Enduring The Economy -- Staying AfloatJanuary 2009 By Erik Cagle
Sorry...with the economy being what it is, the editors at Printing Impressions can’t even afford to go out on a limb. And, when it comes to forecasting the fortunes of printers for the final year of the millennium’s first decade, it hardly takes Nostradamus to tell us that economic pressures will cast a heavy burden on printers in 2009. One estimate predicts as many as 2,000 U.S. printers falling by the wayside this year (according to the PrintCom Consulting Group). The NAPL sees print sales declining by upwards of 3 percent.
Unfortunately, the 2009 outlook won’t spin, and we’re not going to try to paint a happy face on it, either. What we can offer, however, are some tips and a blueprint on how to emerge from the calendar year as a stronger, ongoing concern.
Andrew Paparozzi, vice president and chief economist for the NAPL, senses that the current slump will likely extend into 2010. It will take time to undo the past 10 years’ worth of leveraging credit and creating debt, both on Wall Street and Main Street. Unfortunately, we may not have bottomed out as of yet.
“We created these monumental, colossal excesses and imbalances,” he says. “In a market economy, excesses and imbalances have to be corrected. The correction can either be orderly or extremely disruptive. Because excesses were so great, in terms of institutional, corporate and household balance sheets, the correction was exceptionally disruptive this time.
“Fundamentally, we created these huge excesses across the economy—not just in subprime mortgages and financial institutions. We’re now seeing the extremely painful correction of those excesses.”
With print sales down around 2 percent last year, and projected by NAPL to be down in the 2.5 to 3 percent range for 2009, Paparozzi doesn’t anticipate a meaningful upturn until the end of the calendar year. Still, he warns that circling the wagons and hunkering down until the economy improves can be a fatal mistake. Why?
A recent NAPL economic report indicated that the gap between industry leaders and the rest of the pack widened during the 2001-2003 recession. The leaders, Paparozzi explains, were willing to make the moves during the recession that would enable them to capitalize better than most when the economic clouds parted. And, with our industry undergoing structural changes—such as shifting trends in how clients choose to market and advertise via electronic sources—Paparozzi’s old adage of a rising tide lifting all boats no longer holds true.
He was gracious enough to share an executive brief that he penned with Joseph Vincenzino and Kong Wang, titled “Choosing Not to Participate in the Recession.” The paper, abridged from NAPL State-of-the-Industry presentations and reports produced by its Printing Economic Research Center, offers eight tips for emerging from the economic downturn in a stronger position. A brief look at each:
Take financial actions. Some suggestions include having a short-term cash budget, securing a secondary “backup” bank and scrubbing accounts receivable.
Create a cost reduction task force. Find the fat, and take care not to cut into lean muscle.
Step up marketing. Don’t deem this area as expendable. Review your programs and kick them to the curb, if they’re not working.
Control the external message. Don’t let customers wonder how you’re doing. Stay in front of them via marketing and one-on-one meetings.
Control the internal message. Perhaps the only thing worse than the truth is the unknown. Make employees feel like they are a part of the solution by providing them with status reports.
Reinforce how you can help customers. “Let me know if there’s anything I can do,” is a trite way of communicating your assistance to clients. Show them how you can save them time and money, and maybe you’ll garner more work share.
Rally ’round what’s most important. Keeping an eye on the most important elements of your business during a downturn is tough, but possible. Hold meetings with production people about paying attention to details. Cross-train to improve flexibility. Get rid of poor performers and ensure your top people that their positions are secure.
Form a “find the growth” task force. Challenge your people to examine your markets and others for the best growth opportunities.
The idea of empowering employees to help guide your company through the turbulence is a philosophy shared by many industry consultants. Clint Bolte, principal of C. Clint Bolte & Associates, notes that solving problems and identifying opportunities will provide traction during an upswing.
“Printers that just tighten their belts and cut back—when an extended downturn comes—end up cutting muscle and sinew along with fat. And, when the bounce back occurs, it’s so much more difficult for them to recover. That will be a key differentiating factor between companies in 2009.”
While credit lines will be extended only to establishments that can demonstrate risk-worthiness, those that will invest in new gear during 2009 do not take their opportunities lightly, Bolte says. Purchases will be a direct result of customer needs and demands. Large-scale purchases will give way to creative software deals that allow printers to get into programs without overwhelming ramping-up costs.
“It’s a very realistic quid pro quo that’s going to be met with a real partnership attitude on behalf of suppliers, printers and so forth,” he adds. “These are things that will effectively create more credit, or more access to capital, than might otherwise appear to be the case.”
Dennis Mason, president of Mason Consulting, underscores the importance of utilizing a business management system. There are a number of MIS systems out there, and the common denominator is that they can do far more than provide estimates. After all, you don’t buy a DVD player because it has a clock function.
Mason also envisions a true shift toward digital printing, including the belief that more and more printing devices will end up in the hands of the corporate environment. “Companies like Xerox and HP are incredibly well-positioned to put a color printer that does beautiful work on the LAN and, if desired, restrict access to it,” he says. “I see no reason why marketing departments shouldn’t be printing their own collateral material in-house. And I think the economy is going to accelerate that movement.”
As for 2009, Mason feels it will take much courage for printers to step up and make decisions that may be painful, but necessary, to navigate the troubled waters. “Good times can cover up for a lot of sloppiness or mistakes,” he says. “Bad times expose all; so it’s important that, when a printer is faced with ineptitude or problems, it can understand where the problem is coming from and what to do about it.
“You must have a print management system in place. One that allocates costs—both to jobs and to departments—and that quickly tells you which people are producing and which ones aren’t. This is not about automating; it’s about understanding what’s going on in a complex manufacturing environment.”
Often times, it pays a printer to ask the question: “Where are my profits coming from?” Bill Lamparter, president of PrintCom, contends that most printers really don’t know the answer. Don’t laugh; Lamparter recalls one audit where he suggested that a printer pay one of his salesmen to not come into the office or call on customers, because all of the work he brought in was unprofitable.
“Get rid of unprofitable accounts by raising your prices,” he adds. Where printers fall into a trap is when they take a job mainly because it contributes to overhead. There’s a certain amount of truth to that. Where you get into trouble is when all the jobs you produce are unprofitable, but contribute to your overhead.
“I’m obviously painting a picture of the extreme,” he says. “But this is a very dangerous time from the standpoint of a printer being willing to do that because he thinks he’s helping himself. He might do better to cut his overhead.”
Another step printers can take is to re-examine their supply chain, according to Lamparter. Why not, since the trend for several years has been toward print buyers reducing their field of print vendors. That may not entail dropping vendors, but it could result in savings.
“The fact is, if you don’t ask for a price cut, you’re not going to get one,” Lamparter says. “You need to have a more astute procurement activity than you’ve ever had before.” PI