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2009 PPAI Sales Volume Study: The Only Direction To Go Is Up
By: Richard Alan Nelson, Ph.D., and Rick Ebel
Issue: 2010jul
Everyone knew 2009 would be a tough year for promotional products distributors. And they were right. Sales plummeted 13.6 percent to $15,638,571,468.
PPAI’s March-April 2010 survey of distributors—both member and nonmember companies—which gathers data for the Association’s Annual Estimate of Distributor Sales found the 2009 experience to perfectly complement the dismal results of 2008 when the economy started going south. In two years’ time, 19.6 percent of business disappeared. It’s a small consolation that some competing media did even worse (see Table 4). Few salespeople in media of any sort harbored illusions of robust business in the worst economy since the 1930s.
At distributor Gateway CDI (UPIC: GATE0002), which has many significant accounts in high-tech, automotive and financial, Conrad Franey, vice president of sales, reports these clients typically adopted a “stick your head in the sand and spend nothing” mentality last year.
Market share was fairly evenly divided between larger distributors (firms doing $2.5 million and more in sales) and smaller companies. Although the small-distributor segment lost $2.3 billion—or 22.6 percent—from 2008, sales for the bigger firms were off only 2.3 percent, or $188.8 million. The fact that many larger companies took substantial hits was masked by the addition of 27 large firms to this category, many of these newcomers being divisions of corporations operating in other industries, such as the printing, packaging, forms and health supply industries.
A sizable decrease in the small-distributor population was characterized by returned unanswered mail surveys marked “out of business.” Furthermore, some 250 or so respondents reported volume so small as to indicate the firms were only marginally in the promotional products industry.
Another way to gauge the small-company experience was the nosedive in the sales average for the category—down almost $100,000 to $367,777.
For Judy Medcraft, partner at Dresmann Promotional Products (UPIC: DPP), it was more the volatility than flat-out sales loss that her firm experienced. “Instead of a little roller coaster that I’ve lived with for 15 years, the last year and a half has been really, really busy and then down, really, really busy and then down. So, it’s been scarier because it hasn’t been consistent.”
Her firm didn’t lose customers, but almost all spent less. “Everybody was careful,” Medcraft observes.
TABLE 1: FIVE-YEAR INDUSTRY PERFORMANCE |
2005 | $18,013,763,753 | 2006 | $18,779,654,661 | 2007 | $19,440,837,547 | 2008 | $18,101,298,808 | 2009 | $15,638,571,468 |
Among small distributors, the percentage of firms whose core business was in fields other than promotional products declined significantly, from 35.0 percent in 2008 to 24.1 percent.
About half of distributors large and small say they send some of their orders to non-industry suppliers (i.e., firms not listed by PPAI, ASI or Quick Technologies/SAGE), and that apportionment has been the norm for recent years. In terms of dollar volume, however, distributors did more of their shopping last year within industry ranks (see Table 2). Orders placed with non-industry suppliers slipped from $3.2 billion to $2.6 billion in 2009—a 20.6 percent decline that surpassed the overall reduction in distributor sales.
| TABLE 2: DISTRIBUTOR BUSINESS WITH NON-INDUSTRY SUPPLIERS |
Distributor Category | 2008 Sales | 2009 Sales | Percent Of Distributor Business | | | | | 2008 | 2009 | Sales Under $2.5 million | $1,801,388,198 | $1,288,896,270 | 17.9% | 16.6% | Sales $2.5 Million Plus | $1,442,364,548 | $1,302,415,022 | 17.9% | 16.0% |
The bleak sales picture was shared by most other media, the notable exception being cable TV, which continues to siphon off dollars from broadcast TV. Apparently viewers can stomach only so many reality shows and limp comedies. Media that relied heavily on automotive business (event marketing comes to mind) were particularly scourged. If your company has to be bailed out by the government, your distress is bound to show up in the ad budget.
| TABLE 3: TOTAL DISTRIBUTOR ONLINE SALES |
| | 2008 | 2009 | | Total Online Sales | $2,878,046,304 | $2,445,489,891 | | Percent Of Total Business | 15.9% | 15.6% |
But, as they say, when the going gets tough, the tough go shopping—and nowadays they go with FSI (free-standing insert) coupons, the ones associated with Sunday newspapers. FSI activity increased 80 percent last year, with 272 million coupons dropped, for the highest level in decades.
| TABLE 4: ASSESSMENT OF EXPENDITURES FOR SELECTED MEDIA AND METHODS |
Media/Method | 2008 ($ 000) | 2009 ($ 000) | % Changed | Direct Mail | $52,600,000 | $44,400,000 | 15.6 | Television | $46,384,315 | $40,441,965 | 12.8 | Newspaper (Print Only) | $34,740,000 | $24,821,000 | 28.6 | Consumer Magazines | $23,741,089 | $19,450,950 | 18.1 | Internet Advertising | $23,448,000 | $22,661,000 | 3.4 | Cable Television | $21,258,284 | $24,406,598 | 15.0 | Radio Advertising | $19,478,000 | $16,029,000 | 18.0 | Promotional Products | $18,101,299 | $15,638,571 | 13.6 | Yellow Pages | $13,227,500 | $12,500,000 | 5.5 | Business Magazines | $9,900,000 | $7,500,000 | 24.0 | Out-Of-Home (Billboards) | $6,820,400 | $5,900,000 | 15.6 | Event Marketing (Sponsorships Only) | --- | $12,500,000 | --- | Coupons (FSI And Online) | --- | $8,051,000 | --- | Product Placement (Film, TV) | --- | $3,946,000 | --- | Mobile (Phone) Advertising | --- | $395,000 | --- | | *Provisional approximations; to be updated and published by PQ Media and Veronis Suhler Stevenson |
Expenditures for selected advertising media and promotion methods were compiled for Promotional Products Association International by Richard Alan Nelson, PhD, Louisiana State University, and Rick Ebel, Glenrich Business Studies. Sources include American Business Media/Business Information Network, Direct Marketing Association, Cable TV Advertising Bureau, Interactive Advertising Association, Newspaper Association of America, Outdoor Advertising Association of America, PQ Media, Publishers Information Bureau, Radio Advertising Bureau, Television Advertising Bureau, Veronis Suhler Stevenson.
Lots of double-digit downturns are evident in Table 4, including the formidable direct-mail category. A growing number of forecasters see the decline in expenditures for traditional media as not just a recession-caused aberration but rather a continuing journey to near oblivion. You get the picture when nearly a third of news executives from newspaper and broadcast tell Pew Research Center they think their organizations will be insolvent within five years.
The media upheaval also affects the agency side. Marketing and communications agencies (advertising, promotion, public relations) in 2009 experienced their worst business fall-off in 66 years, according to the Agency Report published by Advertising Age. For the first time during that span, the biggest U.S. agency was not to be found on Madison Avenue or anywhere near New York. It’s in Arkansas.
As dire as these visions appear, they need not bode poorly for promotional products distributors. We’ll get to that in a minute.
Despite all the sales grief, one in four distributors report profits in 2009 were actually greater than the previous year. Obviously, some folks have taken to heart the lessons about controlling costs.
Dresmann’s Medcraft shortened staff hours and cut payroll. She examined her own advertising—found that her business was coming from word-of-mouth and not from the Yellow Pages. No more fingers doing the walking for Medcraft.
With its sales down 13 percent, Walker-Clay Inc. (UPIC: WALKCLAY) also found a way to ratchet up profits. “We had to make changes, including cutting staff and helping the rest of us be more efficient,” says Bill Clay, president. His firm partnered with another organization, thereby gaining access to a state-of-the-art IT operating system. “This,” he explains, “improves our order processing and web-based marketing (and assures) we are utilizing best practices in the industry.”
In the wake of 2009, how optimistic are distributors about this year? Salespeople tend to be optimistic by nature, and survey respondents seem to be a little more bullish than a year ago. A decided majority (60.7 percent) predicts a better year, and only 13.9 percent think it will be worse. Perhaps distributors are buoyed by their performance in this year’s first quarter. Franey at Gateway CDI has budgeted for an eight-percent increase this year and says his firm appears on track to achieve it.
All distributors we spoke with expressed at least a moderate optimism, based on the way their first-quarter sales were rebounding. Their hopes at the time were reinforced by positive signs in the economy. The Institute for Supply Management, for example, in April reported its service index had moved up a couple of clicks from February to March, signaling expansion. The service sector is critical because, excluding farm workers, it accounts for 80 percent of U.S. jobs, such as are found in healthcare, retailing and financial services.
Franey believes the recession has been a wake-up call to many industry businesses and, he cautions, “We’re not out of the woods yet.”
Perhaps the real wake-up call is for more in the industry to broaden their perspective of promotional products’ extensive role in the communications sphere. Jim Rutherfurd, former executive VP at Veronis Suhler Stevenson (VSS), a respected New York-based surveyor of this field, observes, “The prolonged economic downturn has accelerated changes already underway in the communications industry … These changes are driven by a confluence of factors—primarily the growth of digital end-user businesses and the shift from broad-reach traditional advertising to targeted alternative advertising and marketing services.”
This statement certainly applies to distributors. Since they provide not only advertising but also the tools, strategy and even execution to motivate, incent and influence business relationships, they are part of a bigger picture that extends beyond calling attention to a product or service. The more distributors demonstrate the relationship building strengths of promotional products, the closer their job description comes to matching what VSS forecasts. This is important because targeting efficiencies will drive communications spending in the next five years.
In any event, the signs for the industry are becoming more positive. After two long, discouraging years, evidence is beginning to point away from the despair you might get from a re-reading of Richard Farina’s 1966 novel, Been Down So Long It Looks Like Up to Me.
How The Numbers Were Figured
To compile the 2009 Estimate of U.S. Distributors’ Promotional Products Sales for PPAI, researchers mailed a survey to a large sample of the entire U.S. distributor universe, including both PPAI members and nonmembers. The 12,500-firm sample was drawn from a merge/purge of lists compiled from PPAI and UPIC (Universal Promotional Identification Code) databases and from four other industry organizations.
Companies were divided into two sales-volume groups—those with sales of $2.5 million or more and those billing less than $2.5 million. Because some distributors have such a large volume of business, omission of any one of them could distort the statistics. Therefore, a census of all distributors doing $2.5 million or more in sales was taken. Combining the census and sample resulted in 15,456 companies being surveyed.
Questionnaires were mailed twice to the sample/census firms, and this distribution was reinforced with weekly e-mail reminders. As incentives to complete and return questionnaires, respondents were eligible for a drawing to win prizes. Forty-four surveys were returned as undeliverable, and completed replies collected by mail, fax, internet and phone produced 2,385 usable responses. This constituted a 15.43 percent response rate (vs. 14.7 percent for 2008, 13.48 percent for 2007). The margin of error (+/- 1.89 percent at the 95 percent confidence level) was well within standard statistical norms.
Richard Alan Nelson, Ph.D., is a professor in the Manship School of Mass Communication, Louisiana State University, Baton Rouge, Louisiana. Rick Ebel is principal of Glenrich Business Studies, a marketing communications and research company in Corvallis, Oregon.
Behind The Numbers
Barbara Wells, Senior Vice President Marketing, Merchandising, Global Supply Chain and Logistics
Staples Promotional Products Inc.
Overland Park, KS
UPIC: AMER0016
Company: The Staples brand is a dominant force in the office products field, and its arrival in the promotional products scene came in 2008 when the firm acquired industry biggies American Identity and Corporate Express Promotional Marketing. When we say, “You’re a national company,” Wells corrects, “We are an international company—we have wholly owned divisions in Canada and the U.K.” as well as partnerships in other countries.
The firm’s customer mix comes in all sizes and from all industries. The accounts are assembled by a sales force of about 100 persons engaged in promotional products. They are augmented by a legion of office products representatives numbering in the thousands.
Outlook: After enduring a tough year like just about everyone else, Wells says, “We’re cautiously optimistic. We see some minimal growth for this year, and obviously some sectors doing better than others.”
Mike Clowers, Owner
The Clowers Co.
Longview, TX
UPIC: CLOWERS
Company: In 1983, Clowers took over the company, which he describes as a rural distributor. “Just by the nature of our location, the vast majority of our business is small business,” he explains. Clients are served by eight salespeople, some of whom are part-timers. Small accounts notwithstanding, Clowers says, “We don’t go out and sell weekly specials, we try to serve the customers’ needs.” The sales force includes people who are MAS-certified and some who have been exposed to CAS programs. Says Clowers, “We put a lot of emphasis on industry education, and we try to the best of our ability to be problem solvers.”
Outlook: Despite a disappointing year in sales, the company maintained its margins and market share. “I would say in the general landscape, we were about as good as anyone else,” Clowers believes. First quarter 2010 saw an end to the sales erosion. “We had a good February, March and April,” he reports, “and business in general seems to be better.”
Joel Pollema, MAS, President
Monarch Sales Company Inc.
Sioux Falls, SD
UPIC: MONARCH1
Company: Two veterans returning from World War II formed this distributorship in 1947. Pollema and his wife, Connie, both on the company’s sales force, bought the firm, becoming its fourth owners. Located in a small market, the firm has a diverse account base that nevertheless skews somewhat to healthcare, financial services and manufacturing. For these clients, Monarch offers in-house graphics and fulfillment. It also has a dedicated customer service staff.
Outlook: “Apprehensive,” says Pollema, “is the best word I can come up with to describe 2009 business.” He sees this year appearing to be more stable. “The general feeling in our part of the country is that (business) is definitely improving, but it will take one to two years to build it up to pre-2008 numbers,” he declares.
William L. (Bill) Clay, President
Walker-Clay Inc.
Hanson, MA
UPIC: WALKCLAY
Company: Established in 1956, Walker-Clay remains a family-owned distributorship. Clay’s grandfather sold for Brown & Bigelow, and his father, one of the firm’s founders, had been with another industry company. “Dad wanted to develop a proprietary line for financial institutions. Banks were building new offices (and were interested in) hard-to-get, full-color, personalized and customized thank-you cards. So he and Ned Walker formed Walker-Clay with that as their business model,” he explains.
Banks and other financial organizations account for 60 percent of the firm’s business, but recent years have seen Walker-Clay pursue and obtain substantial healthcare and B2B accounts. “We like to see ourselves as a mini Geiger,” he claims. In addition to offering a “world class suite of promotional products,” he says the firm’s service includes graphic design, merchandising programs, embroidery, screen printing, warehousing and fulfillment. Still in the product inventory is the proprietary financial line that includes a 12-page scenic desk calendar, stock thank-you cards and statement stuffers.
Selling solutions, not just products, is the key to making it in today’s market, Clay avers. “Digital printing,” he says, “has changed everything—now almost everyone can provide high quality and inexpensive color materials.” This realization has prompted Walker-Clay to focus more on creativity and upgrade its computer systems and programs.
Outlook: Sales so far are seven percent ahead of last year, so Clay is encouraged by what he sees. He advises, “Make sure you leave money in the company during the good years. A strong balance sheet really helped us get through the tough times.”
Bethany Dean, Vice President
Bama Jammer Inc.
Huntsville, AL
UPIC: bamajam
Company: As marketing majors at the University of Alabama-Huntsville, Dean and her sister, Natalie, put together a business plan for a promotional products distributorship, undoubtedly influenced by their parents who were also in the industry. In 2005, that plan became the blueprint for their company. The sisters say their business plan includes their religious principles such as the biblical injunction to “not be slothful in business.” Although small businesses occupy much of Bama Jammer’s customer base, state and federal agencies, such as NASA, IRS and the Department of the Army, are also on their accounts book. Government business means bidding, and Dean acknowledges “we don’t get everything we compete for. But we’d get nothing if we didn’t go through the process.”
She describes her firm, with its staff of four salespeople, including the owners, as an advertising consultant company. It extends the conventional full-service concept to include producing TV commercials, videos, logos and slogans. Bama Jammer employs Double Check, a two-stage quality control system that inspects for defects, including problems in placement, color, clarity, cleanliness and order specifications.
Outlook: Despite the tough economy, Bama Jammer in 2009 registered an increase in profit. This was made possible by reducing payroll by two salespeople through retirement and relocation. Dean views this year in a positive light. January through March, normally a slow time, saw a steady pick-up in sales. “If the rest of the year is like that, we should have a pretty good 2010,” she opines.
Ellen Gitlin, President
Diversified Marketing Group
South Dartmouth, MA
UPIC: DIVE0010
Company: Gitlin and a partner founded the distributorship in 1996, and three years later she bought out the partner. Diversified Marketing has a fulltime office employee and three salespeople. It has, as the name indicates, a diversified book of accounts. The mix includes several healthcare/hospital clients, some large corporations, schools and nonprofits. Service capabilities run the gamut from logos to development of complete campaigns.
Outlook: Gitlin minces no words about last year. “Horrible,” she admits, “really down for us, and I’ve heard the same from our competitors.” But things are loosening up. Clients and prospects are interested and calling. “Companies and organizations are realizing they have to keep marketing to get through those economic difficulties,” she declares.
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