Craig Nadel, vice president of operations of Jack Nadel Inc. (asi/279600), was especially surprised to find his company’s margins had increased. “I mean, it’s good, I guess, but I would have thought that as information got cheaper and easier, it would put a little bit of a downward pressure on everybody’s margins.”

Suppliers were especially keen on focusing on the making of their promotional products. One in six suppliers said that the main reason their profits were up was that they increased their manufacturing/decorating capabilities.

"Our key acquisition in 1999 was a different product line – we did go out and buy a completely different product, and that did help us," Klee says. "And of course, we’ve added new products within our paper and poly specialties realm and they’ve done very well. That’s, in fact, where a lot of the growth has come from in these new or larger distributors – it’s from new products."

Just under two-thirds of suppliers’ capital improvement dollars went either for manufacturing or decorating. And these expenditures were largely necessary because equipment had worn out. Two out of five suppliers said that growing demand for their products was the main reason for new equipment.

"We do buy new equipment every year," Lederer says, explaining that new equipment is necessary when you’re constantly producing more products. "And in 2000, we’ve bought more equipment than ever and created space for it. So we’re postured for growth and anticipating it."

Just under a third of suppliers’ manufacturing/decorating purchases were for new equipment incorporating the latest technology. These suppliers are betting the big up-front cost of the new equipment will quickly be recovered. "We’ve put a lot of money into plant machinery and equipment," Klee says, "and that’s the reason I would say, yes, that’s why our profitability is up – due to better equipment which has offset, naturally, a material increase."

And yet, perhaps the greatest technology the industry has at its disposal is its own creativity. "I think the most important thing is that there’s a great desire for new, innovative, unique items," says Gary Topper, president of Concepts Etc. (asi/46190), explaining that offering his creativity to the industry has caused his sales to increase immensely.

One significant trend borne out in this year’s numbers is the emergence of preferred vendor relationships with distributors. Ten percent of suppliers cited these relationships as the main reason their sales increased – almost four times as many as last year.

Suppliers are finding they can tap rich veins of business if they concentrate on their best customers. "Our increase this year has come from our larger distributors, which would be those preferred distributors," Klee notes. "Basically, we’ve been adding more salespeople in the field to have more of a face-to-face meeting with large players in the industry." He says they’re doing many more customer visitations, and that’s the reason their numbers are up.

Of course, it works both ways. While suppliers credit their relationships with distributors as the key to increasing sales, 14% of distributors similarly attributed their sales volume increase to preferred vendor relationships with clients.

Cheri Milan, owner of Southern Image LLC (asi/330461), says she’s done a variety of things to tighten that bond. But as simple as it may sound, she’s stuck to continually proving herself to supplier clients by just getting the job done – and her sales volume has quadrupled.

John Dayton of Foto Fabric Impressions (asi/55155) agrees. "Business has been tremendous, and we attribute that to more exposure," he says. "We’ve been doing a lot more business with distributors thanks to the help of ASI, which is bringing everyone together."

Distributor’s Tale: More! More! More!

Maybe the time will come when distributors will devise deft strategies to get more business. But in 1999 it seemed things were pretty simple: Those who did well succeeded because they sold more. Some 37% of distributors credited their sales hike to an increase in their client base, and another 22% found that promotional products were being used more. Still another 17% credited the buoyant national economy as the main catalyst.

It seems everything was growing. The average dollar amount for orders was bigger for 58% of distributors. And perhaps most surprisingly, profit margins were up – this year hitting 35% – an important benchmark.

But just because business is coming easily to you doesn’t mean you can neglect the fundamentals, such as making sure you’re getting all the business you can from existing clients. Some business, for example, comes easily to Jarred Voltz, sales manager for Imperial Promotion Inc. (asi/230435). Voltz has set up a computer program where he can classify all his contacts. There are the call-ins – referrals or people who’ve seen his ad. Then there are the new clients – people who’ve purchased from him once or twice. Finally there are the old established clients. He contacts just about everyone every three months, tailoring his approach to each group. He might, for example, send along supplier specials to some established clients if he knows they would like them. Even in a burgeoning economy, Voltz doesn’t want to wait for calls. "They call me because my ad is biggest," he says. "Next time, someone else’s ad could be bigger."

As astonishing as the latest numbers have been, it still doesn’t change the fact that the industry is in for an upheaval. In fact, many of the most profound changes are likely to come after the industry goes through another recession, but they’re coming nonetheless.

Almost everyone, for example, expects the industry’s profit margins to suffer in the long term. Even industry consultant Glen Holt – president of Certified Marketing Consultants Ltd. and a long-time champion of putting margins first – thinks selling on an "A" will soon be a thing of the past. "Big corporate America will not allow traditional distributors to make the margins they make," Holt says. "There is hardly any place where a business can ask for and receive 50% margins."

Don’t worry. That doesn’t mean the demise of the industry. In fact, Holt sees more partnering with clients and distributors, with clients helping with or completely handling the financing of a deal. And we all know that if clients pay up- front, it makes it easier to do a deal on a smaller margin.

Klee says he sees a bright future ahead for his company as well as the industry in general. "We would expect to keep sales increases in the double digits for the rest of 2000," he says "For 2001? You got me; but we’re continuing to add new products which will be our [key to] increases for next year and beyond."

Will the industry continue to do well? "Absolutely," says Klee, "especially as the ad specialty industry and the premium/incentive market continue to merge."

With the Internet bringing an entirely new way of doing business for distributors, it’s inevitably going to be a tool for price-cutters and direct-sellers as well. Savvy distributors are using it for prospecting and marketing. In the long run, it’s going to mean a net gain for the average distributor.

Holt recalls how the fax machine (and then e-mail) sent a shiver through many in the industry when they were first introduced. "Our industry is so reluctant to change, and everything that has ever changed in this industry has brought holy terror to everybody in it," says Holt. "Chicken Little is running around hollering, ‘The sky is falling.’ There’s always something that’s causing some kind of panic.

They’re not looking at the fact that this is an evolutionary industry. We’re on the cusp of having an electronic methodology of selling, from supplier to distributor to user. The changes that will be made in our industry in the next 15 years will overshadow any changes made since the beginning of the first advertising specialty being sold – times ten."

Are you ready?

Connie O’Kane is senior writer and Danielle Suritis is assistant editor of The Counselor.