Moving Past the Great Recession:
Print’s Recovery Path for 2011–2012 and Beyond
Printing Industries of America
Economic and Market Research Department
Dr. Ronnie H. Davis, Vice President and Chief Economist
Ed Gleeson, Manager, Economic and Market Research
Moving Past the Great Recession:
Print’s Recovery Path for 2011–2012 and Beyond
December 2010
Printing Industries of America
Economic and Market Research Department
Dr. Ronnie H. Davis, Vice President and Chief Economist
Ed Gleeson, Manager, Economic and Market Research
Copyright 2010
Printing Industries of America
All Rights Reserved
Printing Industries Press Catalog No. 1849
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Contents
Introduction . ............................................................................................................................ 1
The Economy: Recession and Recovery................................................................................... 2
Assessing the Damage: Print and the Great Recession.......................................................... 4
Print Market Outlook for 2011–2012....................................................................................... 6
Different Paths: Printers’ Race for the Future........................................................................ 7
Introduction
This report presents our annual review of the economy and print markets during the past year plus our
economic and print market outlook for the next twelve to twenty-four months. Additionally, we offer an
assessment of longer-term competitive issues for printers.
The following four sections address these topics:
• The Economy: Recession and Recovery.
• Assessing the Damage: Print and the Great Recession
• Print Market Outlook for 2011–2012
• Different Paths: Printers’ Race for the Future
The analysis provided in this report is updated and current as of mid-November 2010. Some of the information has been previously published in various Printing Industries of America reports, including Economic and Print Market Flash Reports and Ratios reports. In addition, some of the information is from
the upcoming book Competing for Print’s Thriving Future, to be published in late 2010. For the most part,
however, the material (including the charts) has been specifically produced for this report.
The objective of this report is to serve as a resource to plan the year ahead for your firm. Also, since it
provides alternate scenarios in many instances, it can also be used to make mid-course corrections as the
year unfolds.
The Economy:
Recession and Recovery
Typically, the steeper the economic decline, the
stronger the recovery. However, this is definitely
not true of this recession. In fact, the recovery gap
between this recession and the last similar magnitude recession (1981–1982) is large and has increased significantly through the past six months
(Figure 3).
Where will the economy go from here? A look at
the full recovery paths of the past four recessions
should provide some guidance. While there is considerable variation in the recovery paths among
the last four recessions, the average first year and
second year increases in inflation-adjusted GDP
are 4.6 percent and 4.2 percent respectively—
healthy gains (Figure 4).
As we look forward to the path of the economy
in 2011 and 2012, much uncertainty remains even
after the November election results. However,
based on a number of factors, including the election, the likely outlook has improved. At this time,
the most likely trajectory of the economy over the
Figure 1
Figure 3
The Great Recession of 2007–2009 was a dramatic
departure from the relatively mild recessions of
the past two decades. The departure is true in
both intensity and duration when compared to the
last two recessions of 1990–1991 and 2001–2002.
Indeed, even when compared to the last recession
approaching this level of severity, The Great Recession scores high in creating economic damage
and havoc as shown in Figure 1.
The good news is that after lasting an official
eighteen months, the recession has been declared
over as of June 2009. However, while the recession may be over, the recovery appears stalled as
the economy has taken to moving in an essentially
sideways direction. Since peaking in the fourth
quarter of last year, the growth rate of economic
activity has declined with a very weak 1.6 rate in
the second quarter this year and 2.0 percent in the
third quarter (Figure 2).
RGDP Change
1st year
2nd year
Figure 2
Figure 4
2 • Moving Past the Great Recession: Print’s Recovery Path for 2011–2012 and Beyond
2.0
Figure 6
Figure 5
next two years is a somewhat stronger rebound
with inflation-adjusted growth of 3.3 percent in
2011 and 3.5 percent in 2012. While this is not a
robust recovery, at least it is improved from just a
couple months ago.
Other less likely scenarios include a sluggish
recovery and a return to recession (the dreaded
double dip). While these are less likely scenarios,
we present them as alternatives for your own
planning purposes if conditions change over the
next few months (Figure 5).
Using these same three scenarios, we can focus further on the quarterly pattern of economic
activity over the next twelve months. In the forecasted most-likely rebound scenario, the economy
bounces up to 2.7 percent growth the first quarter
and picks up speed in each of the next four quarters (Figure 6).
Whatever path the recovery ultimately takes,
labor markets will remain in an over-supply situation for a while. A standard rule of thumb is that
the economy has to grow at around 5 percent for
a full year to lower the unemployment rate by a
full percentage point, so it will take considerable
time to soak up the large pool of unemployed and
discouraged workers that have accumulated over
the last three years. Further, the time it takes to
return to job creation and a resulting reduction in
unemployment has been increasing over the last
few recessions (Figure 7).
Even with the growth rate forecast in the likely
rebound, the unemployment rate will range over 9
percent for most of 2011 and more than 8 percent
for 2012. The most likely path of the unemployment rate is a range of 9.0–9.5 percent next year
and 8.5–9.5 in 2012.
In Figure 8, we take a look at the likely unemployment scenarios from 2007 to 2018. If unemployment behaved like it did in past recessions, by
Figure 7
Figure 8
2011 the unemployment rate would be 6.5%, while
if it was consistent with recent recessions it would
fall to 9% by 2011. Based on current trends, we do
not expect the unemployment rate to drop below
9% until 2014, the government forecast is more
optimistic; they expect unemployment to drop to
7.9% by 2012.
Moving Past the Great Recession: Print’s Recovery Path for 2011–2012 and Beyond • 3
Price changes should remain in check for the
next couple of years given the slack in the economy. However, inflation risk may start rising with
the incessant bond buying and money creation
over the past couple of years as well as the purchases at the end of this year and early next year
already announced by the Federal Reserve.
Inflation for the full-year 2010 is expected to be
around 1.2 percent, which is just about the minimum level targeted by the Federal Reserve as a
“healthy” rate of price change. The outlook for inflation in 2011 is for a slightly higher rate of about
1.7 percent as the economy recovers. Expectations
for 2012 are more uncertain, but at this time, a
rate of around 2 percent is a reasonable forecast.
Assessing the Damage: Print and
the Great Recession
According to Printing Industries of America’s
print market tracking model, the Great Recession
shrunk print’s economic footprint by historic proportions last year. The number of U.S. printing
plants declined to 33,565—down from 36,508 or
8 percent in 2008. Total shipments in 2009 (not
adjusted for price changes) were $140.7 billion—
down from $166.6 or 15.6 percent industry wide.
Employment declined by 6.9 percent from 976,400
to 909,200.
In total, 2009 print markets declined by 2,943
plants, $25.9 billion in total shipments, and more
than 67,000 employees (Figure 9). After adjusting for declines in printing prices real or inflationadjusted printing shipments decreased by about
9.1 percent. Even after the declines, print’s economic footprint is still substantial compared to
other U.S. industries and remains a major American industry.
At this time we do not have an end-of-year
reading on 2010 print markets, but the turnaround has already begun for printing shipments
with growth returning in the first three quarters
of 2010 helped by the slowly recovering economy
and robust election spending on direct mail. Although shipments will be up for the year, they will
still not match pre-recession levels. The number
of printing plants and printing employment will
surely decline.
Sorting Print by Function and Process
We can further examine printing shipments by
function and process. Although many print products and services provide multiple functions, we
can sort by three major intended functions:
•P
rint intended to inform or communicate factual
and editorial information. Magazines, newspapers, books, and reports.
Figure 9
4 • Moving Past the Great Recession: Print’s Recovery Path for 2011–2012 and Beyond
• Print providing product logistics to manufactured products. Packaging, labels, wrappers,
and product user manuals.
•P
rint intended to market, promote, or sell various products, services, political candidates, positions, or ideas. Marketing and promotional print
such as catalogs, direct mail, and brochures.
Of these three functional categories, marketing
and promotion is by far the largest component,
comprising more than half of total shipments. The
information and communication function is the
second largest category, comprising 27 percent of
total shipments (Figure 10 and Figure 11).
Product logistics accounts for approximately
20 percent of total printing shipments today, or
about $28 billion per year. With the exception of
product user manuals, which could be online or in
other digital formats, product logistics print is the
one print function that does not compete against
other (mostly digital) media, so it actually has a
protected competitive position.
Product logistics print is most directly related to the general level of economic activity. In
2009 Shipments ($ Billions)
Figure 10
2009 Shipments (Percent of Total)
contrast to the other two functions (print intended
to inform or communicate and print intended to
market and promote), print logistics is not subject
to digital displacement, since this print is directly
tied to products—either as packaging or labels.
Therefore it is the print function most tied to the
level of economic activity both in the short (cyclical) sense and in the longer run.
Additional threats may reduce this print function. First, is the degree of import substitution,
since imported manufactured products will use
packaging and labels produced primarily in their
county of origin. Another factor that could significantly influence this function is the shifting
changes in distribution channels. If more consumer and business products are purchased off of the
Internet rather than purchased through traditional distribution channels, there may be changes in
packaging and labeling needs.
All things considered, this category of print
should continue to grow at rates similar to overall gross domestic product and underpin overall
printing shipments.
Print by Process
At the present time, digital print (toner-based and
inkjet) accounts for close to 13 percent of annual
industry shipments or $18 billion. Shipments of
digital print continue to grow and are forecast
to grow in the future at rates in excess of overall economic growth. Of course, one of the reasons
for this high growth is that digital print is taking business away from traditional print. In fact,
about one of every four dollars of digital print is
from this source (Figure 12 and Figure 13).
Printers’ ancillary services currently account
for around 12 percent or $17 billion in annual
shipments. Over the past decade or so, printers
have increased their offerings of these services.
They have benefited from both the general growth
of these services and from increasing their market share by either competing against specialized
firms providing these services or through mergers
and acquisitions of these providers. In my view
the dollar volume of these services should continue to grow even though the long-term growth
rates may be less than the growth rate of the overall economy.
Recent Trends in Printers’ Profits
Figure 11
The Great Recession pushed the printing industry
over the brink last year with the average printer
participating in the 2010 Printing Industries of
America Ratios survey losing 1.35 percent of sales.
This is a decrease from the 1.5 percent profit as
a percent of sales posted the previous year and
Moving Past the Great Recession: Print’s Recovery Path for 2011–2012 and Beyond • 5
2009 Shipments ($ Billions)
Figure 12
down from the 3.1 percent profit achieved in 2008.
Overall profits for the decade peaked in 2007 at
3.4 percent.
Industry profit leaders (printers in the top quartile of profitability) earned 7.0 percent on sales
last year, a decline from the 8.4 percent earned
in 2008. Profit challengers (printers in the bottom
75 percent of profitability) averaged losses of 4.2
percent on sales last year, their third year in a row
with losses.
As can you can see in Figure 14, the profit gap
between profit leaders and all printers and challengers has held very steady through the past few
years.
Print Market Outlook
for 2011–2012
2009 Shipments (Percent of Total)
Figure 13
At the start of 2011, the economic recovery will be
eighteen months old based on the official recession
end of June 2009. As I have often stated, print
leads recessions and lags recoveries. The good
news is that with the recovery, well-established
print markets should gain some traction. However, the lift from the extremely contested elections
of 2010 and the resulting shot in the arm for direct
mail will be lost. All in all, the economic growth
should make up for the loss of campaign spending.
On a nominal or not-price-adjusted basis, print
markets should grow by around 3 percent or so
in 2011 and 2012 based on the “likely rebound”
Figure 14
6 • Moving Past the Great Recession: Print’s Recovery Path for 2011–2012 and Beyond
Figure 15
Figure 16
economic scenario. Even with the recovery
achieved in 2010 and the projected recovery for
2011, printing shipments will remain below prerecession levels (Figure 15).
Over the next two years, there will be a continued shakeout of printing plants from industry
restructuring. As the surviving plants pick up
the sales of the failing plants, they will, of course,
outperform the overall print markets. Perhaps
around 2,000 or so printing plants may go out of
business in the next year or two.
The impact of all of this is that survivors will
likely see their overall sales grow by fairly significant rates over the next two years (Figure 16).
Printers’ profits tend to lag both print sales and
the economy. As the economy continues to recover, print profits should continue to rebound over
the next two years. My projections call for overall
industry profit rates to rebound to around 2 percent and profit leaders to more than 9 percent
(Figure 17).
Figure 17
Different Paths:
Printers Race for the Future
Now we look farther down the road and examine
the prospects for survival and future success of
the current population of printers. To evaluate
the future prospects of today’s printers, we need
to look at their demographic characteristics and
their specific strengths and weaknesses. In total,
at the end of last year, print’s economic footprint
included 33,563 printing firms. The vast majority
of these plants were small—less than 20 employees (Figure 18).
It should be noted that these are plants, not
firms. Since most printing firms are one-plant operations, there is a fairly close correlation between
the number of plants and the number of firms
!
Figure 18
(Figure 19). Based on the number of multipleplant firms, it is estimated that there are approximately 28,000 or so distinct printing firms in the
U.S. Of these more than 70 percent are familyowned firms.
Moving Past the Great Recession: Print’s Recovery Path for 2011–2012 and Beyond • 7
Figure 19
For many years now, the number of printing
plants has been declining even as printing sales
moved up or down. Almost all projections on
print’s future call for long-run declines in both
printing shipments adjusted for inflation and the
number of printing plants.
Printing Industries of America’s long-term outlook is for plants to decline by a larger percentage
than shipments. As long as plants decline more
than shipments, the surviving plants would, on
average, experience increasing sales based on
the projections from the Beyond the Horizon report (Figure 20).
Which of today’s printing firms will survive and
transition to the future? More important, which
firms will not only survive but thrive in the future?
We can generally profile the differing futures that
lie ahead for three distinct categories—the overall printing industry, typical surviving printing
plants, and sales leaders (firms in the top quartile
of sales change). On an annual basis, these three
have significantly different projected future sales
metrics—minus 2, plus 1, and plus 5 respectively
(Figure 21). Of course, these metrics vary even
more depending on process (conventional ink-onpaper, digital toner, inkjet, and ancillary services).
We can relate the future odds of success to the
present time by classifying current printers into
four categories—SuperPrinters, Survivors, AtRisk, and Expendables (Figure 22). Today’s SuperPrinters are those in the top quartile in sales
change and profitability. The probable Survivors
are the next quartile, the At-Risk are the next
quartile, and the Expendables are the bottom
quartile or least likely to survive.
There are many factors that influence whether
a printer is a SuperPrinter, Survivor, At Risk, or
one of the Expendables. While the book Competing for Print’s Thriving Future investigates this
Figure 20
Industry, Survivors, and Sales Leaders
–3
–2
–1
Industry
–2
0
1
2
Survivor
3
4
5
6
Sales Leaders
Figure 21
Figure 22
complex issue in much more detail, here we look
at one key distinguishing factor—how a typical
printer in these different groups copes with value
migration in printing.
8 • Moving Past the Great Recession: Print’s Recovery Path for 2011–2012 and Beyond
Figure 23
Value migration happens in a marketplace
when the key component of customer-perceived
value transitions from one spot to another. In a
traditional product manufacturing industry, the
transition path in customer-perceived value is
almost always from the product itself to services
around or ancillary to the product, to the business,
or consumer solutions provided by the product to
ultimately outsourced management of the service.
This value migration can occur in both a businessto-business and business-to-consumer situation.
In the business-to-business case of print, this
transition path has been going on for decades as
printers have evolved from producing the printed
product to adding value-added ancillary services
to providing communications or advertising “solutions” and now to providing outsourced “print
management services.” There is much evidence
to suggest that it is the SuperPrinters that are
furthest along in this transition, and print’s future evolution will surely move in this direction
(Figure 23).
The key conclusion here is the imperative to
migrate the value-adds that your firm provides to
the more sustainable path of ancillary services to
solutions to management services. At whatever
point your firm is currently along this path, you
need to move farther to the right to be successful
in transitioning to the future.
Related to this issue is the selection of a business model. In a recent survey, printers were provided four specific business model descriptions
and asked to select the one best describing their
own firm. The four options were:
•A
niche printer specializing in a narrow print
product segment such as direct mail, labels/
wrappers, etc.
•A
niche printer specializing in a narrow vertical market segment or specific industry such as
travel, entertainment, health care, etc.
•A
general commercial printer offering a wide variety of printed products and services to a general customer base.
•A
communications provider offering a complete
set of value-added services, including printing,
database management, fulfillment, mailing, etc.
It should be noted that that, since respondents
self-selected their description, there is no independent verification of the accuracy of the selection.
Most interesting, many printers continue to define themselves as undefined general commercial
printers. This is true even as the conventional wisdom on the most appropriate strategy for printers
is to define themselves in a more narrow sense.
When asked to pick a strategy that best described
their firm, a majority of printers (32 percent) still
select “general commercial printer.”
Moving Past the Great Recession: Print’s Recovery Path for 2011–2012 and Beyond • 9
The second most selected business model was
“communications provider offering a complete set
of value-added services, including printing, database management, fulfillment, mailing, etc.” (30
percent). This was followed by “niche printers specializing in a narrow print product segment such
as direct mail, labels/wrappers, etc.” (14 percent).
Ten percent of respondents identified themselves
as “niche printers specializing in a narrow vertical
market segment or specific industry such as travel, entertainment, health care, etc.” (Figure 24).
There are, of course, many other imperatives
printers need to address to make the transition.
We have discussed most of these in previous writings, but the most important are:
• Thinking outside the competitive box—combining specialization and diversification strategies
• Practicing the various operational tactics of
SuperPrinters, including manufacturing and
administrative efficiency, training and educating staff, and compensation plans that align
the interests of a print firm’s sales staff with
overall firm profitability.
• Practicing pricing power to compete for price not
on price.
!
Figure 24
These and other strategic and tactical options
for increasing the odds of success are covered in
Competing for Print’s Thriving Future.
In closing, there are tremendous challenges facing printers over the next year or two. However,
the severity of these challenges should be reduced
somewhat now that the economy and print markets are both in recovery modes.
10 • Moving Past the Great Recession: Print’s Recovery Path for 2011–2012 and Beyond