Commercial Printing Outlook: Adversity Also Creates Opportunity
It looks like rough going for the commercial printing industry in 2023, with labor shortages, cost inflation, supply chain disruptions continuing, and the American economy slowing appreciably. But even the harshest business climates bring opportunity. Some industries hold up well, creating pockets of growth, and market share and quality employees become available as the unprepared retrench or fail. Keys to capturing the opportunity include acting on leading indicators, marketing for the times, and superior focus and execution.
The 162 commercial printing companies that participated in the “2022-23 PRINTING United Alliance State of the Industry Survey” (SOI) spoke frankly about their expectations for the coming year. Just 25.3% expect business conditions to be better than this year, 40.4% about the same, and 34.3% worse. Concern about continued material shortages, labor shortages, and cost inflation is widespread, and concern about “looming recession” and “the negative effects of higher interest rates” is growing. Most telling, 83.2% are worried about maintaining profitability and 74% about losing clients to print alternatives.
Nearly all, however, have plans to strengthen margins. As Figure 1 shows, increasing prices, cited by 76%, tops the list. Other revenue-side actions include marketing more effectively (48.6%), diversifying (48.65%), and selling more effectively (47.9%). On the cost side, 65.1% plan to improve cost management in general, 54.8% operations management, and 48.6% inventory procurement/supply chain management. Nearly 60% plan to build profits through capital investment, 53.4% through employee development, and 38.4% through both.
Capital Equipment Investment Plans for 2023
We asked SOI participants to elaborate on their capital investment plans. As of early October, 60.3% plan to invest next year, 8.9% do not plan to invest, and 30.8% were still not sure if they will invest. Among companies planning to invest, expected investment rates average 3.6% of annual sales. Among companies not sure if they will invest, 66.7% are concerned about the economy, 53.3% are concerned about business conditions in their markets, and 31.1% are not sure which investments to make.
Among all companies surveyed, bindery/finishing systems (61.1%), commercial inkjet (39.6%), and mailing capabilities (27.1%) are the most desired capital investments, and increasing productivity (83.2%), increasing production speed (58.7%), and automation (51.7%) are the most frequently cited investment objectives.
We also asked about opportunity. Our research panel talked about industries that hold up well during economic downturns, such as defense, healthcare, and education, and industries such as events, travel, tourism, and hospitality who expect to benefit from further release of pent-up demand created during COVID-19. Figure 2 lists the 10 markets of more than 40 rated that they expect to grow fastest over the next three years. Notice that only two are traditional commercial printing markets. (More than 70.0% of companies surveyed have diversified beyond commercial printing, 54.9% into graphic and sign production, 34.0% into promotional printing, and 25.3% into package printing/converting.)
Concerning the economy, no indicator is more important than the Federal Reserve Board’s intentions. And the Fed’s intentions are clear: Raise interest rates aggressively, slow the economy, and cool inflation. Because interest rate increases take six to 12 months to work through the economy, we haven’t seen the full effects of the increases to date, never mind the hikes to come. Whether formally into recession or not, the economy will slow appreciably in 2023. As it does, so will commercial printing.
Some Actions for Commercial Printers to Consider
How do we turn the unforgiving combination of a weakened economy, material shortages, labor shortages, and cost inflation into an opportunity rather than a threat? These actions are a good start:
Act on leading indicators. Monitoring our most reliable leading business indicators even more closely than usual will be essential in 2023. But monitoring will not be enough.
We must also set trigger values for each indicator and define what we will do if we hit the triggers because the business climate will be too challenging to lose time wondering, "So what do we do now?"
Market for the times. Client needs, priorities, and behaviors change as the business cycle turns down. Have we adjusted our keywords to capture those changes? Do our keywords still support search engine optimization? Do our social media, blogs, videos, and all other marketing address what clients need now, not what they needed when business conditions were more favorable?
Here’s one example of the value of marketing for the times. “The New Recession Playbook,” by Bain & Co. reminds us that “a downturn is when customer loyalty is either earned or lost. It’s a moment of increased churn with customers more aggressively scrutinizing spending and looking for the best value alternatives.” Marketing for the times captures the business intelligence we need to create customized “best value alternatives” both to retain clients most likely to churn and to capture clients most likely to churn them from the competition.
Maximize focus and execution. SOI participants who grew profitably in 2022 credit a number of actions, including marketing value created for clients rather than capabilities and features alone; focusing on more profitable work and “firing bad customers;” changing pricing strategy, including “charging for services we were giving away;” tightening overall management and “paying closer attention to everything that affects profit"; and increasing efficiency through “facility consolidation and more standardization of work processing,” and “lean techniques.” The root of their success, however, wasn’t the actions but rather their ability to maintain focus on and execute them despite the distractions created by fractured supply chains and the worst cost inflation in decades.
Tough economic times create opportunity to capture market share, talent, and assets others relinquish by retreating into survival mode. Rather than wait for business to improve, ask questions such as: Where internally and externally can we get the biggest wins? What will it take to realize those wins? How will we stay focused on and execute our plans, no matter how challenging the macro environment?
The right answers will make for a successful 2023.
Andrew D. Paparozzi joined PRINTING United Alliance as Chief Economist in 2018. He analyzes and reports on economic, technological, social and demographic trends that will define the printing industry’s future. His most important responsibility, however, is being an observer of the industry by listening to the issues and concerns of company owners, executives and managers.Previously, he worked 31 years at the National Association for Printing Leadership. He has also taught mathematics, statistics and economics at various colleges.Andrew holds a Bachelor’s degree in economics f rom Boston College and a Master’s degree in economics — with concentrations in econometrics and public finance — from Columbia University.