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Modest expansion

Dec 1, 1996 12:00 AM

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Industry experts forecast moderate growth with stable interest rates and tight labor markets in 1997

It was a very good year for printers during 1996, claims Ron Davis, PhD, chief economist for Printing Industries of America (Alexandria, VA). Third-quarter print sales in 1996 increased nine percent over 1995, with both the South and Midwest regions enjoying sales growth exceeding 10 percent. Even the West, probably the hardest hit economically, boasted a 6.8 percent growth in sales during the third quarter.

Although the above numbers are quoted in current dollars, not adjusted for inflation, there is a definite upbeat trend throughout the industry. Davis, speaking at the recent Print Outlook Conference in Washington, DC, told attendees that the printing industry benefited from incremental increases in demand brought about by the Presidential election, the Summer Olympics and a generally solid economy during 1996.

Looking toward the future, most experts foresee continued expansion, albeit at modest levels. Michael K. Evans, president of Evans Economics, sees 1997 GDP (gross domestic product) growth running at somewhere between 2.5 and 3.0 percent. Since printing industry growth now almost exactly parallels GDP, we can expect sales increases to run about three percent during the new year.

Davis' projections are similar. The PIA economist expects an overall six percent gain in print sales (in current dollars) during 1997, a rate in line with increases enjoyed during both 1995 and 1996. With inflation expected to continue at about three percent, the printing industry overall should enjoy a seventh straight year of modest growth.

However, graphic arts execs need to be wary of certain issues. Print markets are becoming increasingly dynamic, according to Davis. He points to four areas of concern:

1. Printers continue to restructure and re-engineer their operations. Driven by a need to cut costs and improve productivity, workflow and process procedures are being constantly scrutinized.

2. There is more variability in sales and profits. In spite of overall optimistic print sales numbers, just below the surface the industry is churning. In any given demographic area, one printer may be enjoying sales increases of 35 to 40 percent, while another is suffering with equivalent losses. Industry averages may be meaningless in these situations.

3. Technological changes continue to drive the graphic arts industry. The challenge is not so much what to buy, but how to use it to serve your market. The key is to understand customers' challenges. Partnering with clients is an absolute necessity.

4. There is a breakdown of traditional industry boundaries. Some have even opined that there is no cohesive printing industry. A shop's toughest competitor may no longer be the printer down the street; and competitors often come from outside our industry. Conversely, new alliances are being formed; the key is to remain aware and flexible.

So how are things shaping up for 1997 in specific markets. As the adjacent chart shows, hot markets in 1997 will include marketing/promotional products, direct mail, catalogs and magazines. Quick printers are expected to do better than average and revenues derived from pre-press services should show healthy upticks. Keep in mind, however, that prepress services increasingly are being delivered by printers; sales for prepress trade shops dropped eight percent during 1996.

Many have asked if there is a future for prepress trade shops. It may be a moot point, as more and more of these companies diversify and expand their services to include design, printing, Internet services, CD-ROM, photography and other expertise. The trade shops are not so much going out of business as they are slowly transforming themselves into new organizations.

Increasingly, graphic arts execs complain about a lack of skilled employees. Tight labor markets will continue into 1997, with printers finding it difficult to fill positions. In spite of apparent labor shortages, wages and salaries are holding fairly steady.

Salaries increased 4.7 percent during 1995 while midyear 1996 wages and salaries were up 4.2 percent over the previous 12 months, according to Davis. Printers are in a hiring mode, with the biggest action in sales, followed by skilled technical people, entry level personnel and, at the bottom end, managerial talent.

With this projected growth and an optimistic outlook, what about printers' profits? Since 1991, printers' profits have steadily increased from a low of 1.9 percent to a high of 3.3 percent in 1994, the highest levels in 10 years.

Profit levels steadied at about 3.0 percent of sales in 1995, slightly off because of slower economic growth and higher paper prices.

With the specter of paper increases at least temporarily at bay and a healthy economy forecast, the average printer should enjoy profits of approximately 3.0 to 3.5 percent during 1997. However, profit leaders in the graphic arts are defined as companies with eight percent or more profitability levels. And true profit leaders often boast profit margins in the double digits.

What are some of the keys to profitability? PIA's Davis advises printers to undertake three activities:

1. Engage in more strategic thinking. Consider external factors affecting the company's business and decide how these factors might impact business in the future. Davis contends that profit leaders consistently spend more time thinking of the future. Strategic thinking and an interest in the environment outside of the company are vital to success.

2. Have a strategy. Just thinking about the future isn't enough. Plan for it, follow the plan, adapt the plan to changing circumstances and follow through. Success does not result from wishful thinking; it results from careful planning and a strategy for the future.

3. Offer ancillary services. As the industry continues to transform itself into something new, printing as a sole service becomes increasingly inadequate. Whether it be Internet capabilities or fulfillment and distribution services or maybe something entirely different, diversification is a vital element for success in the coming year.

If this forecast proves true, on balance 1997 should go into the books as a positive.