By now everyone knows that a recession is right around the corner. The high times of the mid- to late-’90s – much like the roaring ’20s – will soon be shoved aside by a dust bowl of economic proportions, only to be talked about in hushed tones by future generations. 

And if you believe that, we’ve got some swamp land in Florida we should talk about.

In reality, the health of the industry is quite – well, healthy. Suppliers rated the industry’s health a 3.6 on a scale of 5 in our 2001 State of the Industry survey. Distributors gave it an even better 3.9. Obviously, neither rating is through the roof, but both are indications of a generally positive outlook. Granted, the rumors of a slight downturn may be true, but that’s a long way from the doom and gloom attitude some have adopted.

SOI: M&A OK

The action in the latest chapter in the compelling story of mergers and acquisitions appears to have slowed down slightly. Some of the returning characters continue to go through the paces, scooping up young upstarts and small players, but not at the furious pace of recent years. Blame it on the dot.com fallout, current economic prudence or traditional business cycles, but activity among the high rollers is down.

Taking up some of the slack are smaller companies not usually known for their purchasing power. Credit goes to a rash of corporate foundering due to the recent economic climate, which left companies struggling or facing extinction, particularly dot.coms like the recently departed Promonium. Some managed to avoid that fate through mergers, but that activity also diminished slightly from the previous year’s frenzy.

Looking at the numbers, 38 suppliers and 84 distributors indicated they engaged in some form of mergers and acquisitions activity. And of those that responded, 39% of suppliers and 44% of distributors bought another industry company, while 33% and 24% made purchases of outside firms. Mergers both in and out of the industry trailed acquisitions by approximately a six-to-one margin.
Given the number of companies in the industry, this isn’t a particularly high level of activity. Results may be higher than reported, since a disproportionate percentage of companies are responsible for acquiring several others over the course of the year. 

Either way, the overall reduction in mergers and acquisitions is supported by SOI findings over the past few years. Measuring the top events or trends affecting suppliers and distributors in 1998, SOI reported that mergers and acquisitions held the top spot with suppliers and earned a second place with distributors. Last year it dropped to second for suppliers and third for distributors. This year it didn’t even make the list.

Growth For Some

Despite the early rumblings of a shaky economy, the year 2000 seems to have treated most suppliers and distributors OK. A quarter of suppliers and a fifth of distributors who responded to our 2001 State of the Industry survey expanded their current facilities or added new ones. But this marks the second consecutive year that this number has dropped off – from 49% of suppliers and 38% of distributors in ’98 to 44% of suppliers and 34% of distributors in ’99.

Supplier Bonica Marketing Inc. (asi/40903) recently moved because it simply needed more space, says Sharon Griffith, marketing manager. “The main reason was storage space; there is a lot of inventory to store. And the working area [was too small] as well; the production area was very cramped,” she says. Bonica’s new facility is about one-and-a-half times larger than its old one, with the majority of the extra space allotted to production and storage.

The added space has helped speed up production on both regular and rush-service orders, Griffith says. “It’s easier to do more production where you can put all of the watches out and pack them all in one go. … To make us more efficient we have inventory storage, and having more storage space means we can keep a better handle on our inventory as well. It helps [in] filling the orders and filling rush services,” she notes.

Corporate Apparel Inc. (asi/168750) also benefited from moving to new quarters. The company had held off moving for about three years, says Jack Marshall, president. It was renting space in an office building when it decided to try embroidery three years ago. Since there wasn’t room for a machine, it considered relocation. But not wanting to lose a tenant, the landlord convinced the company to stay by letting it gut an adjacent office to accommodate the new six-head embroidery machine. It proved to be a good step for the company; so successful that it quickly grew out of the modified offices. “We didn’t exactly have warehouse space before, so we had to correct that situation,” says Marshall. “We wanted to expand on the production anyway, so it made sense to go to an office and warehouse-type building.”

After it moved to the larger facility, Corporate Apparel was able to expand its capabilities even more by adding a 12-head embroidery machine. Marshall says showing off its new, larger embroidery area is a great way to get clients to stop by: “It added tremendous credibility when we took the embroidery in-house. It became a wonderful field trip for our customers. They enjoy coming out and actually seeing the embroidery machines go – watching their own logos sew out.”

The Winner And Still Champion – Wearables!

Distributors cited the growth of wearables as the most important trend in the promotional products industry for a third consecutive year, making it a contender for the Tiger Woods No-Contest award. Over the past few years, wearables has not only come into its own, it has also trampled the competition. This year 78% of distributors voted it the most popular product category.

So what drives wearables to such heights? Aside from the utilitarian nature, retail styles are now adopted at a much faster rate than ever before, with some retail companies entering the industry themselves. Custom orders are another reason. They can be filled almost as fast as standard orders were five years ago. But it’s variety that has been the biggest cause. Whatever a client wants can be found today – and if not, you can be sure it will be available soon.

Ladies’ wear, for instance, has been on the rise for several years, with most suppliers adding women’s tailored golf shirts, T-shirts and blouses. Today many offer apparel from head to toe solely designed for women. The next step is dedicated ladies’ wear suppliers; where once there were one or two, there are now nearly a dozen. And look out for the kids’ wear trend next year.

Some speculate that a casual dress backlash could be what finally turns back the tsunami of promotional apparel. So far that hasn’t happened. It’s almost as if the opposite is true, as more and more companies turn to wearables as a reliable source of business.

More Respect, Less Time

When it comes to the perceptions of the industry, distributors are receiving mixed signals from buyers. One of the most challenging trends for distributors in 2000 was their belief that buyers of promotional products were becoming more knowledgeable, which suggests the industry is gaining an air of respect (in addition to wider use and acceptance). The only problem is, the survey also reported that distributors think buyers are doing a poor job of planning ahead for their promotional products needs.

So how do you reconcile a more knowledgeable buyer with a lack of respect? It’s hard to say. Promotional products have often, unfortunately, been viewed as the last stop on the advertising train. After a campaign’s tagline, TV commercial, print ads and celebrity spokesperson are chosen, someone picks up a few products to hand out at the trade show or use in a direct-mail campaign. This view seems to be changing, but whether the industry likes it or not, some buyers just can’t seem to shake the afterthought mentality.

Before anyone gets too worked up on the respect issue, also consider this: We may just be the victims of our own fast service. “The lead times have gotten a lot shorter,” says Doug Jorgenson, president of Custom Impression (asi/173156). “I’m not sure that it’s because [buyers] don’t plan ahead. I just think it’s that we move a lot faster, and society in general moves a lot faster, so they get used to it. Do it once and it becomes the standard, and then all of a sudden you’re doing rush orders all the time.”

Some distributors will echo the same fears they’ve had about turnaround time and where that road leads. Others will say that we need to better educate buyers on the impact that promotional products can make. While the solution is still unclear, most would agree that given the choice between a knowledgeable buyer placing rush orders or no orders at all, there’s no question which most distributors would choose.

Full Service Wanted, Sort Of

“Full service” is something of a contradiction in the industry. Suppliers believe so strongly that distributors prefer full service that they named it their number one most challenging issue in 2000. Distributors believed so strongly that clients want more services that they picked it as their number one most challenging issue in 2000. But oddly enough, all the distributors contacted for this report were a bit cautious about letting suppliers do too much.

“I don’t think that in any business you can really be ahead of the game or a strong performer if you’re relying on somebody else to do some of the key essentials of service,” says Jim Worrell, president of Worrell Communications (asi/363811). “I think, realistically, if a lot of distributors look at it and let company X provide the warehousing and company Z provide distribution, you fragment it all. But more important, what happens if company X or Z doesn’t fulfill your needs? We found out the more we can control the better off we are.”

There may be several reasons for resistance on the part of distributors. As mentioned above, ensuring good customer service is always very important. So is the need for faster turnaround time. But the real culprit may be the ever-present fear of suppliers going direct. These tensions are easing after a year of dot.com worry, but they’ll probably never entirely disappear.

As for suppliers, the tendency to offer more service is a natural one. “For the most part, a manufacturer is a manufacturer and handles everything from soup to nuts,” says Mark Weissman, executive vice president for Punch Products USA (asi/80060). “I definitely think the top level of suppliers in the industry have always done that and will continue to. That’s how you keep your business and grow it – you make a distributor’s life easier. They can go out and get another sale instead of concerning themselves with getting a product packaged properly and decorated.”

A Call For Client Services

Distributors may be asking more of suppliers, but that’s because clients are expecting more of distributors. Nearly all distributor respondents (94%) to the 2001 State of the Industry survey reported that they offer some type of client services, like art, design and layout; imprinting/personalization; company store/catalog programs; warehousing; and fulfillment were cited most often. “We’re a full-service agency, and one of the keys to our success has been our service – and that we have quick turnaround for our clients. And if there’s a problem, we satisfy it,” says Robert Joseph, CEO of Ideas For You Inc. (asi/229630).

Ideas For You speeds the process by buying blanks and outsourcing almost all the work to local companies. All told, 86% of distributor respondents reported buying blanks in 2000. “We only buy blanks, and we decorate through an independent source either by embroidery or by silkscreen,” explains Joseph. “One of the reasons is that we feel we have a little more control. We also find that we’re able to negotiate prices for co-ops using different shirts; we don’t have to go to one factory to get one shirt or one wearable. And a lot of these sources are very close to us.” In addition, the company also offers company store/catalog programs, in-house engraving and some art services.

Another way that distributors meet client demands is by offering in-house imprinting. More than a quarter of respondents (28%) say they do some type of decorating in-house. Among distributors who reported having in-house imprinting equipment, heat-transfer was the most popular type at 18%, while screenprinting and embroidery tied at 17%.

“It’s very difficult to run corporate programs and fulfillment without the control of being able to decorate [items] yourself,” echoes Doug Bruce, MAS, president of Pennsylvania Promotions (asi/293250). “For instance, if I need to ship 50 embroidered golf shirts on a program and I only have 48 in-house, my alternatives are to pay to rush and get two pieces outsourced, which gets very expensive. The other alternative is to ship the order and create a back order, which creates an administrative nightmare. It’s just a lot easier to grab two more pieces and print the two that I’m missing so I can get my whole order for 50 out on time.”

The Internet – Not Exactly As Planned

The Internet is starting to resemble a Hollywood film. The pitch was great, big-time stars were cast and hot newcomers were touted as potential Oscar nominees. Then, in production, the story lost its focus, the budget went through the roof and financial backers got nervous. Now everyone is holding their breath, waiting to see if it’s going to be a box-office champ or direct-to-video release.
The Internet has already had a huge impact on the industry, even if the predicted “sweeping changes” have been slow to develop. The biggest effect so far has been in the realm of in-house production. It’s no surprise that both suppliers and distributors again found the bulk of their online activity tied up in electronic artwork transfer (74% and 71%, respectively) and communication (64% and 65%). Most people in the industry will tell you that art transfer alone is worth the price of admission, saving tons of time and money previously spent mailing artwork back and forth to clients.

The survey also uncovered a surprising revelation: Suppliers who use the Internet have an average turnaround time of 12.5 days compared with 27 days for those who don’t. It’s a striking difference on its own, and even more amazing when you consider it’s consistent across the board – from artwork transfer to purchasing office supplies. 

“I think that if anyone is a strong, solid, good supplier to the promotional products industry they’re going to have a Web site,” says Mark Weissman. “I think possibly the ones that don’t are those smaller suppliers that it wouldn’t matter whether they had a Web site or not. Maybe it takes them longer to manufacture the product, or if they’re importing they don’t inventory a lot because they’re a smaller company so their turnaround time is longer. I think that’s the correlation. Not necessarily that the Web or e-commerce business is speeding it up, it’s simply a matter of the better company – as part of their whole marketing and sales package – will have a Web site.”

Suppliers Pick Up The Pace

Meeting rush service demands continued to be a high priority for suppliers, with more than three-quarters (76%) of respondents taking strides to keep up. Most often, they kept things moving by improving order entry/tracking (43%), improving inventory management (34%), hiring additional staff (28%), adding new equipment (28%) or some combination of all four.

By adding two new machines to their manufacturing process, Ad Industries Inc. (asi/31510) was able to significantly cut production times and costs, says Bob Winters, sales and estimating. It added a robotic heat-sealing machine, which doubled its production capacity, and a riveting machine that cut the time it takes to rivet rings into binders by a third, he explains. 

“The machines have allowed us to speed up our delivery times and also enabled us to cut the cost of production,” Winters notes. “They’re very expensive machines, but they’re worth it.” In addition, Ad Industries also streamlined its customer service and production departments to reduce the time it takes to get the jobs out onto the manufacturing floor.

It was also a hectic year for D. A. Graphics (asi/47981). Based in Seattle, the company was at ground zero for the rise and fall of dot.coms. “2000 was the world’s worst rush situation you’ve ever seen due to the dot.coms’ lack of planning,” says David Vaillancourt, president. “Some of the large software companies out here were used to getting anything they want, anytime they want. They were just throwing their money at anything just to get their name on it.” To help distributors take advantage of the business boom, the company added an employee whose only function was to focus on rush jobs and sample orders.

Vaillancourt hopes that all those rush orders turn into regular customers. “We look at it as the customer is doing a rush for a reason, because somebody forgot to do something. And, hopefully, in exchange for remembering that we did it for them, they’ll bring us the business that doesn’t also require a rush,” he says. 

So far this year, that seems to be working. Rush orders have tapered off, while profits have continued to grow. “We’re up about 30% over last year and the rush jobs have actually calmed down,” Vaillancourt says. “People are using their dollars more sensibly than they did last year or at the end of ’99. This year they’re actually planning what they’re going to do with it, and they want a response for that dollar.” 

Caught In The Web


Web sites are a business requirement today, and our industry is no exception. Eighty percent of suppliers and 67% of distributors who responded to this year’s survey have a Web site. When asked the primary purpose of these sites, both groups put client communication and education at the top of the list. 

What about selling via the Internet? It turns out that online sales are so far failing to live up to the hype. The revolution that was supposed to rock the industry to its foundation hasn’t been able to ring the doorbell. Suppliers reported an average of 7.5% of 2000’s sales were generated on-line. Distributors had an even smaller average of 4.9%. Together they accounted for an increase over 1999’s totals, but not in the way some had hoped or predicted.

Given this, the answer may not lie not in the failure of the Internet, but rather in exaggerated expectations. “It’s a slow evolution for e-commerce,” points out David Stack, marketing director of Augusta Sportswear (asi/37461). “A lot of people in that business wanted it to move faster than it has, but where we are now is a solid start and it will continue to grow and evolve. For some people who do business online sales will grow, and for other people cost will go down, and those are both good things.”

Everyone contacted on both sides of the industry agreed that no matter how successful or unsuccessful the Internet becomes, the need for creativity and personal attention is essential. “I think people still want the service and still want the individual contact,” says Becky Beck, president of You Name It Special-ties (asi/365123) in San Antonio, TX. “If they want to see a sample we’re right here. I think that’s important.”

Downturn.com

It’s interesting how much difference a year can make. Last year’s SOI mentioned Branders.com, promoOrder.com, Starbelly.com and eCompanyStore.com as some of the top Web-based firms with “impressive business plans and financial backing.” They were making waves in the industry, blurring the lines between traditional supplier/distributor relationships. 

While eCompanystore.com is doing well and promoOrder has secured another round of financing, Branders laid off 22 employees early this year and HALO’s Starbelly.com division never even processed an order in 2000. Back then, people worried what the dot.com revolution would mean to the future of the industry. Today, many companies are dropping the dot.com suffix and entrusting their future to partnerships and alliances with traditional brick-and-mortar companies.

Yet, the future of the dot.com is by no means bleak. Many companies are stable and doing well. The events of the past year must be looked at in the larger context of the “Great Internet Shakeout of 2000,” which eliminated companies with inflated worth and poor business models. The promotional products firms that fell victim were but a small part of the mass hysteria that swept the business world. The bottom line: Dot.coms are here to stay and will likely remain an integral part of the promotional products industry for years to come. 

Karen Akers is associate editor and Matt Histand is assistant editor of The Counselor.