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Book Market Outlook -- El-hi, Potter Hold Keys To Success

December 2002

6Courier Corp.
N. Chelmsford, MA$211$211

7Phoenix Color
Hagerstown, MD$130$130

8Taylor Publishing

9Walsworth Publishing
Marceline, MO$84$84

10Webcrafters Inc.
Madison, WI$80$80

Sales figures are based on above printers'
self-reported total and market segment breakdowns.

But one little boy cannot be the savior for an entire print production industry segment.

Peter Tobin, executive vice president for Courier Corp., North Chelmsford, MA, characterized 2002 as a challenging year. Courier concentrates on three segments: education, religious and specialty trade. Education and religious fared better than specialty trade, according to Tobin.

"A lot of the major publishers had directives to keep down their working capital, their expenditures, so they did things like manage their reprints very carefully in order to keep inventories low," Tobin says.

"That had an impact on the market. We found that the religious publishing market was strong in 2002; we had a good year with that."

Courier's 2002 fiscal year began in October 2001, at a time when cautious publishers cut inventories to the bone. As the year wore on, publishers found the need to reorder product; meanwhile, demand increased on the secondary education side. The elementary-high school (el-hi) market provided modest success and the religious sector enjoyed a solid year.

The success enjoyed by Courier was bolstered by $30 million that had been invested in equipment and technology upgrades in 2000 and 2001, according to Tobin. "In 2002, we really worked at filling additional capacity as a result of the investment," he says. "Because the market was quieter, we kept our capital initiatives more to maintenance and improving internal efficiencies.

"That said, we increased our share of volume with customers who were interested in one-stop shopping. We did more component manufacturing, assembly, kitting and media procurement for them because we found that, in a challenging economic market, publishers were really interested in partnering with us to handle every component of a print job—complete project management."

Tobin notes that Courier is working closely with clients to help them realize cost savings. Areas such as Web-based preflighting and online proofing have resulted in both cost and time savings. Additionally, business-to-business transactions over the Web that allow customers to handle orders online can speed up the overall process.

"We've had a strong focus this year on cost management and improving plant efficiency, all to accomplish more in shorter periods of time," Tobin states. "Customers' needs for turn times on jobs have become compressed. Because publishers are so concerned with managing their inventories to such a close level, they allow less time to get books manufactured, and we have risen to that."

Consumer confidence will play a vital role in 2003's fortunes, according to Tobin. State and federal funding for educational materials will impact the el-hi market; for now, adoptions appear to be near 2002 levels, while 2004 looks to be the rebound year.

"Fortunately, the next Harry Potter title is supposed to be published by the middle of 2003," he adds. "That creates enormous demand for print."

Jerry Allee, Book Group president for Quebecor World, also saw a Jeckyl/Hyde pattern to the fiscal 2002 season. From Quebecor World's perspective, the first six months of the year, in comparison to 2001, were strong. As of press time, the second half of the year, while still stronger than its predecessor, has weakened overall as publishers are now delaying reprints and firming orders at the last minute. Consumer trade (fiction and non-fiction) is a concern as publishers are forecasting a modest holiday sell through.

"What has made a difference for us, in total, is the educational market—particularly college texts," Allee says. "That's the sector in which we've been exerting capital and resources. We're very bullish about that going forward, as government funding for elementary and secondary products takes hold in 2003, 2004 and 2005, and college enrollments grow as expected."

Trade Books Come Back

Allee predicts a rebound in the consumer trade book segment, which has been lacking in blockbuster releases recently and tends to be tied to a weak economy. Quebecor World has experienced only a one or two percent decline, he notes. "We don't see wild swings. I'm fairly optimistic going into next year that we're going to hold our own. Overall, were in a one to two percent growth environment for books. That's tied to unit growth, not to the publisher's sales growth. That's a healthy environment.

"I feel confident that we're lined up in the right segments, and we'll continue to capitalize in the areas that have the highest growth potential for us."

Quebecor World has concentrated on augmenting its educational related capabilities with a multi-million investment in front end, press and bindery expansion. This was done to take advantage of publishers' success in key state adoptions.

North America's largest printer is also lending a hand to help customers keep costs in check. The three-pronged attack features: volume consolidation in a standardized format, the key to efficiency, productivity gains and savings that can be passed on to clients; controlling all aspects of book components; and the benefits of dealing with Quebecor World's worldwide network of product and service providers.

"We're not supplying (components) across the board," Allee notes. "Neither are our major competitors. In time, I see the concentration of book manufacturers supplying the covers, the jackets, the inserts—all of the elements and components that go into making the book. That is certain to provide a cost savings potential and an improvement on turnaround and speed to market. We are positioning our operations to further support our customers in that context by getting their products to market faster."

One positive variable to watch in 2003, according to Allee, is full adoption of PDF-based workflows to capitalize on the dependability that PDF offers while maintaining uniformity among plants.

"PDF has streamlined our process by increasing throughput while at the same time reducing the opportunities for errors," he says.

Chicago-based R.R. Donnelley concentrates on three book segments—education (el-hi and secondary), consumer and specialty (juvenile, religious). According to Book Group President Ed Lane, 2002 was a year of mixed results. The weak economy, paired with a slowdown in state spending, and a slowdown in the adoption cycle, hampered the el-hi market. But strong student enrollment levels buoyed the college segment.

"We had a strong education season," Lane notes. "We produced record volumes in the traditional peak periods for the el-hi market. We deployed our entire platform of capabilities and multiple plant locations to provide flexibility and reliability for customers. The feedback we're getting is very positive."

The single- and four-color consumer trade segment experienced a slow recovery throughout 2002, Lane says, gaining strength as the year progressed. Like Quebecor's Allee, Lane fears the one-color market may be decelerating as the year draws to a close.

"It's being hurt by a lack of consumer confidence," he says. "The four-color consumer business has been strong throughout the year, though. Demand has been pretty steady. Overall, even though the market is starting to slow, we got very busy in our one-color trade book plants right at the end of the first quarter and had been busy up until recently, when we began to see some slowness."

Donnelley has a large share of the bible/religious trade sector, and action really began to heat up in that market around mid-year. Lane feels the entire segment is benefitting from a broader retail channel for religious products, which historically have been distributed through CBA stores.

Like Quebecor World, Donnelley is looking to leverage its global capabilities (with book manufacturing facilities in China and Latin America) to augment revenue streams. The company also continues to build and invest in recombinant publishing capabilities for educational customers in its Allentown, PA, facility, Lane notes. This allows Donnelley to work with higher education publishers that want to create customized content for specific courses.

A third element is the inventory management service offered at its Harrisonburg, VA, plant. "This is an offering that came out of work we did with a number of publishers," he reveals. "We better understand their total supply chain cost challenges and really focus on what we can do to help them reduce their inventory and handling costs associated with obsolescence of product, particularly those that don't turn a great deal. We have implemented an integrated, digital printing line (for short runs) to address the challenges our customers face."

In order to streamline costs and deliver on time, Donnelley has concentrated on investing in continuous process improvement. Nearly 100 percent of the presses and binding lines within the company's book manufacturing platform have been certified through its process variability reduction process.

"Our crews are trained to use statistical methods to reduce waste, improve efficiency and manage quality. We use a very technical process to drive our continuous improvement," he says, noting that all manufacturing facilities are now ISO 9002 certified.

The success of the 2002 holiday season will go a long way toward shaping the book market prospects for 2003, according to Lane.

"If sales for traditional trade books are weak, that will result in heavy returns in the first part of 2003," he says. "Fundamentally, one issue that drives our trade publishers is the ultimate strength of the front list. Education relies on the aggregate economy. It drives revenues which, in turn, fuels state spending on education, along with the pace of adoptions. I predict 2003 will be much like 2002, which could be a flat year."

With the economic environment constraining growth across most of the book market segments, publishers and printers focused on better cost management, improving efficiencies and reducing inventory levels with just-in-time print strategies, according to Jack Field, senior vice president of sales and marketing for Von Hoffmann Corp., St. Louis. This challenged printers to deliver on full-service solutions that drive cycle time and cost out of the supply chain, he adds.

Some Good, Some Bad

For Von Hoffmann, 2002 represented a mixed bag. The K-12 educational book market languished through a weak adoption cycle as pressure on educational funding due to the weak economy resulted in soft demand. Field believes this negatively impacted the introduction of new products, resulting in weakness of services such as design, premedia and new casebound titles.

"On the other hand, consumable K-12 product experienced growth," Field states. "The higher education market enjoyed stronger growth as enrollments increased and many students stayed in college rather than entering a weak job market. Computer books had another off year as more computer-related information continued to migrate to online or DVD media."

In order to flourish, Field believes service offerings need to emanate early on, empowering concepts through design, providing editorial services and composition services, handling premedia services, and overseeing content manipulation and management.

"Our acquisition and integration of industry-leading design and premedia houses several years back moved our involvement up to the very start of the publishers' value delivery chain," Field says.

Field also hopes that an improved economy will enable end users—schools and institutions—to have access to requisite funding in 2003.

"The second step is up to the information providers, both publishers and printers, to provide timely, high-quality products tailored to meet end user needs," he says. "Today, that also means dealing with multiple media formats such as print and electronic. It also means having the information when end users want it, at the least possible cost. As an industry, we need to look to new business models that will allow us to deliver on these needs and grow the market."


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