Predictions of Industry Mergers --DeWese
Certain segments of the printing industry, principally the largest—the general commercial segment, have too much press capacity (i.e., supply). Underutilized capacity is press and other equipment time that exceeds the present demand. Whenever supply exceeds demand, prices go down, profit margins shrink, employees are laid off, companies default on debt payments, companies go out of business and some excess capacity is removed from the market. I'm not sure where all of that equipment is going.
Some of it sits idle, covered with tarps in quiet plants. Some of it must wind up in some big repo warehouse and some gets sold at discounted "forced liquidation" or "auction" prices.
When these conditions exist, print buyers are in command and can be very demanding. Now, if and when, demand begins to approach supply, you have a condition called "equilibrium." Equilibrium is good.
Some printing segments are closer to equilibrium than others. We hear so much about cutthroat pricing in the huge general commercial segment because it's much larger than all other segments in terms of revenues and number of companies. Many printers in highly specialized niches, within various segments like packaging, direct mail, digital printing, publications and labels, have grown revenues and profits despite our stagnant economy, low advertising expenditures and the aftermath of 9/11.
My prediction is that the general commercial segment will continue to lose 2,000 to 3,000 firms per year through the year 2006. Many of the other segments, with far fewer companies, will remain stable and some will experience growth at rates commensurate with the rate of growth of the markets they serve.
As an example, I have a friend who prints tickets for the NFL, NBA, MLB and NCAA sports events. He has a handful of smaller competitors. He has to print and number tickets for every seat, in every stadium, for every event. If the NFL or MLB adds teams, however, he will experience some growth. If professional or college soccer catches on (ugh), my pal is in fat city.