Special Report: Offset and Beyond -- Today's Model: Distribute-Then-PrintApril 2009 By Cheryl Adams
Kelly: Underutilized capacity in the printing industry, combined with a no-growth market, forces everyone to share what crumbs of business are left out there. No one is safe. Big and small companies alike are all on shaky ground trying to figure out what comes next. Everyone is taking hits. Transcontinental recently invested $200 million in a new plant that opens in June 2009 to print the San Francisco Chronicle, which recently reported that it may be sold or closed. Big competitors are now bidding on small projects that they would have laughed at a year ago. So, industry contraction would seem inevitable.
However, I remain bullish on our industry to transform and grow. First, I believe customers are reducing their budgets on expensive advertising and moving to cheap media, which puts print, online, direct mail and direct marketing at the center of the “media universe.” Secondly, I believe consumers are getting annoyed with high-profile advertisers that receive bailout money, or with companies that publicly announce massive layoffs and closures. This trend will force many marketers to get out of public view and use private direct marketing campaigns to connect with their customers.
For example, my blood pressure rises when I watch NASCAR and see Caterpillar sponsoring a race team, yet they publicly announced layoffs for more than 20,000 people—many of whom are NASCAR fans. I immediately wonder how advertisers rationalize the ROI when sponsoring race teams, Super Bowl TV commercials, sports endorsements and/or stadium signs (e.g., Citibank, a major bailout recipient, continues to pay $400 million for the NY Mets stadium naming rights).
As consumer sentiments shift, so will advertisers’ accountability and ways they direct their shrinking spend on proven marketing programs that get results: print and online direct marketing campaigns. In general, I tend to think of future industry consolidation more as future industry convergence.
PI: How can printers survive the current recession?
Kelly: At K/P, we have always leased our equipment and buildings, which has turned out to be a really good thing for us; contrary to traditional print businesses. The balance sheet might look a little lighter in assets. However, we can respond quickly to the recessionary economy and/or market shocks. Our ability to immediately adjust our fixed cost structure is priceless.
The other area of focus is reducing our big ticket “inputs”—paper, materials, labor—those items that we convert to customer value. Right now paper mills are talking about taking machines off-line, choking supply and raising prices to improve their business. The USPS is pushing through another May postage increase. And customers want their suppliers to absorb any and all increases these days. Ouch!
Implementing quality systems, leveraging technology and investing in automation can’t be emphasized enough. These are just some of the best ways we have found to reduce our waste, floor space and head count as quickly as possible.
Last, but certainly not least, is to not take your best customers for granted. The best defense against losing your best clients is to proactively give them the same price breaks and service levels as your prospects. Major customer stabilization is critical in times like these, and frequent customer satisfaction metrics really helped us get in front of any potential challenges.
PI: What has made your company successful?
Kelly: First, let’s clarify what the word “successful” means in today’s terms. I don’t believe we’re successful if we’re talking about profitability, since we’re not meeting the expectations we would love to see right now. But, if “successful” means still standing and holding your own, then it’s OK to comment.
We learned our lessons early when we lost a major account to a big competitor at the beginning of 2007. Crisis snaps you into making the changes you need to survive. Losing that account was a huge jolt. It was a life-changing event for us, and we were forced to restructure rapidly.
We had to immediately get to a lower cost level. We had to flatten our organization, change our processes, our workflows and our culture. Change management practices were essential to quickly realign our employees’ mindsets to support the newly structured operation. I can’t emphasize enough how important it is to keep close contact with your front-line employees and your best customers.
It’s all about creating an environment of trust and fairness, therefore transparency of your actions is paramount. Keeping everyone informed about what’s going on with the restructuring helps reduce your business risks. By adapting to scale, we have cut our square footage by 28 percent and head count by 42 percent, in less than two years. It was a huge challenge, but an amazing journey.
We responded to the crisis in 2007, which was a very tough year. We did much better in 2008 than 2007, and we expect 2009 will be better still. In hindsight, the 2007 event was our pre-game warmup to weathering this “great recession.” We continue the same change management practices today, looking for new ways to respond to cost take-out and revenue generation.
In summary, I believe K/P Corp. and printers across the industry—offset and digital alike—may have to take some body blows during these tough times, but we are not down for the count. Opportunities still exist for a great printing business. Having the warrior spirit to find, capture and engage the “new normal” is what it’s going to take to be successful and still standing. PI