|
In our current economic environment, the instant knowledge of every layoff, minute-by-minute scrutiny of the stock market, and hours of in-depth analysis of every possible financial statistic have led to a flood of bad news that started with the subprime mortgage collapse and has made the average consumer afraid to spend. Add to that an increase in the price of a gallon of gas (at the end of last year), the rapid drop in retirement account values, plus a presidential election where most of the rhetoric centered on how bad everything is, and you get a “perfect storm” of financial fear.
So what’s going to happen? I have no crystal ball, but here’s what I hope will happen. The news organizations will begin to see any positive story as news and will pepper us with some good headlines. The price of gas will have already fallen, and at some point cash will come back into the market and drive up the stock value in people’s accounts. There is a pent up demand being created as many people are not buying big-ticket items. All of this could lead to a reversal of the spiral as people buy more smaller ticket items that may wear out faster than the larger, more expensive items, and companies will hire more people to meet the demand, and those people will buy more, etc.
Although we may come out of the recession in a year or so, it will still take us much longer to return to the glory days of the past years. The reason I say that has to do with a quirk in how most financial data is reported. It almost always takes the form of the percentage change from the previous year. For example, we hear that automobile sales are down 40 percent from the same month last year. If we fast forward to a year from now, we may very well hear that auto sales are up by 10 percent. That will sound good (and any increase will be good), but it would still mean that sales are 30 percent less than two years before. However, the news flashing across everyone’s screens will be that auto sales are up 10 percent, and people will feel better and will become more likely to buy.
If you own or run a converting or package-printing business, everyone seems to ask you the same question: “How is your business doing these days?” Of course, the answer varies a lot by the type of business you and your customers are in, and how diversified your customer base is. In this economic climate, most label converters are in a little bit better shape than other businesses, because a large portion of labels are used on small-ticket items such as food or health and beauty, and these items are not as affected by a recession as are larger ticket items like automobiles, furniture, and housing. Also, most converters tend to be smaller businesses that are privately owned. These owners are more conservative by nature and are not likely to have large amounts of debt on their balance sheets. This makes them better able to focus on the long term instead of quarter to quarter like public or private-equity-backed companies.
However, this doesn’t mean that converters are not going to be adversely impacted by this recession. Some may have had customer concentration in industry segments that have been hit hard. Others may be hurt by customers stretching out their payments or even going bankrupt. Overcapacity in the industry has also been a problem for quite some time, and the economic slowdown will mean much more of it. This tends to result in “margin squeeze” as more and more competitors fight over smaller pieces of business. Many converters may resort to desperation pricing as they find themselves getting into deeper trouble. While their customers might enjoy the lower prices for the short term, in the long run, these customers get hurt by lower quality and service, and by driving out innovation and new capital improvement in the surviving converters.
Converters are also caught in an interesting pricing anomaly. Most consumers (especially purchasing people) are keenly aware of the price of oil. The price of a gallon of gas is the most well-known commodity price in the world today. Last summer when oil soared to $147 a barrel (www.oil-price.net), prices were increasing everywhere. Today, oil is a fraction of that cost and purchasing professionals expect price reductions everywhere. However, the largest commodity in the converting world is paper, and the paper suppliers have been solidly focused on taking capacity out of the system. So, converters are being caught in a squeeze between customers that demand price reductions and suppliers that demand price increases.
How do you survive or even thrive in these bad times? You need to do what you always do—provide great quality, service, and value. Increase efficiency and drive out waste. In the meantime, help the economy. Go out and buy something. pP
Terry R. Fulwiler, CEO of the WS Packaging Group of Companies, is a graduate of the University of Michigan, where he received a Bachelor of Science in Aerospace Engineering. Fulwiler was named the 2000 Converter of the Year by the Tag & Label Manufacturer’s Institute.
Companies Mentioned:
 |
|
Best Practices for Print Automation
Competing for Print’s Thriving Future