Hot Markets for 2007 — Prepare for Growth
DON’T BELIEVE the pundits. The U.S. economy will expand, not contract, in 2007-2008, and to an annual growth rate of nearly 4 percent in GDP. This will reverse the downward adjusted 3.2 percent in 2006 and 2005. Our industry should makeready to run forward at near the GDP rate. The reason: print growth is tied to the “knowledge economy,” which is not calculated into GDP while government, an outlay, is.
Research and development, if treated as a capital investment rather than as an intermediate expense, boosts GDP by 3 percent and the national savings rate by more than 2 percent. The U.S. accounts for 32 percent of the worldwide R&D number, and the payoff to packaging and printing will be exponential during the next two years among the Hot Markets detailed here.
A knowledge dividend will principally accrue to Number 1 publishing/non-newspaper ($112B, +3 percent; with $15.7B to print, +11 percent). The robust value proposition of digital versioning combined with special-effects offset will excite professional/educational books ($4.1B to print, +14 percent) and juvenile/adult trades, CDI and religious publishing ($3.0B to print, +14 percent).
Conversely, periodicals ($6B to print, -2 percent) will continue to decline in ad/circulation revenues, as will the number of heatset full webs. Other/non-traditional publishing ($1.6B to print, +14 percent) will be dominated by foreign language/content publications coming onshore and newspaper FSIs. Greeting cards ($1B to print, +4 percent) are losing ground to upstart e-cards as production and distribution costs of conventional printed products drive higher prices. Specialty finishers have to migrate to packaging and fancy publication covers and inserts.
At Number 2 will be banking and insurance ($3.02T, +6 percent; with $15.6B to print, +2 percent). Commercial banking ($11.6B to print, +2 percent) is the largest direct mailer and a major demander of signage, outdoor, transit, forms and stationery. Mergers will slow to smaller banks, limiting category growth, but the buyers will be foreign-based financial institutions. Name changes!
Insuring a Strong Future
Property/casualty insurers ($1.9B to print, +5 percent) and life insurance ($2.1B to print, +5 percent) are rebounding as rising real estate values, personal debt and an aging population demand greater coverage. Related is Number 10-ranked investment brokerage ($873B, +15 percent; with $8.5B to print, +7 percent) where investment banks/syndication ($3.5B to print, -11 percent) will nearly equal securities brokerage ($3.6B to print, +3 percent).
The largest spate of across-the-board consolidations will exceed the record in 2006 and bring tremendous demand for open-web, sheetfed and hybrid/digital financial printing. Also bigger in branding will be the exchanges. NYSE Group’s merger with Euronext NV, its acquisition of Marco Polo Network, and the NASDAQ/London Stock Exchange (LSE) link-up, underscore globalization of trading and investing. Initial public offerings will also shatter the ’06 record, which overturned the previous record in 2000. Mutual funds ($1.4B to print, +55 percent) in post- consolidation will come back with direct mail and ROP marketing. Number 3 medical products/pharmaceuticals ($373B, +3 percent; with $12.9B to print, +4 percent) will be led by pharmaceuticals and wellness ($8.3B to print, +7 percent) as new and rebranded medicines come to market and as government intervention impels generics. Packaging, point-of-purchase (POP), ROP and bind-in placements will be at half last year’s growth because of price and regulatory pressures. Medical products ($3.0B to print, -6 percent) and biotechnology ($0.8B to print, -14 percent) will slash print buys as Congress and class-action lawsuits hamstring product introductions.
Related is healthcare ($2.17T; +8 percent; with $8.3B to print, +8 percent), ranked Number 12. New products to the un/under-insured population in health insurance and third-party administration ($5.0B to print, +19 percent) will be driven by impending federal policy changes. More mail and outdoor advertising. New dental benefit programs will also be introduced by the big insurers because of “proven links to other health problems.”
Hospitals and non-hospital care ($2.8B to print, 0 percent) will level print promotional and utility spends after a big jump in ’06. This sector is apprehensive of universal healthcare mandates, and will try to stay in front of it through demographic positioning and public relations blitzes.
The ground is sagging in Number 4-ranked real estate ($2.1T; +10 percent; with $12.3B to print, +4 percent) as housing prices buckle. Residential/new single housing ($3.0B to print, +7 percent) construction is slowing with record-high inventories. However, home builders like Lennar Corp. (+20 percent) in hot geographies are holding up well. Residential resale ($2.9B to print, 0 percent) is leveling at 9 million units, but at 2 percent lower prices. Cold-web and digital color promotional print will build, followed by large-format screen, digital and sheetfed litho for outdoor advertising and signage.
No Place Like Home
Mortgage fees ($1B to print, +26 percent) will rise with property transfers and assessed values, impacting forms and outdoor advertising. Rental housing ($1.2B to print, +19 percent) and manufactured housing ($0.6B to print, +20 percent) will be desperate for leases and sales.
Condominium/second residences ($2.5B to print, +9 percent) continue to be in fastest-growth mode with the newest venue being college towns, where alumni, parents, sports fans—and students—find accommodations previously impossible. New developers like Gameday Centers are teaming with traditionals like Capstone and Trammell Crow in this segment, a boom for sheetfed and digital shops near the hundreds of big sports universities.
Overbuilding in city cores and along the coastlines will slow future growth, but heat up print marketing materials. Commercial real estate ($1.3B to print, -13 percent) will slow with retailing and a glut of office space.
At Number 5 will be computer software ($351B, +11 percent; with $9.8B to print, -7 percent). More than half of the total buy is among 40 companies led again by packaged/download software ($3.7B to print, +6 percent) and network and mainframe computing ($2.2B to print, +10 percent). Hewlett-Packard, for example, will shift IT resources principally toward development and away from support in an 80/20 ratio directed at networked “commercial printing and selling data security software.” Meanwhile, Microsoft’s Vista and spinoff Wallop have been introduced with major print support.
Additionally, 64-bit computing is under way with a proliferation of new software, but with less packaging. Memory and storage ($2.4B to print, -14 percent) and hosting ($1.5B to print, 0 percent) are slowing just as printers are entering the once-hot market. Only search-advertising providers like Yahoo and Google are succeeding, but at the expense of all but book printing. It’s time to log off from this sector.
Packaged foods ($698B, +7 percent; with $9.8B to print, +1 percent), at Number 6, and food service ($659B, +7 percent; with $4.6B to print, +12 percent), at Number 21, will feature trans fats phase-outs on labels and menus.
Slowdowns in the growth of fast foods/takeaway ($1.8B in print, +19 percent) and full-service restaurants ($2.2B in print, +6 percent), and a leveling in dry foods/snacks and confections/baked goods ($3.4B to print, +3 percent), will feed turnaround promotional print advertising, coupons, POP, outdoor and take-away packaging.
Kraft Foods (+10 percent), with a 5 percent market share, is reformulating to low-carb products with a half-billion dollars for marketing in ’07. The largest flexible packaging growth, free of partially hydrogenated vegetable oil, will continue in fresh-packaged foods ($3.5B to print, +19 percent). Stale will be litho stacked labels and board converting for bottled, canned, frozen/microwave foods ($3.0B to print; -8 percent). Pet foods ($.3B in print, +30 percent), as last year, will run ahead of the pack.
Speeding from Number 9 to Number 7 with only ink in the tank will be automotive ($1.6T, +1 percent; with $8.9B to print, +4 percent). Off-road vehicles ($.8B to print, +15 percent), with Hogs, Cats and Deeres, will accelerate on the unpaved landscape while new vehicles ($4.0B to print, -5 percent) brake their buys on the road.
Featured will be POP, outdoor, high-end sheetfed, pressure sensitive/decal OEM and personalized direct mail. Stalled finance/insurance ($2.0B to print, 0 percent), rentals/leases ($1.2B to print, -2 percent) and used vehicles ($0.5B to print, 0 percent) will decelerate open-web RPMs. Regional dealer groups will be increasing demand for targeted direct mail and FSIs.
Beverages ($341B, +4 percent; with $8.8B to print, +1 percent) will fizz and pop to Number 8 as soft drinks and wines/spirits ($2.5B to print, +13 percent) bubble. Laminated wine box/bladder packages, with over five times more printing value, will uncork bottle and label producers at an annual substitution rate of 20 percent. Waters and juices ($1.7B to print, +7 percent) is the next growth category as Pepsico (+15 percent) buys vitamin-fortified Naked Juice to compete with Coke’s Odwalla, and as Nestle markets negative-calorie drinks.
Sell packaging, POP, FSI and outdoor. Coffees, dairy ($2.0B to print, -20 percent) are at saturation and will be cutting back print spends. Look for, and sell into, migrations by the beers/malt liquors ($3.5B to print, -17 percent) segment into other drink categories with brand extensions. Bud Vodka?
At size Number 9 and gaining weight is fashion ($507B, +13 percent; with $8.6B to print, 0 percent). Luxury goods led by jewelry and accessories ($2.9B to print, +14 percent) will wear best on U.S. sheetfed and flexo presses, while the remaining categories of clothing and footwear ($5.7B to print, -6 percent) will owe their print to Asian and European providers.
Macy’s will become a national brand with its conversion of 400 department stores, and other clothing chains will dress up their units with sharp signage and upscale appearances. Screen and digital large-format printing will soar.
Telecommunications equipment/ services ($940B, -5 percent; with $8.4B to print, -17 percent) drops five lines to Number 11. Wireless, including equipment ($202B, +10 percent), is the only growth segment with $2.0B in print. Broadband licenses covering 89 percent of the U.S. population will take effect in 2007, with T-Mobile USA and the other Big-Five rolling out 3G Wi-Fi and Wi-Max ad campaigns.
There’s a particularly attractive opportunity for printers to provide “dot-mobi” domains and sites formatted for cellphones and PCDs. Pay attention to Mobil Top Level Domain, the management company founded by Microsoft, Google, Nokia and others.
Long distance, local wire, fibre optic and cable ($1.5B to print, -64 percent) are consolidating among small, rural providers (e.g., Citizens acquiring Commonwealth Tel) and the Baby Bells. AT&T’s merger with BellSouth will finalize in 2007 and other conventional providers are in marginal or zero growth as consumers migrate to wireless ($2B to print, 0 percent) and VoIP connections.
Telecom equipment ($0.4B to print, 0 percent) is flat except for network providers like Nortel (+10 percent) and among Research in Motion (+40 percent) and other makers of personal digital assistants (PDAs). Cable and satellite ($1.5B to print, -28 percent), post-consolidation, will unplug all but direct mail printing. Directories ($14.3B, -6 percent) will commence their decline into printing history, but still with $3B to print in ’07 and ’08.
At Number 13 is travel/hospitality ($762B, +9 percent; with $7.2B to print, +27 percent). Hotels and resorts ($3.4B to print, +17 percent) are opening new destination properties, and rebuilding and branding existing ones, at record rates. Business travel is back, as at Marriott (+16 percent) and Hilton (+13 percent), and resort timeshares are catching on among the aging baby-boomers.
Less overseas travel is forcing tour operators to up their ad spends, particularly in the Western Hemisphere where passports are now required. Airlines ($1.8B to print, +55 percent) will substantially consolidate with new logos, colors, literature, posters and signage. Cruiselines ($1.4B to print, +27 percent) are floating more collateral and outdoor print as the seas get crowded. Lagging this sector are destination parks ($0.6B to print, 0 percent), which are coasting down as ages rise.
Alarming in decline from Number 13 to Number 14 is security/protection ($528B, +10 percent; with $7.2B in print, -4 percent). Data/document integrity security ($1.6B to print, +14 percent) is the top security product as hackers and cyber-thieves take over tainted Websites and VML-code-flawed e-mail programs and browsers with large-scale spamming. VeriSign iDefense, Semantec, Microsoft and others are on the defensive.
Radio frequency identification (RFID) chip embedment and reading haven’t penetrated, so-to-speak, but nanotech and biometric recognition will have greater value in tags, labels, passports, licenses, decals, legal documents, folding cartons, POP, books and most every other form of printing and converting.
Smart labels and packaging will change appearance and visual information, and provide instructions for home appliances and other consumer devices ($3.9B to print, +4 percent). Locks, safes and equipment ($1.7B to domestic print, -41 percent) market share is going to Chinese producers.
Home improvements ($939B +4 percent; with $7.1B to print, -5 percent) will drop one rung to Number 15 as the big-box dominators push non-brand, low-price imported products. Packaging for home appliances ($1.6B to domestic print, -25 percent), furniture and fixtures ($0.5B to domestic print, -38 percent) and tools and materials ($1.4B to domestic print, -22 percent) are getting hammered because of discount imports, with print buys chiseled.
Coldset-web FSIs, coupons, swatchbooks, POP, packaging and labels will continue to plane. Some print building segments will be floors, walls, windows ($1.9B to print, +6 percent), lawn and garden ($0.3B to print, +7 percent) and remodeling services ($1.1B to print, +9 percent), which source to mostly local sheetfed, label, folding carton and copy shops.
Overlapping is discount-retail ($1.02T, +2 percent; with $5.2B to print, -7 percent) ranked at Number 17. Wal-Mart, Costco and Lowe’s are at less than 2 percent growth, maxed out in locations and deluded that their markets are captive. To improve “shopping experiences” and look more like top-drawer retailers, the hypermarkets and clubs ($3.5B to print, -10 percent) will have to reposition themselves by 2008.
Increased Web Work
Meanwhile, off-price stores and outlets ($1.6B to print, +5 percent) are “on” to offset. Ross Stores (+13 percent), Big Lots (+9 percent), Dollar Tree (+8 percent) and others are up to doubling their web offset print spends. The increased U.S. minimum wage will swell this category beginning in ’07.
At Number 16 will be personal care ($346B, +15 percent; with $6.2B to print, +12 percent). Hair, skin, sun care ($1.5B to print, +45 percent), fragrances ($0.6B to print, +12 percent) and color cosmetics and toiletries ($2.9B to print, +4 percent) are the printing superstars, applying ultra-slick packaging, labels, POP and spectacular-type magazine inserts onto the face of marketing.
The remaining sector buys are litho and flexo packaging and POP, principally for sanitary/hygiene products ($1.2B to print, +9 percent). With the threat of biological and nuclear terror ahead, this segment will grow at 13 percent to 50 percent.
Ranked Number 18 and Number 19, respectively, are entertainment ($652B, +1 percent; with $4.9B to print, +9 percent) and closely aligned consumer electronics ($748B, +8 percent; with $4.8B to print, +13 percent). Content and distribution connect these sectors. Defensively, broadcast/premium cable/satellite ($1.8B to print, +12 percent) are converting to digital cable and broadband-enabled, added services such as broadcast’s cable bypass for computer-to-television and telecom’s TV set-top boxes for streaming data delivery.
On the offense are recordings/sound and video ($0.4B, +31 percent) promoting legitimized video and music sharing, as Google’s YouTube and others automatically identify copyrighted material as downloaded. Motion pictures ($1.2B to print, +9 percent), converting to digital projection, will offer theater-goers and travelers outside, wireless downloads and enhanced viewing/sensation features via handhelds.
Printers contemplating metadata services take note: Graphic and literary conversions should be tagged in premedia to generate new revenues. Direct mail, outdoor and premium sales in combination will scream.
Sounds Like Growth
Toys and games ($0.7B to print, +37 percent) and personal computers and peripherals ($1.5B to print, +5 percent) are designing into the wildly successful iPod/iTunes video/audio players. The platform for Disney’s “Mix Max,” aimed at “tweens” (9- to 13-year-olds), is open to any content provider, and will be a large consumer of packaging and promotion because there are no downloads.
The receivers and players ($2.4B to print, more than two-thirds to Asia) segment will double to $4B by 2009 as Mattel and Hasbro, among other toy marketers, migrate to digital cameras, cellphones and MP3s geared to youngsters. Non-techies will be marketed such products as Printing Mailboxes that output e-mails without a computer or Internet connection, batteries rechargeable through USB ports, satellite radio receivers, etc. Digital hubs will increasingly provide fee-based, commercial-free TV shows and countless additional entertainment besides computing.
Leisure activity ($199B, +7 percent; with $4.7B to print, +5 percent) relaxes to Number 20. As Americans give back vacation days, there’s less time for recreation and fitness, pools, gyms and clubs (-6 percent), but more money for print ($1.6B, +5 percent). Ditto for outdoor sporting and wheel goods ($2.3B to print, one-half domestically, +11 percent) and horticulture and hobbies ($0.8B to print, +14 percent). Packaging, outdoor, POP and magazine inserts will be choice media.
At Number 22 is gambling/wagering ($481B, +8 percent; with $3.9B to print, +9 percent). State/provincial lotteries ($2.5B to print, +14 percent) will appeal to financially strapped consumers with game cards, POP, outdoor and other print collateral. Casinos/wagering parlors ($1.1B to print, +9 percent) will expand locations, including those resulting from the unprecedented legalization of slot machines in Pennsylvania.
On-track/off-track betting ($0.3B to print, -25 percent) elsewhere will be flat and in rapid consolidation. Online gaming is a long-shot bet for direct mail and loyalty clubs as the U.S. Senate fails to pass the Goodlatte/Leach prohibition bill.
Government/federal and state ($4.6T, +8 percent; with $3.1B to print, +5 percent) will rise to Number 23. Health and human services ($1.4B to print, +30 percent) will outspend other federal agencies by three times, on average, as Congress pushes universal healthcare and pandemic response.
Canada-style Big Brother messages will spew forth from billboards, posters and postcards as never before. Attention GPO shoppers! State governments ($1.3B to print, +18 percent) will continue to pay more for less with bad practices of reverse auctions and single outsourcing schemes.
Flunking to Number 24 is higher education ($138B, +12 percent; with $3.0B to print, 0 percent). More than 4,216 traditional colleges and universities are competing for 15 million full-time students, and are losing to both foreign schools taking back their populations and to alternative private education ($1.0B to print, +20 percent).
Tuitions ($1.5B to print, +15 percent) increasingly depend on outdoor/transit advertising and free-distribution media containing inserts. Catalogs? No. Athletics ($0.4B, +17 percent) is the biggest point gainer as large universities like Ohio State surpass $1 billion in annual sports revenues. This segment, along with cultural events ($0.5B, +0 percent), continues as a big buyer of posters, programs, signs, tickets and other mostly sheetfed and screen printing. Development ($0.2B, +4 percent) will slow. Curriculum materials—included in publishing, not here—are declining as Web-based learning tools replace textbooks.
Religion and charity ($358B, +0 percent; with $2.9B to print, -1 percent) falls unblessedly to Number 25. No mega-donations are in the offing or offering box. Religion ($0.9B to print, -18 percent) will decline for the second straight year. Now down to one-third of all donations, it graces print with mostly web book, magazine, program and fund-raising packages. Giving to education ($0.3B, +0 percent), especially at the community level, should generate $400 million in small plant sheetfed and digital imaging.
The remaining segments of charity, ranked by giving, are health ($0.3B, +9 percent), arts/culture ($0.1B, +13 percent), human service ($0.1B, -7 percent) and society benefit ($0.1B, +0 percent).
These 25 hottest market- places should account for 64 percent of U.S. GDP, and 92 percent of all printing sales. Off the list, but worthy of sales attention, are Number 26 energy ($4.05T, +16 percent; with $2.3B to print, -15 percent), Number 27 business/professional services ($481B, +8 percent; with $2.0B to print, +13 percent), and aerospace/defense ($148B, +2 percent; with $2.0B to print, +0 percent). Rank the relative presence of each category to the geographies of your plants and sales offices. PI
About the Author
Vincent Mallardi, C.M.C., is a well-known printing forecaster and presenter at major industry meetings. He has also been the author of “Hot Markets” for the past 27 years. The full 196-page report is available for purchase at pbba.org or by calling (877) 585-7141.
Vincent Mallardi, C.M.C., is a the chairman of the Printing Brokerage/Buyers Association International (PBBA) and is a Certified Management Consultant in the paper, printing and converting industries. He is also an adjunct professor in economics. Contact him via email at firstname.lastname@example.org