Predictions: the Industry in 2010

I recently did a Q&A with Promo35, a new group that aims to bring together various generations of promotional product professionals. We talked about my predictions for how the industry will evolve in 2010. Take a look…

Describe what 2010 will be like for our industry in one word.
Bumpy

Will 2010 be up, down, about the same compared to 2009?
Overall, we should expect a slight uptick in the economy. But the fundamentals of our economy are still broken, thus I continue to remain very bearish. If there is a recovery, it will be at a slow crawl. Until we see growth within the small business sector, the economy will just bounce around. Right now, we are experiencing a lot of “false positives.” As a lot of people state, you cannot spend your way out of your problems and that is the current challenge our economy faces (short term and long).

Do you see major changes happening to our industry in 2010 and the next few years?
Yes. Here are a couple for you to chew on based on continued and emerging trends:

Distributorships:

1. Continued consolidation of the mid tier distributors ($2.0MM-$20MM). These distributorships that are self funded and also have a capital infrastructure are already coming under some serious duress. A percentage of these will not be able to manage their cash flow to survive. The small self funded distributorships can withstand anything, as they can hole up in their home office and reduce their OPEX expenses to their morning coffee.
2. Technology enabled distributorships will win. Being a bank is a 90’s model. The distributorships that have the capital to invest in technology to provide unfair competitive advantage will not only attract the top professionals that want leverage, but also they will win a disproportionate number of customer contracts. As example, Boundless has won 13 of our last 14 RFP contracts. Another example, the Company Store model will continue to lose value.. as more companies want zero inventory and the ability to leverage their purchasing power.
3. Smart People will win. In this crappy economy, you not only have to work hard, but more importantly work smart. Not many people are disciplined to work smart. These individuals will rise to the top. People that rely on “charm, personality and creativity” will continue to get creamed… maybe not right now, but their time is coming. Smart sales professionals will find a distributorship that can leverage their relationship, giving them a stronger value proposition that significantly increases their customer lifetime value.

Suppliers:

1. Domestic Suppliers will run lean. Being a supplier is a tough job. Not only do they have to deal with salespeople “nickel and diming” them, but also the continued threat from powerhouses like Alibaba that want to eliminate the entire supply chain. Their big challenge will be managing their key metrics: Show cost, cost to print catalogs, buy new inventory and phase out old inventory. The ones that can do this well will continue to survive (not necessarily thrive).
2. Quality Service Suppliers will win. At Boundless, our reps are starting to get really pissed off with suppliers that cannot deliver on the order (primarily inventory issues). Many suppliers that try to play the lean inventory game will lose customers at an increasingly rapid rate. As a result, the companies that have the right capital partners and can manage the distributor supply-chain expectations will continue to pick up market share.
3. Big is not always better. The mega suppliers will have the largest challenges… you know the ones that have the catalogs like phonebooks. Can you imagine having to manage inventory, buy inventory, etc. for all these goods. A few more will be caught with their pants down and I would not be surprised if one of the mega’s fell in 2010.
4. Tightening Credit Line – Because of the above (see #1), suppliers will be running a tighter line of credit with distributors. This has a direct impact on distributorship, specifically the ones that are self funded and do not have the proper banking facilities. As a result, the cash conversion cycle for distributors will be extended, thus requiring distributorships to have a larger line of working capital to manage their business. Said in English, if you are getting a line of credit of $20K in 2009, plan on possibly $10K in 2010.

End Customers:

1. Require High-Touch and Low Cost Solution: The distributorship that can provide this value proposition will win the game. For most distributorships, this is hard because they do not have leverage to accomplish both solutions. It requires a heavy investment in technology and solid business processes that customers can leverage to improve their overall experience.
2. Trend toward online solutions: Customers will continue to migrate to the online pure plays that can get “down and dirty” with price. They will be willing to sacrifice the creativity, customer service and friend of a friend relationship to save 10-20%.

What is something good we have going for our industry moving forward?
It is a highly entrepreneurial industry with a lot of passionate people. The bulk of the people will continue to be resourceful to weather the storm.

What is something not so good that might hurt us moving forward?
Because 99% of the distributorships are self funded businesses, they are not investing in their business. This is impacting a couple areas:

1. Training and Professional Development – the industry is still consist of a bunch of people peddling product. Compared to most industries, it is highly unsophisticated.
2. Recruiting new talent – because the industry is so behind the times, it becomes more difficult to attract top talent to be in this industry. Kids speak a different language.
3. Technology laggard – the industry continues to fall suspect to other industries taking market share that can provide a higher level value proposition. Because the technology in this industry is laughable, many people will lose business to other service providers that have a more integrated solution (print, fulfillment, agency, etc).

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