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Remaining profitable in a slowing economy

Apr 1, 2001 12:00 AM


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WHILE WE ALL MAY HAVE HOPED FOR A QUICK ECONOMIC BOUNCE-BACK, IT LOOKS LIKE WE'RE IN FOR A LONG AND DEEP RECOVERY

Stop me if you've heard this one. The owner of a printing company is in his doctor's office. “I have some good news and some bad news,” the doctor tells him. “The bad news is you have only three months to live.”

“What's the good news?” asks the stricken owner.

“The good news is you're a printer — it'll be the longest three months of your life!”

I've got some good news and bad news, too. The bad news is that everything we said in our December 2000 issue is still true: The industry is wrestling with both structural and cyclical change, as well as an economic slowdown.

The good news is some printers aren't taking this lying down. As Andy Paparozzi, chief economist, NAPL (Paramus, NJ), noted earlier, “Our industry is making the hard investments — and taking the short-term hits — necessary to capitalize on a future loaded with long-term opportunity.” The economist was encouraged by printers' “strategic diversification, embrace of the Internet and targeted investment in equipment and personnel.” (See “Good-bye, printers. Hello, communications solutions providers,” December 2000, p. 36).

WHAT HAPPENED?

Speaking at NAPL's recent Top Management conference, Paparozzi explained why the economy has slowed down and how some profit leaders are dealing with it. He identified four factors that converged to slow the economy: Fed interest rate hikes, surging energy prices, the NASDAQ March 2000 crash and subsequent performance, and fiscal drag. (Fiscal drag is “a fancy name for what happens when Uncle Sam takes too much money out of the economy, or the possibility that spiraling federal surpluses aren't any better for the economy over the long run than spiraling federal deficits,” explains the economist.)

While we all may have hoped for a quick economic bounce-back — a V-shaped graph — it looks like we're in a for a long and deep U-shaped recovery.

To evaluate ongoing economic performance, Paparozzi suggests keeping an eye on three areas: hours worked and initial claims for unemployment insurance (rather than the unemployment rate), stock market and profits, and consumer confidence.

“Consumer spending makes up two-thirds of the GDP, so the economy doesn't go anywhere unless the consumer is on board,” relates the economist.

How do printers respond to an economic downturn? “Cutting costs/reducing expenses” was the top response given by participants in an NAPL survey of more than 250 printers, ranging in size from $1 million to $100 million. “More than 28 percent focus on labor costs,” reports Paparozzi. This includes layoffs (14.2 percent), reducing hours (7.3 percent), freezing compensation (3.7 percent) and hiring (3.2 percent).

“Creating additional revenue” was cited by 33.9 percent of respondents. Some will hire more sales reps; others will promote value-added services (mailing, fulfillment, Web design, digital printing) to diversify revenue sources and distinguish themselves from the competition.

A DOZEN DON'TS

“Tactics vary widely,” says Paparozzi. “But these printers all agree the capital investment needed to be competitive requires a high level of sales. Simple cost-cutting measures will not do it.”

What shouldn't printers do when the economy weakens? Here are a dozen don'ts, courtesy of NAPL's Long-Run Growth Leaders:

  • Don't cut prices or go after low-margin work.
  • Don't cut skilled personnel, but don't keep marginal performers around.
  • Don't reduce training budgets.
  • Don't reduce marketing budgets.
  • Don't reduce customer training.
  • Don't purchase equipment without adequate justification (ROI, higher productivity, lower costs, etc.) or careful analysis of market potential.
  • Don't ignore or delay reaction to this slowdown.
  • Don't avoid or delay discussing the slowdown with employees.
  • Don't reduce contact with core clients.
  • Don't be too conservative (unprepared when business turns up).
  • Don't abandon operating and strategic plans.
  • Don't stop planning, marketing analysis, business analysis, etc.

For more information on NAPL's Printing Economic Research Center's Long-Run Growth Leaders, as well as its executive briefings on succeeding in a softening economy, see www.napl.org.