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Commercial Printing--The Economics of Printing's Evolution

December 1999


Sony and Cher, Laverne and Shirley, Thelma and Louise, Tenspeed and Brown Shoe. You can now add commercial printing and the economy to the list of couples who no longer exist.

For many years, the growth of the commercial printing industry walked hand-in-hand with that of the nation's economy. Recent findings indicate that other factors are having more of an influence in the growth of printing than the economy, according to Andrew Paparozzi, chief economist for the National Association for Printing Leadership (NAPL).

"For the first time since we've been tracking data, we're finding that the print industry is growing slower than the economy," Paparozzi reveals, noting that sales growth slipped to about 31⁄2 percent from the 4 percent to 5 percent realized in 1997 and 1998.

"The economy in 1999 was absolutely spectacular," says Paparozzi. "Since we know that the printing industry is closely tied with the economy, and with the economy at its strongest in 35 years, how is it possible that the printing industry's growth slowed?"

Perhaps with the coming of the new millennium, a major shift in the way communications are being delivered is at the heart of the matter. While it's hardly the time to sound ink-on-paper's death knell, it would be foolish to believe in an era of new media, partnerships and changing strategies, that the manner in which business is conducted would remain the same.

Paparozzi offers a sampling of some findings made by the NAPL that sheds some light on the market's shifting economic condition. Among the variables affecting commercial printing:

  • Internet, CD-ROM and other electronic alternatives to printed communications. Certain market segments have enjoyed complementary relationships with electronic media, but others have not been as fortunate and may be looking at a replacement scenario.

  • Mergers and consolidations—partnering either by working agreement or the total alliance of multiple companies. Companies are downsizing, relocating, outsourcing and forming purchasing organizations. This industry-wide streamlining is affecting demand for print.

  • A shortage of qualified labor. This was another "findings first" for the NAPL in the 20 years it has been soliciting information: The growth of some companies is being retarded by an inability to find adequate personnel. With unemployment rates still near record lows, employers in the graphic arts are having trouble finding experienced, skilled and productive employees.

"All these relationships are independent of the economy," Paparozzi notes. "It is kind of a structural change. How people communicate is changing, and print's role in facilitating that communication is changing. We're making the change from lithographic printing services to providers of a much broader range of communication services—digital, personalized, short run, on-demand, Internet or CD-type services, or database management, fulfillment and facilities management. These are all potentially very profitable, but, in the short run, they can be a drag on the bottom line because they do carry severe learning curves."

He feels the challenge is to advance into alternative communications services that the clients demand, while protecting the core ink-on-paper business, which still remains lucrative. The industry can't lean back on the economy either, as blue chip economic indicators consensus for GDP growth is 2.8 percent in 2000, down almost a full percentage point from 1999. Still, the economy's performance has confounded analysts for several years and may well continue that trend.

Acquisitions remain a major factor in the industry, and several prominent players seek to fortify their standing. Among those companies is Cunningham Graphics International in Jersey City, NJ. According to Gordon Mays, executive vice president, Cunningham's acquisitions target major business/financial locations, strong market niches and synergies.

"Many of our major clients are taking advantage of our distribute-and-print capabilities, particularly on a global basis," Mays remarks. "The industry continues to consolidate—small mom-and-pop to regional, regional to national. There's very intense pressure on regionals to compete against national firms. Clients are looking for national/global capabilities, greater breadth of services [Web services, document management, on-line ordering] and single-sourcing contracts."

The technology revolution is the major driving force, and Mays believes that firms which successfully market their technology, and the application of it, to client-specific needs will be successful. Even so, companies that acquire technology, but do not differentiate themselves from the rest of the pack, have little hope of succeeding.

As the new year and new millennium roll around, Mays sees considerable growth in digital printing and related services (such as Web and digital asset management), but also believes commercial growth will reach respectable levels. He warns that technologies must not supercede solutions for the client.

"What the technology does for the client's processes/needs is more important than the technology itself," Mays notes. "Marketing is the key."

Growth is also the operative word for Houston-based Consolidated Graphics. Joe R. Davis, chairman and CEO of the company, is especially proud of Consolidated's management development program, which currently boasts more than 150 participants and is slated to recruit 80 more in the next 12 months. He notes that seven of the company's presidents are graduates of the program.

Davis sees the year 2000 and beyond as another opportunity for high-quality marketing materials to be in strong demand. Consolidated's investments in technology enable it to produce quality product in the shortest amount of time, he adds, and its venture into the digital and electronic arenas, including the Internet, will allow it to set the pace.

"We think it's an exciting time to be in the printing business," Davis points out. "We're going to use all the technologies available to produce better products at lower costs. Delivering complicated projects on time continues to be a high priority within the company."

Brad Schreier, president of North Mankato, MN-based Taylor Corp., also points out the emphasis on the e-commerce front. He stresses that most print-related e-commerce solutions being offered focus on one or two smaller "niches" of the industry.

"We have not seen any real offerings that seem to get their arms around the larger dollar volume of print expenditures," he says. "But like most advances in technology, the easier solutions come first. The attention technology is getting in regards to print solutions is going to advance the solutions geometrically in the year 2000."

Not everyone is convinced that e-commerce is ready to assert itself as a major player in the industry. Carl Norton, chairman and CEO of Houston-based Nationwide Graphics, doesn't see an impact in the high end of the print spectrum.

"So far, I haven't seen a lot of applicability for upper-end, high-quality printers," Norton says. "Not many people want to sign off on a proof or do a press check by computer. They may want to know where a job is in the queue, which we can already do now."

Not that Norton is dismissive of the technology and its future impact. Nationwide Graphics didn't triple its revenues from $32 million to just under $100 million, courtesy of knee-jerk reactions and decision making. It purchased high-margin printing companies that are leaders in their respective geographical locales.

Nationwide has recently consolidated some operations—national accounts on paper, prepress supplies—all of which flow to the company's bottom line.

Norton can't wait for the future to arrive, for with it comes more acquisition opportunities and increased revenues and profits. "In the next 12 months," he says, "I'd be disappointed if we didn't double [revenues and profits] at a minimum."


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