association and foundation accounts. All of them have been affected by the economy. “People are still buying,” Allentoff says, “but they’re not buying as much or they’re buying lower-priced items.”
Outlook: She’s looking for more support from suppliers, “more low-cost marketing opportunities,” including free spec samples. Having considered and rejected the idea of turning to e-mail marketing, Allentoff plans to make more catalog mailings because, she says, “we find that people still respond to being able to flip through a catalog.” This year’s business for Small Wonders has kept pace with 2008, and she predicts her firm “will finish close to what we did last year.”
Jon Sloan, President and CEO
Mercury Promotions And Fulfillment
UPIC: Mercu517
Sterling Heights, Michigan
Company: Located in a suburb of Detroit, Mercury was founded in 1996. Sloan joined the firm in 2004 and helped grow its business by more than 200 percent by greatly expanding its client roster. He previously headed The Beanstalk Group’s promotional products division and earlier had been a HALO executive vice president. Mercury has a sales force varying between 14 and 15 people.
Business: With the highest unemployment rate in the nation, Michigan’s economy has been suffering the woes of the auto industry, admits Sloan, but he says, “We’ve been fortunate enough over the past five years to have a diversified client base and not be dependent of automotive business.” Less than 20 percent of Mercury’s business is automotive. The rest of the revenue stream comes from service industries, home industries (residential construction), banking, advertising and promotion and consumer marketers. Sloan observes that companies marketing direct to consumers are spending more in order to drive traffic to their businesses. The business-to-business marketers, however, are “spending less because they’re dealing with other challenges, and sometimes it’s a spend they don’t think is necessary, so they want to cut back before they start cutting people.”
Outlook: Mercury’s customers were spending less in 2008, but the firm made up the difference by successfully securing new accounts. Sloan identifies three things that give his company an advantage in attracting new clients:
• Flexibility. Being right sized, it can be faster in reducing overhead, faster in reacting to clients’ demands and needs.
• Single-source solutions. Basically a marketing services agency, the firm offers not only promotional products but also fulfillment and sweepstakes. With clients downsizing, “they need us to do more for them,” explains Sloan.
• Service. “We all provided great service before, but now you’ve got to go beyond that,” he declares. That means providing unwavering focus on the clients’ challenges and helping them “resolve their pain.”
He forecasts 2009 business will be even with last year but only because of an infusion of new clients.
James A. “Jimmie” Clark, President
J. Clark Promotions
UPIC: JCLAP001
New Orleans, Louisiana
Company: J. Clark, founded in 1976, operates on an April 1- March 31 fiscal year because the annual Mardi Gras has no fixed date, and so much of the firm’s business is with the Mardi Gras krewes. A manufacturer and a distributor, the company, Clark claims, in 1987 became the first source in the U.S. for foil embossed souvenir cups, which allow dark colors to be decorated with various designs. The firm has a 22,000-square-foot warehouse and showroom and a 15,000-square-foot office and manufacturing plant. There are five salespeople, plus an in-house graphics artist and other creative staff.
Business: Although Mardi Gras remains a major source of business, J. Clark has gone national, and its accounts are found anywhere from New York to Hawaii. Names on the account list include Anheuser-Busch and Louisiana State University.
Outlook: How were last year’s sales compared to 2007? Flat, but not bad when you think about it. “Obviously, we’d like to have 2004 back again—pre-Hurricane Katrina,” Clark declares. He says he feels upbeat. “During an economic downturn, you can’t always increase sales. But you can keep costs under control. That is an area where I think many distributors can do more to contribute to their bottom line. We’ve partnered with our suppliers to be creative in cost cutting, which helps us avoid radical up-and-down swings.” By buying in volume materials and products that will not go to waste, Clark says it’s “amazing how much that saves us over time.”
May I Have A Drum Roll Please?
In a random drawing of survey respondents, Philip R. Anoff, vice president of SESCO, INC., in Charlotte, North Carolina, was the grand prize winner of two round-trip tickets anywhere in the continental United States (a $1,000 value; some restrictions apply) or hotel and round-trip airfare to The PPAI Expo 2010 (up to $1,000 value). For more winners’ names, go to www.ppbmag.com.
How The Product Chart Was Compiled
PPAI mailed a product and program category survey to a sample size of 4,073 PPAI member distributor companies. The response rate was 8.89 percent (n=362 respondents)—marginally lower than last year’s 8.99 percent. The margin of error on the product category survey is +/- 4.92 percent at the 95 percent confidence interval. For details on the product segments go to www.ppbmag.com.
|
|
|
|