Commercial Printing Outlook: Stay on Offense, Not on Defense
Economically, 2024 is likely to look much like 2023 for the commercial printing industry, with sales growing modestly at best and margins tight. Top challenges will again include operating cost inflation, particularly rising labor costs, and stiff resistance to price increases. Top opportunities will include strengthening risk management and drawing on artificial intelligence (AI) to maximize productivity, enhance mission-critical functions, and support superior decision-making companywide.
The 86 commercial printers who have participated to date in the third quarter 2023 PRINTING United Alliance State of the Industry Survey, sponsored by Canon U.S.A., broadly agree that uncertainty about the course of interest rates and the American economy has caused clients to “tighten their belts significantly.” The group’s sales (all sources) continued to grow through September, but by just 2.9%, on average. Operating cost inflation moderated to 4.6% as supply chains continued to heal, but weakened demand limited price increases to 3.9%. Pre-tax profitability increased for 40%, down sharply from 58.5% during full-year 2022. The economy, cited by 75%, topped the list of factors negatively affecting profitability. Investments made to increase productivity, production speeds, and automation, cited by 63.6%, topped the list of factors having a positive effect.
The economy is not likely to be any more help in 2024 than it was this year. Changes in interest rates can take 12 months or longer to work through the economy, so we haven’t seen the full effects of the rate-hike campaign launched in March 2022. And the boost from record COVID-19 stimulus is fading. PRINTING United Alliance’s preliminary forecast: Commercial printing industry sales (all sources) will grow 1.5% to 3% in 2024, with the odds of finishing below that range — because, for example, the economy slides into recession or sticky inflation forces the Fed to keep interest rates higher for longer — greater than the odds of finishing above it.
Top Worries for 2024
What concerns commercial printers most about the first half of 2024 and how do they plan to increase profitability in the new year? Among participants in our research, increasing sales (79.1%), maintaining profitability (68.2%), and rising labor costs (50%) are the biggest concerns, just as they were this year. Nearly 40% are very concerned about electronic alternatives to print. Only 2.3% are very concerned about their ability to acquire essential materials, down from 94.7% at the start of 2022 (see Figure 1).
More than 77% plan to increase profitability by controlling costs more effectively, 72.7% by managing more effectively, and 63.6% by marketing more effectively. Profitability-enhancing productivity gains will come through both workforce development, cited by 61.4%, and capital investment, cited by 59.1% (see Figure 2).
Workforce development data are among the most insightful results of our survey, with nearly three-quarters of participants to date reporting the skills required for positions including company leadership, sales, and production have changed significantly. The next step in our research is to investigate those changes and how commercial printers are addressing them.
Capital Investments Drive Productivity
Capital investment expectations are among the most encouraging results. Despite all the uncertainty, 70.1% of commercial printers surveyed plan to invest in capital equipment, hardware, or software during the year ahead, up from 58.7% at the start of 2023. The most desired capital investments include bindery/finishing systems, mailing capabilities, workflow software, commercial inkjet, management intelligence applications (MSI, CRM, ERP, etc.), and print enhancement technologies. Increasing productivity, cited by 92.3%, is the top investment objective by far.
Two additional topics came up during a discussion of sustained profitability: superior risk management and artificial intelligence. Concerning the former, the last three years have reminded us that market upheaval can come at any time and from the most unexpected sources, meaning as one commercial printer we surveyed said, “No matter how well your business is doing or how well it is run, it can turn in an instant.”
Key risk indicators (KRIs) are an essential component of risk management. Where KPIs measure a company’s progress toward its goals, KRIs measure the risks that may get in the way. In “How to Develop Effective Key Risk Indicators + Best Practices for 2023” (secureframe.com/blog/key-risk-indicators), Anna Fitzgerald recommends creating KRIs by answering the following questions:
- What are the company’s primary goals?
- What major risks could prevent the company from achieving the goals?
- Which metrics will most effectively monitor those risks, providing a heads-up early enough to take preventive action?
KRIs should be quantitative so they can be measured precisely. And they should be reviewed regularly because risks change over time. (For more on KPIs as well as two equally important components of risk management, customer health scores, and worst-case analysis, see the PRINTING United Alliance State of the Industry Update, First Quarter 2023.)
Concerning artificial intelligence, Figure 3 shows that 24.5% of commercial printers surveyed have incorporated AI into their businesses, including indirectly through investments in capital equipment, hardware, and software with AI embedded, and 23.5% plan to within the next year.
The early adopters are using AI to create website content, including “our entire sustainability page,” market assessments, blogs, articles, and white papers on topics of importance to clients; for early identification of quality issues or potential customer needs, leading to product innovation; to identify prospects and stay current with what’s happening in their world; and to create fully functional Web applications from text prompts.
They speak frankly about the challenges of artificial intelligence, emphasizing that AI can be “what it is most often thought to be — a ‘self-learning’ process pulling from a database or an adaptive sequence of responses for, say, customer service inquiries” — but it takes a lot to get there. “The going is slow mostly due to the institutional habits formed over decades” and to a steep learning curve, “particularly learning how to break down requests to keep the AI application on the right track.”
They speak just as frankly about the importance of embracing AI because “it is the future of a lot of things.” Artificial intelligence will automate production from start to finish, and so must be part of an all-out effort to increase productivity. It will automate activities from content creation to the evaluation of job applicants that could never be automated before. It will streamline and enhance the analysis and forecasting of market trends, client preferences, and supply-chain conditions supporting superior business decisions companywide. And it will touch every commercial printing company, creating a formidable advantage for all who capture its benefits and minimize its risks.
(Steps essential to incorporating artificial intelligence profitability are summarized in the PRINTING United Alliance State of the Industry Update, Second Quarter 2023.)
As part of our state of the industry research, we asked commercial printers what they have learned from the market upheaval of the past three years. We asked because every upheaval, whether economic, technological, biological, social, demographic, or otherwise, is an opportunity to learn, adapt, and be better prepared for the next one. One response was, “Always go on offense, defense rarely pays off.” That’s sound advice and far more likely to produce a favorable outcome in 2024 than waiting for the economy to turn up or interest rates to turn down.
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.