OK. It might be starting to sound a little monotonous by now. Two years ago we talked about history repeating itself between 1997 and 1998 ... on a promotional products scale, that is. In 1999 we noted that things had changed just a bit, with Corporate America just starting to tighten its belt – or at least thinking about it – just in case the economy should begin to take the southerly trek the eternal doomsayers had been predicting since 1995.

Like it or not, the year 2000 was, for all intents and purposes, more of the same, with a few tiny twists. The coming financial storm never came. Although clouds rolled in toward the end of the year. And the Y2K techno-tornado that was supposed to wreak total havoc with computers all over the world never showed up either. And while there was, again, a small (emphasis on small) droop in consumer and business spending, it seemed to be confined to the first and last quarters of the year. The stock market took a few bumps too, spurred by things as unlikely as fear of a Y2K “flashback” in March or April and the never-ending presidential election in November and December.

Just as we noted last year, the reaction to the impending recession wasn’t very apparent. Corporate downsizing grew a hair, but only toward the end of the year. Employees logged more hours for the same (or slightly more) pay and treasured time off above almost anything else. And of course, profit remained the undisputed raison d’ętre of the business world.

But not everything was the same. More economists predicted an economic downturn of one degree or another for 2001, and so far it looks like they were right. Companies, in turn, continued the same barely perceptible belt-cinching in certain areas – just in case. Firms still sought out cheaper advertising, but because of 2000’s connection to certain once-in-a-lifetime milestones – the millennium being the most notable – a number actually increased the frequency and/or amount of their advertising, feeling it was necessary to remain more visible than usual at the dawn of the 21st century. Still, price remained the deciding factor in most cases, and as a result, loyalty to suppliers and distributors continued its slow but steady erosion.

Interestingly, the one area of business where change was evident was the increased presence of e-commerce. The real dot.com shakeout that took place this year really hadn’t started in earnest in 2000, and based on studies made by various advertising groups, Internet advertising (as well as purchasing) was up significantly. Yet there was disappointment, too, when some online retailers saw year-end/holiday season sales just sit there rather than skyrocket as they were expected to. Beyond anything else, 2000 was the year that virtual and actual business learned that not only could they both coexist, but that each can and does affect the other. In a nutshell, competition for the buyer’s dollar stayed intense, as firms concentrated on maintaining and expanding their customer base.

In “Our” Language

For the purposes of this report, however, the question remains the same: What impact, if any, did all this have on the promotional products industry? 

Looking at things from a broader perspective, 2000 was one of the best years ever in this business. Using the Promotional Products Association International’s estimate for the year, total industry sales came in at $17.9 billion, a 20.1% jump or $3 billion greater than the 1999 figure of $14.9 billion. This is, undisputably, the largest increase the industry has ever seen, clearly reflective of a solid, successful year of selling. It remains indicative that most corporations continue to regard imprinted products as an integral part of their overall marketing and advertising mix. As some in the industry say, “Who cares what they call us – as long as they call us!”

As for the Top 40 firms, total distributor sales for 2000 came in at $3.2 billion; $1.4 billion (30.4%) under 1999 – not as huge a drop as it appears on the surface, due to some changes made in the qualifications for rankings (see “Major Alterations”). 

Nonetheless, the distributor total is representative of 17.9%, roughly one-fifth, of total industry sales. For the sake of completeness (but not overall comparison), Top 40 supplier sales in 2000 were $3 billion, comprising 16.8% of all industry sales. Taken together (and remembering that the figure includes duplication of many sales), Counselor Top 40 supplier and distributor sales totaled $6.2 billion, or approximately 34.6% of total industry sales.

General Growth

On a more basic scale, of the 80 firms that qualified for ranking this year, 65 posted increases and eight saw decreases (two less, incidentally, than last year’s Top 25 list). In addition, one company experienced no change, and six were newly-ranked firms for which 1999 figures were unavailable, thus preventing comparison. Distributor sales for the Top 40, as noted above, showed a marked decline. Supplier Top 40 sales, on the other hand, climbed $700 million, or 30.4%, over last year, a significant bump.

In a categorical breakdown, five newly-ranked firms were suppliers, one a distributor. Top 40 suppliers saw 32 increases, ranging from 57.3% to 1.1% and two decreases of 32.2% and 0.6%. Distributors had 33 increases falling between a whopping 146% (Group II Communications Inc., resulting from a merger with its affiliate entity, IMS, until now an unlisted distributorship) and 1.6%. The six distributor decreases fell between 85% and 2.8%, with three in the mid-to-low 20% range. This was a marked difference from last year, when all but one decrease was over 10% – again pointing to the fact that, at least in the distributor arena, competition is indeed tightening.

Ironically, the largest decreases in both categories had nothing to do with slumping sales. On the supplier side, the 32.2% slide seen by Hazel Promotional Products was due to the fact that it was discovered that, for the last six to seven years, the estimated figure that was being used mistakenly contained a good deal of nonindustry sales as well. The company’s newly-adjusted estimate resulted in the drop. 

With distributors, the 85% fall for Cyrk had a similarly simple explanation. In very early 2001 (still within the parameters for inclusion on this year’s list), the Cyrk name and promotional products core business was acquired by Bob Siemering, its new president. The sales figure shown is indicative of only this core business. Comparisons to last year’s total figure, naturally, can’t rightfully be made – we’re talking apples and oranges here. 

Looking at the entire range of increases among both Top 40 suppliers and distributors, they ranged between the previously mentioned 145% to 1.1%, with the majority – 24 – falling between 10% and 25% (vs. 15 firms last year). The next highest group was the 1%-5% category, with 14 firms (vs. five last year), with 13 (the same as last year) coming in third with 5%-10% climbs. Eleven companies (vs. 10 last year) saw increases of between 25% and 50%, and only 2 (vs. one last year) saw sales skyrocket 50%-100% (and over). By contrast, 1999’s total increases fell between 89.6% to 0.13%. What does it all mean? It would appear that while growth among industry firms isn’t quite as strong in terms of total numbers, more individual firms saw larger increases in 2000 than they experienced the year before, despite the fact that the number of companies in the 1%-5% category almost tripled. 

And, that for all the comparisons above, we’re looking at a total of 80 companies vs. last year’s 63.

Transactions

The near-routine ’90s phenomenon of several increases owing, at least partly to acquisitions made over the course of the year, seems to have spilled over a bit into ’00. Granted there weren’t as many as we reported last year, but they were on a much larger scale. On the distributor side, American Identity purchased Boise Marketing Services, and 4imprint Inc. acquired Adventures In Advertising Franchise Inc.

Concerning supplier activity, Kayman T-Shirts was picked up by Trimark Athletic Supplies Inc., Taylor Corp. added Allen & John Inc. and Sanford Promo-tional Products acquired Gillette’s Sta-tionery Markets/Special Markets division.

Major Alterations

Before we go any further, you’ve undoubtedly noticed some rather hard-to-miss changes, the most notable being the transition from Counselor Top 25 to Top 40. The most obvious question, is why? 

Rest assured, it wasn’t a lightly-made decision by any means. There was a certain amount of logic and numerous lengthy meetings involved. When you make changes of this magnitude it’s essential that every angle be perfectly examined. 

Basically, the industry has grown immensely since the very first Top 20 appeared in 1982. Back then, a top-ranked distributor weighed in at $51.4 million in sales; its supplier counterpart at a mere $26 million (a figure now less than that of the company ranked 40th in this year’s ranking!) Total industry sales were $3.8 billion. And the industry was made up of only about 3,500 distributors and 1,000 suppliers.

Ten years ago, the numbers had changed radically, to the point where we felt it was necessary to grow the Top 20 to the Top 25. We also added, over the next few years, several Sales Leader categories we determined to be an important and key element of the industry, although different enough to warrant being separated from the main rankings. These included Mail Order and the somewhat vague Promotional Products Plus (PPP) for distributors, and Unimprinted Sportswear Leaders on the supplier end. And so it went.

Fast-forward to 2001. The industry has more than quadrupled in overall sales and is showing no indications of any major slowdown. The number of players – distributors and suppliers – has more than quintupled, and the influx of newcomers entering the field each year has grown as well. Given all this we felt that – for the first rankings of the millennium – we needed to acknowledge this growth in a significant way.

At the same time, the sales leader categories, even with their parameters in place, were beginning to become unwieldy and created some confusion among readers. Mail-order was initially supposed to be limited to the top five companies, but as other mail-order firms continued to grow, we couldn’t comfortably ignore them. The PPP category not only remained difficult to clearly define, it was also shrinking, due to the fact that it was limited to firms posting sales of $100 million or more. Unimprinted Sportswear was also seeing healthy growth, and would have undoubtedly increased in size as more and more players became known and/or industry practitioners. Finally, we realized that with the advent of e-commerce, it wouldn’t be that long before we needed to add yet another separate category for those firms who did the majority of their sales online. And the same could be said of franchises, considering their steady intra-industry growth. In other words, it was a recipe for even more confusion and unwieldiness.

How to solve these problems? The answer was twofold. One was expanding to the Top 40. The number was chosen as the biggest jump we could comfortably take for the foreseeable future (at least the next 10 years) that would still retain the air of exclusivity previously enjoyed by the Top 25 – and with so large a change, we obviously wanted something with a slight ring of familiarity.

The second stage of the solution was to eliminate all “extra” categories and merge them into their respective Top 40 lists. After much deliberation and conversation with industry practitioners, it was decided that the best answer was to adopt a “sales are sales” approach. In other words, while the sales might occur under somewhat different circumstances or involve different product areas, they are nevertheless promotional products sales and should be brought under one common umbrella rather than two or three individual parasols.

While the change might seem alien and even mildly disorienting at first blush, we’re confident that by this time next year it’ll all feel a lot more natural – and in two or three years, the Top 25 will be a distant memory. To reiterate what we’ve been saying for several years now, the term “promotional products,” by its very nature, embraces much more that its predecessor, “specialty advertising,” ever did. Another case of change initially breaking traditions and barriers but ultimately turning out for the good of the whole. We’re aware the Top 40 will take some getting used to, but in the end it’ll prove to be a plus to the promotional products profession.

Comparatively Speaking

One of the most popular sections of previous Top 25 lists has been the comparisons of various figures between the current and previous year. Obviously, to do so this year – holding up 40 firms against 25 – would not only be wildly inaccurate, but unfair to last year’s ranked firms. The same unfairness in reverse would result from comparing last year’s numbers to only the first 25 firms ranked in this year’s Top 40. Any aggregate comparisons would have no real basis, unlike previous years. For this reason, many of these contrasts – despite their popularity – have been eliminated this year. The majority of them will be back next year, of course when such comparisons can be made on a level playing field.

Suppliers Solid

Now back to the data. For the sixth year, the number-one position for suppliers was again occupied by Norwood Promotional Products Inc., at $436 million, a $4.5 million/1% jump from last year’s figure. Sales for the 40th slot, occupied by Gold Bond Inc., were $28.4 million. The monetary difference between the 1st and 40th spots was $407.6 million; between the first and 25th positions, $391 million; and between the first and fifth positions, $300.9 million. The largest gap between all rankings occurred between the first and second spots, a $251.7 million difference. The smallest was only $100,000 between the 34th and 35th positions. Other differences ranged from $41.5 million to $200,000. Only one firm, Norwood, reported sales that were greater than $218 million, or half the number-one firm’s total.

Looking at firm-by-firm gains, 13 suppliers (10 more than last year) achieved increases of $10 million or more. The largest single increase ($66 million) was seen by Broder Brothers Co. Inc. the result of a particularly good year. The smallest increase ($500,000) was seen by King Louie Inc. In between increases ran the numerical gamut, from $56.6 million to $600,000. Of the two decreases posted, one was the Hazel correction, noted above; the other was only $200,000; fairly insignificant by Top 40 standards.

Distributors Bit Unsettled

As a result of the Cyrk deal described earlier, HALO Branded Solutions returned to the top spot on the distributor Top 40 after a three-year hiatus, with sale of $445 million. However this was a $48.2 million (9.7%) decrease from last year for the firm, which is currently in the process of reorganizing to focus strictly on promotional products, the result of some semi-significant (but not serious) financial ills that surfaced last year.

Spartan Promotional Group, which held down 40th place, reported $24.3 million in sales. The difference between the first and 40th slots was an impressive $420.7 million. Between the first and 25th spots, it was $410.2 million, and between the first and fifth positions, $300 million. The greatest dollar difference between all ranked firms fell, as with suppliers, between the first and second spot ($198 million.) The smallest gap, $100,000, occurred no less than seven times, hitting between the 17th and 18th, 25th and 26th, 29th and 30th, 33rd and 34th, 35th and 36th, 36th and 37th, and 39th and 40th positions. Everyone else was between $64.4 million and $300,000. Two firms, HALO and American Identity, posted sales greater than the mid-point of the number-one company’s total ($222.5 million).

Looked at individually, nine distributors reported sales increases of $10 million or above. Last year that total was seven. The nod for the largest single increase went to Group II, at $74.2 million – fallout from the previously mentioned affiliate merger. The smallest bump was $800,000, posted by Nationwide Advertising Specialty Co. Other increases ranged between $67 million and $1 million. Discounting HALO and Cyrk, the remaining four sales declines ranged from $21 million to $700,000.

Manufacturing Percentages

As part of our mission to present an accurate snapshot of where distributor revenues are coming from, one of the questions The Counselor asks all ranked distributors is, “What percentage of your sales represents products manufactured, assembled or imported by your own company?”

Last year, the median figure was 0%, reported by nine companies. This year, the number of firms that answered 0% dropped to eight, which was matched by those indicating 5% – a marked increase from the two firms who indicated that percentage last year. The next highest number was 20%, noted by five companies, and three firms each indicated 70% and 2%. Two companies apiece reported 10%, 25% and 80%, and the remaining firms reported percentages anywhere between 100% (a direct house/mail-order firm) and 7%.

This pattern seems to mirror last year’s conclusions: That while a core group of the Top 40 distributors elects to remain loyal to the traditional definition of the distributor-supplier relationship, many more are, choosing to stay involved in doing their own sourcing, imprinting, manufacturing, assembling and/or importing.

As always, it’s important to remember that those distributors that are involved in such “extracurricular” activities aren’t doing so to get around suppliers, but to hold fast to a competitive track in three ways: 1) Having the ability to order often large amounts of blank product as necessary and imprinting them as required by the client’s schedule; 2) Being able to purchase custom and/or proprietary merchandise; and 3) Maintaining greater control over imprinting quality, turnaround time and order-tracking. All of this being done, of course, while maintaining acceptable profit margins.

Majority Sales

The other question put to all ranked distributors in the interest of determining how their sales are spread around was, “Which of the following areas represents 60% (lowered from 75% last year) or more of your total promotional products sales?” The choices this year were between mail-order, traditional person-to-person selling, corporate catalog programs and Internet/online, a new addition. 

Five firms selected mail-order, just as they did last year. Six indicated corporate catalog programs, two more than last year. The remaining 29 – six more than 2000 – reported most of their sales as traditional.

Once again, using this information as the basis for analysis, most Top 40 distributors, it appears, tend to leave areas such as corporate catalogs and mail order to the acknowledged specialists in the field and instead stay involved in the industry’s traditional strengths. However, we must add the same codicil we did last year: The accuracy of this theory isn’t carved in stone, or even impressed in concrete. While all visible indications are that most distributors prefer to stick with the profession’s roots, the potential profits of corporate catalog programs – and to a lesser extent, mail-order – can be surprisingly high, and therefore unignorable.

To The Public

Of the 80 firms ranked in this years inaugural Top 40, 10 are publicly-traded, either directly or through their parent company. Exactly as in 1999, seven of them posted declines, falling anywhere from $13.90 to $1.81, per-share during the course of 2000. The remaining three firms showed no per-share price change |in the same timeframe. What’s missing here? No increases were indicated – perhaps an indication of the economic slowdown predicted by economists.

The lowest per-share price for the year was $1.93; the highest, $122. But as we note every year, while this pattern appears to approximate the stock market in general, it’s crucial to reiterate the same qualification insofar as public companies are concerned: Unless they’re unusually persistent or abnormally severe, fluctuations in the stock market are reflective of the highly fluid nature of the market as a whole and should never, unless positively confirmed by market experts, be automatically regarded as an indication that a particular company is financially unstable or insecure.

It’s hardly a surprise that all the publicly-traded companies in the Top 40 maintain business dealings clearly outside the parameters of the promotional products profession, often at a far higher level. Of the 10 public firms on our lists, only two reported imprinted merchandise as their primary line of business. Of the remaining eight, the percentage of their total sales comprised by promotional products ranged from a high of 31.1% to a low of only 0.7%.

Taken as a whole, the year 2000 sales of the 10 public companies among Top 40 firms were $42.2 billion – a number that’s 6.8 times, $36 billion and 581% greater than the entire Top 40 sales. On a grander scale, the figure was 136% (or $24.3 billion) larger than sales for the entire promotional products industry.

Methodology

To establish eligibility for ranking among the Top 40, The Counselor employs a multi-tiered procedure. Before asking for any actual numbers, only those companies who have been ASI or PPAI members for at least one year are eligible. This criterion, which was formerly three years, was reduced for our 2001 rankings. Originally put in place to help ensure that all contenders have shown a sustained interest and involvement in the industry, it was also decided that eliminating a firm with sales at Top 40 levels creates an inaccurate portrait of sales leaders for that year. 

Once this determination has been made, all firms that have been established as viable candidates were asked to submit their gross promotional products sales figures for calendar or fiscal 2000. For the first time this year, we requested global as well as North American sales, and the decision was made this year to base rankings solely upon North American sales. This change was instituted for two reasons. First, there had never been any prior specification made in sales requests between international and domestic. Consequently, it was discovered that some firms were submitting global figures, while others were reporting only U.S. sales, which again created an inaccurate picture in terms of ranking order. However, as some companies maintain huge overseas manufacturing, sales and distribution offices, it was felt that limiting Top 40 eligibility to those sales occurring in North America would be the most efficient way to create a level playing field.

Unless they operate completely independently of each other, sales for companies that have a common parent firm are reported in the aggregate. Further, the 2000 promotional products sales of any firms acquired by a contender were included as part of that aggregate number, provided that the transaction was completed on or before January 31, 2000. This ruling was originally created as acknowledgement of the fact that, after a firm is purchased or merged, it essentially ceases to exist as a self-sufficient entity. This being the case, its sales for the previous year become part of the acquiring company’s revenues.

In the case of distributors, they were asked to submit only sales numbers for promotional products “sold to clients for promotional, recognition or public relations (goodwill) purposes.” Revenues resulting from print or electronic advertising done for clients – including Internet sites – were not permitted, nor was outdoor advertising, travel, commercial printing (signage, POP displays) and non-traditional products such as major appliances.

Another new criterion added this year specified that at least 60% of each distributor’s total promotional products sales must have included imprinted products. This was done to eliminate the growing number of so-called “grey areas” such as marketing, event planning, etc., that had been included in some figures in the past. For example, a distributor involved in event marketing may not include revenues generated by the entire campaign, but only those sales for imprinted products that may have been part of it. Here again, it was our belief that inserting this rule would help keep things more equitable.

Suppliers were required to list only their promotional products sales, which were defined as, “any product you’ve sold, with or without imprints or personalization, provided that you sold it to and/or through recognized, traditional promotional products or premium distributors/resellers.” This definition serves to eliminate retail, pure premium and direct sales figures, as well as sales to buyers or retailers in other industries. 

Suppliers were also asked to report only net income to them, not resale prices in their catalogs or those set by distributors. The same requirements/questions regarding global/North American sales, acquired firms and common ownership that applied to distributors applied here as well.

Sales to other suppliers were permitted to be included, but with certain limitation. For example, all sales of imprinted goods could be incorporated, but only 25% of sales of blank merchandise. Instituted in 1997, this requirement takes two points into consideration: 1) that such sales represent for-profit business on the same field as sales to distributors; and 2) that, as confirmed in conversations with ranked suppliers, the level of supplier-to-supplier sales at the Top 40 level remains extremely low.

Those companies identified on the lists by “M” or “U” are those who reported the majority of their sales as being, respectively, in mail-order (M) or unimprinted sportswear (U). In time, an “I” will be added to indicate Web sales.

Once all contending companies – usually several hundred – have submitted acceptable sales figures, the final determination process begins. This consists of thorough research on each firm, examining financial reports, year-end statements, annual reports, and business publications, as well as personal interviews. In situations where a firm’s sales figures are proprietary, the same criteria and resources are utilized to come up with as accurate an estimate as possible.

The Outer Limits

Even those who have only been part of the promotional products industry for a short time or are only part-time participants in it are likely aware that a sizeable amount of promotional products-related business occurs regularly beyond the traditional confines of the industry proper, and certainly beyond the limits of the Top 40. This activity usually involves financially solid and often very successful firms that aren’t ASI or PPAI members and who sell mainly though major wholesalers or directly to end-buyers. 

In the process of conducting our Top 40 research, we repeatedly encounter companies that manufacture, import and sell merchandise – usually in fairly large quantities – that unquestionably fit under the promotional products aegis as currently defined in our marketplace.

A few of these firms have (or previously had) direct connections to the industry. Others are only slightly familiar with it. In every case, however, these companies remained outside the parameters of the industry by choice, electing instead to direct their attention to alternative distribution channels and markets. Some have eventually made their way into the profession as traditional suppliers.

With the objective of presenting Counselor readers a well-rounded, informative and comprehensive viewpoint of the complete promotional products arena, we’ve included short profiles on a select group of these firms that one day may choose to become direct, rather than indirect, competitors. 

Arn Bernstein is executive editor/news director/assistant director of communications and Erik Caplan is associate editor of The Counselor.