COVID-19 Crisis: Answers to Creating a Path Forward for the Printing Industry
During the "Ask the Experts Webinar: The COVID-19 Crisis: Creating a Path Forward" there were more questions than we could get to during the webinar itself. Andy Paparozzi, Chief Economist for PRINTING United Alliance, took the time to go through the questions posed by attendees and answer them. Please find the questions and answers below.
What type of companies were sampled?
Our sample consisted of 506 printing companies from across the United States and Canada. As in the industry at large, most are small: 40.3% sell $1 million or less per year and 63.7% sell $3 million or less per year. However, companies of all sizes were represented: Annual sales exceed $3 million for 36.3%, $10 million for 17.9%, and $50 million for 5.0%.
The majority (61.2%) define their primary printing business as commercial printing, 15.7% as graphic and sign production, 10.7% as apparel decoration, 6.2% as functional printing, and 5.6% as packaging printing/converting. Also representative of the industry, many have diversified beyond their primary business. See COVID-19 Print Business Indicators Research, A Path Forward, https://piworld.tradepub.com/free/w_prin12 for a complete profile of our sample.
How are printers preparing to recapture lost revenue and profits when "normality" resumes?
Understandably, the majority of companies we surveyed are currently thinking survival. Those thinking recovery spoke most often about enhancing e-commerce capabilities in sales, marketing, product demonstration, and education/consultation, recognizing that even when social distancing has eased, clients will likely want to continue doing more business over the Web.
Preparing for recovery is important, so I’ve been reading about it. “How Retailers Can Reach Consumers Who Aren't Spending,” Christine Moorman and Torren McCarthy, hbr.org, has some excellent ideas. One is to use social media to capture current, actionable intelligence on how COVID-19 is affecting clients and how they are responding. Join their LinkedIn networks, Facebook networks, and the forums they participate in not to sell but to listen, observe, and learn. As Moorman and McCarthy put it, “Social distancing has resulted in a huge spike in social media traffic. If that is where your customers are, that is where you want to be.”
Then connect the dots. What looks like an opportunity? How can we most help right now? How are client needs, preferences, and practices changing, and which changes are likely to continue after the pandemic? How do we prepare to accommodate those changes?
Do you see the election playing a role in the recovery, either positive or negative?
The economy will need support well beyond November. The elections — congressional, as well as presidential — will determine the answers to questions such as: How much support will the economy get and what kind? Who will be positioned as the driver of recovery: the private sector, the public sector, or both? Will the support target what the economy most needs, or will it be laden with rewards for special interests that do little to promote recovery? We’ll have to watch carefully because the answers will matter.
With everyone using the internet for everything from product information to online ordering, how much will this affect the amount of printed material required in the future? Will it decrease it significantly?
The sharp decline in commodity printing, which began nearly 20 years ago with the introduction of electronic alternatives to print, and the short, targeted press runs digital presses made possible, will continue.
But there’s a lot more to printing than commodity printing. There’s personalization, or the crafting of a message (including graphics) specific to a target audience. There’s integration, or combining print and electronic media into communication programs that help the printer’s clients communicate effectively with their clients. There’s interactive/mobile, or embedding augmented reality markers in print that, when read by a smartphone or other detection device, link to related online videos, content, graphics, offers, and other resources.
And there’s the wow-power of new printing and finishing technologies that makes the client’s message stand out in saturated media markets. As a participant in the SGIA Critical Trends Report: Commercial Printing says so well: “Our industry continues to evolve, and it is not just a print business anymore. It is about communications and how we can best help clients communicate their message. If we help them get noticed, we help them get business — that is what they are really paying us for!”
We have more ways than ever to do that — as long as we think beyond how print is manufactured to how print powers communication.
Do you feel we will see contraction in the global/national general commercial/direct mail sector like we saw in the 2008-2010 downturn?
The recession alone didn’t cause the contraction in commercial printing/direct mail. A structural decline, discussed above, created by the emergence of electronic alternatives to print and the migration of printing from long-run lithography to short run digital also contributed significantly.
We’ve learned a lot about communication over the last 10 years, including that electronic communication is not always more effective than printed communication. As also noted, print had developed important capabilities over the last decade that are creating new roles in communication. Print that fills those roles will continue to grow. Mass, undifferentiated print that doesn’t will continue to decline.
Please describe some of the downsides of Washington and the Fed pumping all of this money into the economy.
Congress and the Fed had to act with urgency and they did, creating unprecedented fiscal and monetary stimulus. The problem is acting as if all this stimulus — trillions more is on the way — is a free lunch, carrying no consequences.
There are consequences for the national debt, which already exceeds $24.0 trillion and will be rising rapidly: The federal budget deficit for fiscal 2020 is expected to reach $3.8 trillion, nearly triple the previous record high of $1.4 trillion reached at the bottom of the Great Recession.
America isn’t going to default. The threat is a much more insidious gradual reduction of the economy’s growth potential as interest payments absorb hundreds of billions of dollars that could have been invested in infrastructure, R&D, education, health care, clean energy, and other building blocks of prosperity. This year alone net interest on the national debt will exceed $580.0 billion, more than the federal government will invest in income security, ($538.9 billion), education, training, employment and social services ($132.1 billion), or transportation ($67.4 billion). Most troubling: Washington shows no sign of being up to addressing the threat.
There are also consequences for inflation and interest rates. Inflation isn’t likely to be a problem in 2021 because aggregate demand will still fall far short of aggregate supply. But it will be if the Fed can’t mop up all the liquidity created to keep the economy out of depression.
As inflation accelerates, interest rates will rise. If they rise too rapidly, we’ll be right back in recession. In any case, rising rates will increase the costs of servicing the national debt and of servicing record corporate debt: Debt (all maturities) of non-financial corporations has increased 67.6%, to $6.6 trillion from $3.3 trillion, since 2010. Much of the increase has been in BBB and junk grades. How many will default? How many will declare bankruptcy?
The bottom line: Unwinding all the stimulus is not going to be easy or cost-free.
Does Washington have the ability to buy back the debt held by people via an interest-friendly vehicle, given the current interest rate environment?
Theoretically it does. The Fed can always expand its balance sheet enough to purchase any amount of debt Treasury issues. In fact, the Fed is even buying corporate debt now. The issue, again, is how best to unwind the massive expansion of the Fed’s balance sheet.
In August 2020, what is the likely percentage recovery of the printing industry?
I doubt the percentage will be significantly higher than it is today. Most of the economy will be reopened by August. But remember, social distancing will still be in place, forcing businesses to operate well below capacity. Recovery is going to be slow — a U with an elongated bottom — until millions of businesses can regain something close to normal operations. And that may not be until a vaccine is widely available. (See “Elon Musk Is Our New ACLU,” Holman W. Jenkins, Jr., The Wall Street Journal, May 13, 2020, on the dangers of keeping the economy in lockdown until a vaccine is developed.)
When do you think printers will have an appetite for capital investment again?
Not until recovery is well underway and printers are confident an upturn in business is real and sustainable, not just a temporary bounce off the bottom of the U. I don’t think that’s likely until the fourth quarter of 2020 — at the earliest.
U or V gets a lot of hype, but isn't the real possibility a W, where we get a partial recovery followed by a pause or, worse, a return to partial closure, then the real recovery?
I agree. But I consider what you’ve described to be a U with an elongated bottom, where we bounce along bottom before we experience a sharp, sustainable leg up. The W-shaped recovery implies a sharp up followed by a sharp down. As noted, I don’t see the sharp up until next year.
What immediate needs are you seeing emerging? Thus far, I've seen big increases in floor graphic requests. What else is emerging now? In 1 month? 6 months? 1 year? And so on?
Graphics, signs, displays, and other printing related to COVID-19 health guidelines are growing. So, of course, is personal protection equipment, which a number of the printers we surveyed are now producing. All will continue to grow over the next several months as the economy gradually reopens with strict social distancing in place.
As the lockdown is lifted, I believe a “help us get our customers back” need for print will emerge. Reopening a business will take more than flipping the sign on the front door from “closed” to “open.” It will take convincing customers and potential customers that facilities are safe and health guidelines will be clear to all who enter. That will require signs, posters, graphics, direct mail, etc., which will have to be updated as health guidelines change. The opportunity for printers is to position themselves as the experts who can deliver the communications programs clients will need to get their customers back in the door.
Will the printing industry lag or lead the economic recovery?
The printing industry will be coincident with, not lead or lag, recovery. I think we will participate in the early stages of recovery because of the “help us get our customers back” demand noted above.
What percent of people in the printing industry may go out of business? What part of the industry will thrive, once things open up and why?
I’d be guessing. But consider that during Great Recession of 2007-09; GDP declined by 4.1% and the number of commercial printing establishments declined by 13.5%. The consensus of economists surveyed by The Wall Street Journal expects GDP to decline 6.6% in 2020, the steepest since 1946. So a decline of 15.0% – 25.0% in the number of commercial printing establishments during the current recession wouldn’t surprise me.
Companies that thrive will not be a particular size or offer particular products, services, or capabilities. Rather, they will then understand how print’s role in communication is changing — personalization, integration, and interactive/mobile, in particular — adapt to the changes, and build communication programs that help clients best reach their clients.
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.