.

1. Special Report:
A Planning Guide for 2012–2013
Printing Industries of America
Economic and Market Research Department
Dr. Ronnie H. Davis, Senior Vice President and Chief Economist
Ed Gleeson, Director, Economics and Market Research

2. Special Report:
A Planning Guide for 2012–2013
January 2012
Printing Industries of America
Economic and Market Research Department
Dr. Ronnie H. Davis, Senior Vice President and Chief Economist
Ed Gleeson, Director, Economics and Market Research

3. Copyright 2012
Printing Industries of America
All Rights Reserved
Printing Industries Press Catalog No. 1853
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4. Contents
Where We Are: Review of Current Trends in the Economy and Print Markets .................. 2
What About the Bottom Line: 2011 Financial Overview........................................................ 8
Where We Are Going: The Economy and Print in 2012–2013.............................................. 11
What to Do: Thinking About Strategy and Tactics............................................................... 12
A Longer-Run View: A Review of Our Expectations Through the Next Decade................. 17

5. Special Report: A Planning Guide for 2012–2013
Welcome to A Planning Guide for 2012–2013. This special report is another in Printing Industries of
America’s series of annual economic and market research reports. This series is designed to help members assess the key trends impacting print markets and to design strategies and tactics to take advantage
of coming opportunities and address potential challenges.
This report provides an all-in-one environmental scan of economic and print market trends over the
past year plus our most current outlook for 2012 and beyond. While readers may recognize some of the
material from recent Flash reports, Ratios reports, and other articles and publications, it is helpful to
consolidate previous information plus new analysis into a one-stop, soup-to-nuts document for review and
planning purposes. Report sections include:
• here We Are: Review of Current Economic and Print Market Trends
W
• hat About the Bottom Line: 2011 Financial Overview
W
• here We Are Going: The Economy and Print in 2012–2013
W
• hat to Do: Thinking About Strategy and Tactics
W
• Longer-Run View: A Review of Our Expectations through the Next Decade
A
Printers and industry suppliers can use this report to:
•
Understand the key trends impacting the economy and print markets.
• nderstand how these key trends influence printers’ financial performance.
U
• evelop an anticipated economic and print market outlook for 2012 and 2013.
D
• evelop strategies and tactics to improve their operations in 2012 and 2013.
D

6. Where We Are: Review of Current Trends
in the Economy and Print Markets
The first step to planning for 2012 is to assess
where we are now and how we got here. In this
section we have assembled materials on conditions and trends in the North American economy
and print markets through the past 12 months.
The economy’s recovery from The Great
Recession continues but at a very sluggish pace.
In truth, the recovery barely got up to speed after
the official end of the downturn in June of 2009
before backsliding. While it looks like we may get
by without a double dip, the economy is cruising
at just above stall speed and is in danger of slipping into another recession.
The pace of economic growth in the first half
of 2011 was dismal—0.4 percent in the first quarter and 1.0 percent in the second quarter. In
general, the strength of the recovery correlates
with the depth of the recession, but not this time.
The “recovery gap” between the 2007–2009 and
1981-1982 recession is tremendous—around 2–3
percent of gross domestic product (GDP) or approximately $300–$450 billion in lost output and
millions of lost jobs (Figure 1).
The pace of recovery picked up in the second
half of the year. The preliminary growth rate was
estimated at 2.5 percent in the 3rd quarter. Most
likely the economy will limp along at a 2.0-percent
pace over the course of 2011 and gain momentum
for more modest growth in 2012—perhaps slightly
more than 3.0 percent (Figure 2).
Updating Print’s Economic Footprint
Looking back, print’s economic footprint grew in
2010—at least in terms of the value of shipments.
According to Printing Industries of America’s
print market tracking model, U.S. printing shipments increased by 2.8 percent in 2010 compared
to 2009. The growth was the result of the overall
economic improvement and gains in advertising
and promotion printing—particularly direct mail
promotion in the 2010 election cycle.
On the downside, in 2010 the number of printing plants and printing employment continued
to fall, since these are primarily driven by structural and technology factors rather than economic
conditions. In terms of plants, we estimate that
around 1,000 plants went out of business last
year. This number was less than the last couple
years with the recession speeding up the longerrun adjustments.
Total printing employment declined as a result
of plant closings and productivity enhancements
2 • Special Report: A Planning Guide for 2012–2013
Sluggish Recovery in the U.S.
The Great Recession and 1981–1982
10
8
6
4
2
0
1982
2009
0.3
1.7
5.1
3.8
9.3
3.9
8.1
3.8
8.5
2.5
1982
8.0
2.3
7.1
0.4
3.9
1.3
2009
Quarterly GDP Change (Annual Rates)
Figure 1
The Economy
2011–2012
3.5
3.0
2.5
2.0
2011
2012
1.5
1.0
0.5
0
Inflation-Adjusted Economic Growth
2011
2012
2.0
3.3
Figure 2
Tracking Quarterly Print Sales
Percent change in year-to-date sales
10
5
0
–5
–10
–15
2008
2009
Q4
Q1 Q2 Q3 Q4
Q1
percent change –1.5 –9.4 –4.8 –9.1 –12.7 1.5
Figure 3
2010
Q2
5.1
Q3
4.6
2011
Q4
5.0
Q1
6.4
Q2
4.1

7. in 2010. Overall, total printing employment
dropped 3.5 percent to 877,400. Sales per plant increased by 6.0 percent for survivors or plants that
remained in business from 2009 to 2010.
On a more current basis, 2011 print sales increased in both the first and second quarters of
2011 (Figure 3).
Preliminary estimates for full-year 2011 are
for shipments to increase to $148.9 billion on an
annual basis. We estimate the number of printing plants will decline by another 1,000 to around
31,500 and employment will fall by approximately
30,000.
Print’s Economic Footprint
2010 and 2011*
2010
2011*
$144.6 Billion
$148.9 Billion
Plants
32,563
31,500
Employment
877,400
847,400
$4.44 Million
$4.73 Million
26.9
26.9
Shipments
Shipments per
Plant
Employment per
Plant
* 2011 Preliminary Estimate
Tracking Digital and Conventional
Printing Trends
also decreased in 2008, while digital toner-based
sales continued to increase by 5.3%. On average,
total printing shipments increased by 1.0% per
year from 2004 to 2010 (Figure 5).
What is the source of this relatively high growth
in digital toner-based printing? The primary reason is that digital technology is consistent with
customer needs for smaller, more flexible printing. Also, digital toner-based printing allows for
more personalization and customization.
Printing and Other Economic Indicators
In general, printing activity is correlated with
various economic metrics such as GDP, industrial production, and total employment. As demonstrated in Figure 6, the annual percentage change
in total printing, digital printing and conventional (non-digital printing—primarily lithographic)
track closely with annual changes in total U.S.
employment during the study period.
Printing Industries of America survey results
also track consistent with trends in nominal or
non-inflation adjusted GDP as shown in Figure 7.
It has taken almost four years for total U.S.
economic output adjusted for inflation to return
to pre-recession levels in late 2007. When might
printing shipments do the same? U.S. Printing
shipments peaked in 2007 at an annual rate of
$174.6 billion. They declined to a recession low of
$140.7 in 2009 before climbing to $144.6 in 2010—
or still 17.2 percent below their 2007 peak. Assuming printing shipments continue to grow at an
annual rate of around three percent means that it
will likely be around four to six years before they
reach their 2007 peak, or sometime between 2014
and 2016.
Printers’ shipments of digital toner-based printing in North America increased every year over
the 2004–2010 study time frame. The annual percentage increases in digital printing shipments
ranged from a high of 10.6% in 2010 to a low
of 0.9% in 2009. The overall average rate of increase for this period
was 5.7%. (Figure 4).
Annual Percent Change in Digital Toner-Based Print
Digital toner-based
(Sales Weighted by Size of Firm)
printing
shipments 12.0%
10.6%
in-creased significant10.0%
ly more than overall
printing shipments.
8.0%
7.8%
8.0%
Over the 2004–2010
6.6%
6.0%
period, the annual
6.0%
5.3%
4.7%
change in total print4.1%
4.0%
ing shipments ranged
from a high of 5.0%
2.0%
in 2010 to a low of
0.9%
–12.7% in 2009 when
0.0%
they were impacted
2004
2005
2006
2007
2008
2009
2010
2011 YTD
Average
by the recession. Total
printing
shipments
Figure 4
5.7%
Average
Excluding
2011
Special Report: A Planning Guide for 2012–2013 • 3

8. Annual Percent Change in Printing Industry Sales
(Sales Weighted by Size of Firm)
6.0%
4.0%
3.6%
3.8%
5.0%
3.3%
2.0%
4.1%
2.4%
1.0%
0.6%
Average
Average
Excluding
2011
0.0%
–2.0%
–1.5%
–4.0%
–6.0%
–8.0%
–10.0%
–12.0%
–14.0%
–12.7%
2004
2005
2006
2007
2008
2009
2010
2011 YTD
Figure 5
The Evolving Footprint:
1999–2009
Print Sales and U.S. Employment 2004―2010
(Annual Percent Change in Print Shipments Total U.S. Employment)
15%
Total Printing
Digital Printing
Annual Percent Change
Now, we take a look back to examEmployment
Conventional Print
ine changes to the printing indus10%
try’s economic footprint from 1999 to
2009. This period is chosen for anal5%
ysis because the data is complete
0%
enough for analysis by function.
From 1999 to 2009 the number of
-5%
total U.S. printing plants fell from
49,410 to 33,564—a decline of 15,845
-10%
(32 percent). In a typical year, more
than 1,500 plants ceased operations.
-15%
Annual printing shipments fell
-20%
from $155.7 billion to $140.7 billion,
2004
2005
2006
2007
2008
2009
2010
a decrease of almost 10 percent. It
Figure 6
should be noted that the ending year
of our analysis is the depth of the
Print Market Diffusion Index vs. Percent Change in Nominal GDP
print recession, so the fall is somewhat exaggerated. If the ending year was 2010 the per- 60%
15%
centage decrease would be around 7 percent.
Although many print products and ser- 40%
10%
vices provide multiple uses we can sort data 20%
on shipments and plants by three major in5%
0%
tended functions:
• Print intended to inform or communicate -20%
0%
factual and editorial information, such
Print Market Sales
*A Diffusion Index is
Diffusion Index (Left Axis)
as magazines, newspapers, books, and -40%
calculated by taking the
percentage of respondents
-5%
GDP percent change based indicating an increase minus
reports.
-60%
the percentage indicating a
on current dollars (Right
decrease.
Axis)
• Print providing product logistics to man-80%
-10%
ufactured products—packaging, labels,
2Q00 2Q01 2Q02 2Q03 2Q04 2Q05 2Q06 2Q07 2Q08 2Q09 2Q10 2Q11
wrappers, and product user manuals.
Year
• Print intended to market, promote, or sell Figure 7
various products, services, political candidates, positions, or ideas—marketing
and promotional print such as catalogs,
direct mail, and brochures.
4 • Special Report: A Planning Guide for 2012–2013

9. Of the three functions, only one—print lo1999–2009
gistics—is not subject to competition and subShipments and Plants
stitution by digital media. This stronger competitive position enabled this function to gain
sales over the review period—slightly more Establishments
than 2.0 percent. In contrast, the inform/
communicate function declined by 27.5 percent and the market/promote function deShipments
clined by 4.7 percent. This ranking corresponds to our view that the most threatened
function of print is the inform/communicate
function. The market/promote function, while
0
20
40
60
80
100
120
140
160 180
Establishments (Thousands)
Shipments (Billions $)
still threatened by digital media, is stabiliz1999
49.41
155,711
ing as marketers recognize the value of print
2009
33.565
140,674
marketing and promotion. (Figures 8 through
Figure 8
10).
A similar trend is apparent in tracking
1999–2009
the changing landscape of printing plants by
Plants by Shipments
function over the same period. The largest
percentage decline was for plants specializing
in the inform/communicate function—39.6 Inform/communicate
percent. The number of plants specializing in
producing print for the other two functions declined by around 30 percent.
Market/promote
As a final step in our analysis, we examine
the sales patterns of surviving plants sorted
by function through the study period. On a
Logistics
sales-per-plant basis, as shown in Figures 11
and 12, total surviving plants and surviving
0
10
20
30
40
plants sorted by function experienced sales inThousands
creases during the study period. Once again,
Inform/communicate
Logistics
Market/promote
35.105
1999
11.758
2.548
this seemingly contradictory pattern demon24.684
2009
7.101
1.780
strates the power of surviving even in a period
Figure 9
of declining sales.
Another pattern is also apparent. Print
1999–2009
logistics printers tend to be much larger than
Shipments by Function ($Billions)
those specializing in the other two functions.
In 2009 annual sales of print logistics printers
averaged almost $16 million compared to $7.2 Inform/communicate
million for inform/communicate printers and
$2.5 million for market/promote printers.
Overall, the typical surviving printing
Market/promote
plant experienced sales growth of 33 percent
from 1999 to 2009. Average annual per-plant
sales increased from $3.15 million to $4.19
Logistics
million. Print logistics printers experienced average sales increases of 46 percent;
market/promote priners increased 35 percent;
0
10
20
30
40
50
60
70
and inform/communicate printers increased
Inform/communicate
Logistics
Market/promote
64.56
1999
63.82
27.30
33 percent—a ranking similar to the change
61.55
2009
51.24
27.87
in total shipments over the same period.
This pattern was on display in 2010. Print- Figure 10
ers specializing in print logistics had an annual sales growth of 3.9 percent; marketing
and promotional printers experienced sales
1999
2009
1999
2009
1999
2009
Special Report: A Planning Guide for 2012–2013 • 5

10. growth of 1.2 percent, and printers specializing
in inform/communicate print averaged sales declines of 1.0 percent.
Print by Function
Percent Change in Shipments 2009–2010
Sales Change by Plant Size
–2
0
–1
1
Logistics
Market
Inform
2
3
4
5
3.9
1.2
–1.0
Figure 11
Credit Availability Improves
2010 Print Sales Change
By Size of Plant
0
2
4
1–19
20–49
50–99
100+
6
8
0.0
0.5
1.7
7.6
Figure 12
Credit Availability Improves
Diffusion Index
0
–10
–20
–30
–40
–50
–60
Credit Available Index
2009
Q4
–54
2010
Q1
–36
Q2
–50
2011
Q3
–38
Q4
–36
Figure 13
6 • Special Report: A Planning Guide for 2012–2013
A “bigger the better” pattern prevailed over the
course of 2010 in terms of sales change by plant
size for printing plants in existence the entire
year. The largest plants (100-plus employees) experienced average sales gains of 7.6 percent. In
contrast, the smallest plants (less than 20 employees) experienced stable sales compared to 2009.
Sales changes for medium-sized plants (20–49
and 50–99 employees) saw average gains of 0.5
percent and 1.7 percent respectively.
Q1
–33
Q2
–27
Credit conditions have improved slightly in the second quarter of 2011 compared to the first quarter
of 2011. The credit diffusion index has increased
from –33 percent in Q1 to –27 percent in Q2, or 5
percent more respondents reported current credit
conditions having a positive impact on their business in Q2 compared to Q1. This slow improvement
has been a trend in the past few quarters as portrayed in Figure 13. The index is still stubbornly
in the negative territory but has steadily improved
the past six quarters from a low of –54 percent in
Q4 2009 to the current –27 percent.
It should be noted that all of these improvements are off an extremely stressed print market
situation as a result of the severe downturn in
printing shipments from 2007 to 2009. Still, they
are a welcome reprieve from previous conditions.
Printing Prices vs. Cost
Although printing shipments were up last year
average printing prices declined by just under one
percent. At the same time, the prices printers paid
for selected inputs increased (Figure 14). Wages
and salaries increased very slightly as they were
restrained by loose labor markets. Energy costs
increased 2.2 percent last year but have escalated stigmatically since the first of the year. Paper
prices were up 5.3 percent and employee health
care costs rose 7.4 percent.
Sales Change and Business Model
In our most recent full year for analysis (2010)
printers with specific business model choices outperformed general commercial printers in sales
growth. The best performance was accomplished
by communication providers and vertical niche
printers (Figure 15).

11. Sales Focus
Over the last decade or so printers have gradually increased the geographic focus for their sales
efforts. This increase has come as a result of both
competitive pressures and digital technology.
Even so, almost four out of ten printers remain
focused on sales within 100 miles. At the other extreme, 35 percent of printers focus on the entire
national print market.
Printers’ Sales Focus
Distance
Percent of Printers
Local: Up to 100 miles
39
Sub-regional: 101–250 miles
8
Regional: 251–500 miles
18
National
35
Print’s Performance in a Bad Decade
for US Manufacturing
The 2000–2009 decade was definitely not a good
one for U.S. manufacturing industries as the 2001
and 2007–2009 recessions took their toll. Indeed,
according to a recent Bloomberg Business Week report (May 9–May 15, 2011), 14 out of 19 U.S. manufacturing sectors declined in inflation-adjusted
shipments over the decade. Print was ranked
number 10 out of the 19—right in the middle. Interestingly, print’s performance was significantly
better than the paper industry which declined at
about twice the rate of printing. Print also performed better than motor vehicles (Figure 16).
Employment and the Recession
For the most part, print remains a domestic
industry in the United States. Most print that is
produced here is consumed here, and most print
consumed here is produced here. However, many
printers do export a portion of their output to foreign countries. According to our surveys, almost
one in four printers sells to foreign customers. On
average, exports comprise just over 7.0 percent of
sales for these firms.
Now let’s examine pre and post recession employment levels for printing compared to other benchmarks—total U.S. employment, and government
employment—federal, state, and local—and total
private employment (non-government).
It may come as no surprise that all levels of government and the overall economy held on to jobs at
2010 Print Markets
Price and Cost Changes
Export Products/Services
Export:
Yes or No
Percent of
Printers
Average
Percent of
Sales
Median
Percent of
Sales
Yes
23.5
7.3
2.0
No
76.5
–2
0
2
Printing prices
Wages/salaries
Paper prices
Health care
Energy
Source of Competitive Pressures
Competition from printers that have traditionally been active in their market space remains the
primary source of competitive pressures for most
printers today. The next most significant source of
competitive pressure comes from digital displacement of print followed by competition from printers entering their market space.
Sources of Competitive Pressure
4
6
8
–0.9
0.5
5.3
7.4
2.2
Figure 14
2010 Percent Change in Sales by Business Model
6.0%
5.7%
5.0%
4.4%
4.0%
2.8%
3.0%
2.0%
Source
Highest
Middle
Lowest
1.0%
Traditional Competition
68.9
23.6
7.4
0.0%
New Market Entrants
11.5
24.5
63.3
Digital Displacement
27.7
41.8
30.5
0.3%
General Commercial
Printer
Communications
Provider
Niche by Product
Niche by Vertical
Market Segment
Figure 15
Special Report: A Planning Guide for 2012–2013 • 7

12. a higher level than printing over the course
of The Great Recession. The big outlier is
the Federal government, which actually increased employment by 4.8 percent. State
and local government employment levels
remained virtually stable from before the
recession (2007) until 2009. Total U.S. nonfarm employment, meanwhile, decreased
by 7.6 percent, and total printing employment fell by 13.4 percent. All private sector
employment fell by 9.6 percent (Figure 17).
What About the Bottom Line: 2011
Financial Overview
The printing industry incurred an average
profit for 2010 of 1.4 percent for all printers participating in the 2011–12 Ratios
Survey. This is an increase of 2.8 percent
from last year’s average loss of 1.4 percent
and ends a three-year trend of consecutive
decreases. Looking back over the 90-year
history of the Ratios, an astute business
person might predict the reversal of the
industry’s recessionary trends, as it has always happened. But with the ever-changing environment, even veteran industry
leaders have expressed concern over the
recovery. This report should alleviate some
concerns. The industry showed approximately $2.1 billion in total profits over the
course of the year, quite the opposite from
2009’s approximate $1.9 billion in total
losses. Of the printers participating in the
Ratios Study 38 percent posted a financial
loss for the year, down from the 55 percent
who reported losses in 2009.
The industry’s profit leaders, printers in
the top 25 percent of profitability, saw their
profits rise significantly over the year, increasing to 9.5 percent from 7.0 percent the
previous year. Considering the conditions
of the economy and the overall industry results, these top performers should consider
themselves fortunate (Figure 18).
Not So Bad
14 of 19 Manufacturing Sectors Shrunk from 2000 to 2009
Textiles
Furniture
Apparel
Plastics
Non-metallic minerals
Paper
Fabricated metals
Motor vehicles
Wood products
Printing
–50
–30
–20
–10
0
Figure 16
Jobs and the Recession
5
Percent change from 2007 to 2009
0
–5
–10
–15
Printing
Federal
State
Local
Private
–13.4
4.8
–0.1
–0.2
–9.6
–7.6
Total
Figure 17
Profits and Firm Size
Profit (loss) rates generally vary considerably by
the size of the firm with larger firms typically
earning higher profits as a percent of sales than
smaller firms. Looking at profit (loss) by company size, firms with sales up to $10 million earned
lower than average rates of profit (loss) as measured by income (loss) before taxes on sales with
each sales category averaging profits of less than
8 • Special Report: A Planning Guide for 2012–2013
–40
Percent decline in shipments from 2000 to 2009
1.4 percent. In the next segment, $10–18 million
printers, profits were above the 1.4 percent industry average, as they reported a profit percentage
of 2.5. Printers with sales of more than $18 million averaged 3.3 percent return on sales.
The pattern for profit leaders was similar in
undulation. However, printers under $3 million in
sales averaging an overall return of 9.6 percent
out-performed printers with sales from $6–10 million and $10–$18 million with returns of 6.0 and
9.2 percent, respectively. With each size category,
the threshold for attaining profit leader status
changes, and the variance between categories
can be significant. For example, a printer with a

13. Profit
Trends
2000
to
2011
12.0%
Profit
As
A
Percent
of
Sales
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-­‐2.0%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
3.1%
1.0%
1.6%
1.7%
2.5%
2.7%
3.4%
3.1%
1.5%
-­‐1.4%
1.4%
2.3%
Profit
Leaders
10.5%
8.0%
8.4%
8.7%
9.4%
10.3%
10.1%
9.7%
9.4%
7.0%
9.5%
10.0%
All
Printers
2011*
*
2011
is
forecasted
profitability
based
off
of
quarterly
survey
results.
Figure 18
profit of only 2.8 percent (or greater) was considered a profit leader in the $6 to $10 million category, where profit leaders averaged 6.0 percent
returns. Yet, printers with sales greater than $18
million had a higher threshold and needed a profit
of 7.0 percent or greater to be considered a profit
leader, where the average return was 11.3 percent.
Profit (Losses) and Firm Size
(Before Tax Profit (Loss) As a Percent of Sales)
Annual Sales
All Firms
Less than $3 million
Profit Leaders
–0.3%
9.6%
$3–$6 million
1.3%
10.9%
$6–$10 million
0.1%
6.0%
$10–$18 million
2.5%
9.2%
More than $18 million
3.3%
Major Cost Items
In 2010 (2011’s report), printers’ factory cost of
product was 78.1 percent of total sales, down 2.0
percent from the year before. Total materials costs
(paper, plates, ink, other chargeable materials,
and outside services) accounted for 35.2 percent
of total sales. Nearly 43 percent of printing sales
dollars were used to pay factory payroll and factory expenses. Administrative and selling expenses
comprised 19.4 cents of every sales dollar.
The cost factors decreased in this reporting
period compared to a year earlier and compare
closely to the 2008 (2009’s report) data. Over the
five-year period, the largest increases were from
factory expenses and the combined administrative
and selling expenses, increasing 1.2 percent and
1.1 percent, respectively.
11.3%
A Look at Major Cost Items
(Percent of Sales Revenue)
Major Cost Items
2010
2009
2008
2007
2006
Paper
22.1%
22.0%
21.9%
21.8%
22.3%
Total materials
35.2%
35.0%
35.1%
35.0%
35.4%
Factory payroll
24.9%
26.3%
25.3%
25.1%
25.0%
Factory expenses
18.0%
18.8%
17.6%
17.0%
16.8%
Total factory cost of product
78.1%
80.1%
78.0%
77.1%
77.2%
Administrative and selling expenses
19.4%
19.9%
19.4%
18.6%
18.3%
Special Report: A Planning Guide for 2012–2013 • 9

14. Productivity Trends
2010
2009
Productivity Measures
All Firms
Profit Leaders
All Firms
Profit Leaders
Sales per employee
$147,436
$160,873
$137,326
$145,438
Sales per factory employee
$198,122
$222,480
$186,513
$202,147
Value added per employee
$95,986
$103,386
$90,319
$98,924
$128,343
$148,482
$120,792
$133,784
Value added per factory employee
Productivity Trends
Productivity (as measured by sales per employee) for all printers, rose to $147,436 in sales per
employee. This shows a significant increase from
the previous year’s average of $137,326. In fact,
sales per factory employee, value added per employee, and value added per factory employee all
increased appreciably over the year.
Profit leaders, as always, had significantly higher productivity rates than all printers, and they
too experienced increases in productivity. Overall,
both the “all firms” group and the “profit leaders”
subgroup reported significant increases in output
as measured by all four productivity metrics compared to the numbers for the year earlier.
Profits by Product Segments
Profit rates always vary significantly by product
specialty. Of the ten printing product specialties
covered in the survey, the top profit producing
segment was book manufacturers for the fifth consecutive year, with profits at 6.64 percent of sales.
Newspaper printers followed at 5.93 percent
profitability. Packagers, quick printers, and label printers all achieved above-industry-average
profit. Direct mail, commercial and advertising
and magazine/periodicals segments did not reach
industry average profit. Commercial and advertising printers, which are the bulk of the printers reporting, averaged a profit of 0.63 percent.
Sales Revenue and Services
The proportion of printers’ sales revenues derived
from printing and prepress decreased to 71.18%
of sales, the lowest level reported over the fiveyear period and continuing the general pattern of
decline. In contrast, the proportion of sales from
binding/finishing increased from 15.69 percent to
15.83 percent. In total, ancillary services revenue
increased from 11.33 percent of sales to 12.99 percent, continuing its general pattern of increases.
Profits (Losses) by Product Specialty
Profit (Loss) Rates by Year Percent of Sales
Product Specialty
2010
2009
2008
2007
2006
Books
6.64%
4.73%
7.47%
5.78%
7.60%
Newspapers
5.93%
N/A
4.53%
3.17%
4.15%
Packaging
4.88%
2.40%
5.03%
4.42%
4.81%
Quick Printing
3.46%
N/A
7.45%
5.10%
1.57%
Labels
3.26%
0.56%
1.45%
2.16%
3.59%
Direct Mail
1.26%
0.10%
7.05%
3.64%
3.46%
Commercial/Advertising
0.63%
–2.24%
0.69%
2.73%
3.03%
–0.03%
0.46%
1.18%
2.67%
3.66%
Forms/Documents
N/A
1.09%
1.32%
3.85%
3.03%
Inserts
N/A
N/A
N/A
2.33%
3.27%
1.15%
–1.88%
0.44%
3.11%
4.54%
Printing
Magazines/Periodicals
Non-printing
Binding
10 • Special Report: A Planning Guide for 2012–2013

15. Sales Breakdown From Services
Percentage of Sales Revenue
Services Rendered
2010
2009
2008
2007
2006
Printing and Prepress
71.18%
72.98%
72.27%
75.03%
73.94%
Binding and Finishing
15.83%
15.69%
16.16%
14.49%
15.29%
Mailing Services
5.45%
4.21%
4.83%
4.34%
4.39%
Fulfillment Services
3.25%
3.13%
3.20%
2.57%
2.81%
Database Management Services
0.75%
0.44%
0.78%
0.75%
0.84%
Other Non-Print Ancillary Services
3.54%
3.55%
2.76%
2.82%
2.73%
Total Services
100.00%
100.00%
100.00%
100.00%
100.00%
Prices and Profits
Printing Prices and Profits
Quarterly Pattern from 2008 to 2011
Over the last few years, both printing
prices and printers’ profits have weakened with the recession. As demonstrated
in Figure 19, percent changes in printers’
prices and profit levels, on average, follow
a similar pattern. When printers experience declining prices they also tend to report declining profit levels. However, over
the past few quarters, both the price printers can charge for their services and margin has been improving gradually.
6
4
2
0
–2
–4
–6
–8
2008
2009
2010
2011
Printing Prices
Where We Are Going: The
Economy and Print in 2012–2013
Q4
–1.1
Q1
–3.6
Q2
–4.9
Q3
–6.0
Q4
–6.5
Q1
–2.8
Q2
–3.0
Q3
–2.3
Q4
–0.9
Q1
0.2
Q2
–0.8
Profit
2.7
0.9
2.9
2.1
1.8
4.4
4.0
4.7
3.3
3.4
4.2
Quarterly profit before taxes as a percent of sales and price change over the past 12 quarters
Figure 19
Now, let’s focus on where the economy and
print markets are projected to go over the
next year.
The 2012–2013 Economy
At the current time, the economy is forecasted
to continue the slow recovery from the recession.
While, a return to recession is always possible, especially since the recovery has been slow, the most
likely scenario is for economic growth of more than
3 percent over the next two years (Figure 20). The
largest unknown, of course, is the outcome of the
national elections of 2012 and their impact on federal tax and spending policies both over the short
and long term.
2012–2013 Print Markets
If the economy trends as projected, print markets
should continue to grow. The 2012 national elections will provide an additional boost. All in all,
our projection is for 3.0 percent growth in 2012
and 3.3 percent growth in 2013 on a nominal or
non-inflation adjusted basis.
The Economy
4.0
2012–2013
3.5
3.0
2.5
2.0
2012
2013
1.5
1.0
0.5
0
2012
2013
Inflation-Adjusted Economic Growth
3.3
3.4
Figure 20
In terms of print function, the national elections should give a particular boost to marketing/
promotional print, which means that this function
would grow at above-average rates. In contrast,
print intended to inform/communicate will likely
grow at a less-than-average pace. Print logistics
will likely be in between these two.
Special Report: A Planning Guide for 2012–2013 • 11

16. What to Do: Thinking About Strategy
and Tactics
Now let’s focus on what to do—a discussion of
strategies and tactics for the coming environment
through the next couple years. Here’s the list of
topics that are relevant to this subject:
•
First, keep your eye on the economy and print’s
place in the economic cycle as they play out
during the next year.
•
Next, know the specific life cycle and competitive situation of your print segment and what
these mean to your firm.
•
Understand the relative importance of prices,
sales change, and costs.
•
Think about the strategies and tactics in relation to the functionality of the printed products
and services and your business model.
•
Finally, think about people and attitude.
Print and the Economic Cycle
What is the typical pattern of recession and recovery for the economy and print? While no two business cycles look exactly alike, we can draw a composite picture. As shown in Figure 21, print sales
closely follow the economic cycles. To calculate our
Print Market Sales Diffusion Index we take the
number of printers reporting sales increasing in
Q2 2011 minus decreasing sales to arrive at an
index number of 22.7 percent. We graph the Print
Market Sales Diffusion Index against percent
change in Nominal GDP to see how print is tracking compared to changes in the overall economy.
Print sales have steadily improved during the past
few quarters in line with changes in GDP. The industry growth
rate declined YTD in the second
quarter survey from 6.4 percent
to 4.1 percent. This can also be
seen in a drop in the Diffusion
Index from 30.2 percent to 22.7
percent. Nominal GDP started
increasing in the Q3 of 2009,
but it wasn’t until the Q2 2010
that growth showed up in our
Diffusion Index.
Looking deeper we conclude
that the key differences between print and the economy
over a complete economic cycle
are:
Figure 21
12 • Special Report: A Planning Guide for 2012–2013
•
Although, we project overall printing shipments adjusted for inflation to continue to
grow, on average, for the next decade they will
likely grow less than the economy—perhaps
around 1.0–1.5 percent less. For comparison
purposes we project the economy growing by
around 2.5 percent and print by 1.5 percent for
our composite cycle.
•
Print generally leads recessions and lags recoveries so that printing shipments turn down
earlier as the recession begins and turn up
slower once the economy recovers (Figure 22).
•
Print does best when the economy reaches a
mature recovery phase. In this sweet spot
print actually can outgrow the economy for a
few quarters.
While printers and suppliers can’t do anything
about the business cycle and these overall macroeconomic trends, they can help themselves by
understanding this pattern as they manage:
•
First, be aware of not only the current health
of the economy and print markets but also
their respective positions in the cycle. Just as
importantly, consider the emerging directions
of both. Make sure to take account of this before making any major business decisions such
as investment in new equipment or exploring a
new business segment.
•
Second, many operational decisions must be
adjusted concurrent with the cycle. In particular, a focus on reducing fixed costs and making
more costs variable with the business cycle is
imperative. Don’t get caught with high fixed
costs just as the cycle turns down.

17. Profiling Economic Cycles
Typical Pattern: The Economy and Print
Highest Relative Growth
Greeting Cards
Direct Marketing
Packaging
5
4
Recession
3
Modest Relative Growth
Recovery
Labels and Wrappers
General Commercial
2
1
Mature
Recovery
Mature
Recovery
Less Relative Growth
0
Magazine Printing
-1
Book Printing
Trade Services
Newspapers
-2
Least Relative Growth
-3
-4
Economy
Business Forms
Printing
Annual % change in inflation adjusted GDP and printing shipments
Figure 22
•
Third, print’s performance in bad economic
times is in line with manufacturing as a whole
and is actually not that bad compared to other
manufacturing sectors. This does not make it
any easier to cope, but at least there are plenty
of industries and firms out there suffering as
much or even more than print.
•
Finally, remember to manage forward and not
backward. While you have to be aware of past
trends and manage for today, always remember that the cycle pattern will continue and the
next up phase is coming.
Know Your Life Cycle and
Competitive Position
Beyond the general business cycle are life cycle
patterns in print. During the past few decades,
print has moved from a growth to mature to declining industry life cycle position overall, but
there are differences by process and product. By
process, digital toner and inkjet processes are in
the growth phase. By print market segment and
print function, ancillary services, packaging, labels and wrappers, and direct marketing are mature but growing. A simple key indicator of life
cycle position is the relative sales change by print
sector compared to total printing shipments. Figure 23 shows the relative growth trends of the
past decade.
Another indicator of the opportunities by print
sector is competitive intensity, a measure of the
total sales in a print sector compared to the number of printing firms in the sector. In general, the
larger the sector sales and the less the number of
firms, then the more attractive the sector. Through
the last decade competitive intensity rankings are
shown in Figure 24.
Financial Legal
Figure 23
Most Attractive
Magazine Printing
Book Printing
Attractive
Greeting Cards
Packaging Printing
Less Attractive
Newspaper Printing Labels Wrappers
Financial/Legal
Business Forms
Least Attractive
Direct Marketing
General Commercial
Trade Services
Figure 24
In summary, printers should examine their
segment life cycles and competitive intensity
measures. In doing so, remain aware of these key
points:
• Print’s overall life cycle has moved from growth,
to mature, to possibly a declining position.
•
However, a truer picture emerges when life
cycles are examined by process, product, and
function. While some processes, products, and
functions of print are mature or declining,
many remain in the growth phase.
•
While all print sectors could be characterized
as competitive, some sectors score significantly
higher or lower in competitive intensity.
• both a life cycle and competitive intensity
On
measure, there is still plenty of opportunity
left in the printing industry.
•
Even in mature and declining sectors, there
are management strategies and techniques
for firms to improve their performance and do
very well for a long period of time.
Special Report: A Planning Guide for 2012–2013 • 13

18. The Profit Box
Profits = f (Sales, Prices, Cost)
Higher
Cost
Lower
Higher
Higher
Prices
Profits
Lower
Lower
Lower
Sales
Higher
Figure 25
Prices, Sales and Cost
Another useful tool to aid in planning for next year
and beyond is the profit box (Figure 25). In the most
basic sense, the only way to increase profitability is
to decrease cost, increase sales (at the same prices),
or raise prices. While this is obvious, what is often
overlooked is the relative ranking of each of these
paths to higher profits. Our analysis of Ratios profit
leaders and simulations from the Ratios database
demonstrates that pricing power generally trumps
increasing sales at the same price or cutting costs.
Increasing sales at the same price generally raises
profits more than cutting specific cost items such as
payroll or material costs.
However, a typical firm does not usually have
pricing power. This is the reason that virtually
every U.S. industry is an industry of haves and
have-nots, profit leaders and profit challengers,
firms with and without pricing power.
Pricing power is a result of strong demand for a
unique product or service without good substitutes
or competition. Pricing power results from recognizing that pricing involves these outside or external factors and not just internal or cost factors that
too many firms focus on with their pricing models.
Tactics to create pricing power include:
•
Specialization by industry product niches or
vertical customer segments that focus on reducing competition and creating a unique
product and service offering that allows pricing leverage.
•
Deep and intimate knowledge of a customer’s
needs and a business model to service them
that binds the customer to you.
•
Diversification to value-added services within
the specialization so that the printer is providing a varied mix of services that creates a barrier to exit, so the customer can’t easily move
to another supplier.
14 • Special Report: A Planning Guide for 2012–2013
•
Creation of a robust and healthy customer
relationship with an understanding of the customer’s needs to the extent that a “win/win”
supply chain management system exits.
•
Strong branding of the firm and its capabilities through customer recognition of high quality, dependability, excellent services, and other
positive attributes depending on the particular
product and service.
•
Developing a sales compensation policy with
incentives for sales personnel to sell at higher
prices rather than lower prices such as paying compensation on a job’s profit rather than
sales or value added.
•
Finally, a recognition not to over depend on
cost estimates as a substitute for effective pricing. Pricing should be more demand driven
and less cost driven, although firms obviously
need to know the cost of a given product, service, or job.
Strategy Check
Another planning priority for 2012–2013 is a
strategy check. For years now we have written
and spoken of the advantage of specialization and
diversification as a combined strategy in the printing industry. If you have not yet developed a plan
to increase both your specialization and diversification, now is the time, because specialization
decreases cost and diversification increases price
with a resulting boost to profits (Figure 26).
As you focus on diversification, keep in mind
that the path to the printing firm of the future is
to move from producing printed products to ancillary services to communication solutions to print
management services. Wherever your firm is in
this spectrum at the present time, you should be
thinking ahead to the next step.
The Advantage of Strategy
Diversified Specialization Lowers Cost and Increases Price
120
100
80
Total cost
60
Profit
40
20
0
1
2
3
4
1 = general commercial; 2 = specialized; 3 = diversified; 4 = diversified specialization
Figure 26

19. Aligning Strategy, Tactics, and
Business Model by Print Function
The significance of functionality in printing was
discussed earlier in this report. As the primary
determinant of both short and longer term market performance, functionality must be taken into
consideration in designing strategy and tactics.
The print logistics function, although mature,
should continue to grow in shipments at a pace
about equal to the overall economy. This is true as
long as manufacturing activity in the U.S. remains
fairly healthy and there is no significant change
in outsourcing of manufacturing to other countries. Additionally, there is a threat of disintermediation of retailing with the growth of online
marketing and distribution of consumer and business products. A major increase in this activity
could, theoretically, change the packaging and
labeling requirements to a more “brown paper”
characteristic which could reduce the value added
in packaging. At the present time we do not foresee any major shifts in these areas, although the
changes may be more gradual.
The key strategy issues in a mature but still
growing industry environment are:
•
Since this sector is still growing, you can still
focus on increased sales of current products
and services from existing customers. Additional sales growth can come from sales
of existing products and services to new customers (increased market share) and sales of
new products and services to existing and new
customers.
•
Innovation can pay off big in mature but growing industries. Both process (manufacturing
and distribution) and product or service (product differentiation, new service, and ancillary
options) should be pursued.
•
Pricing power can be achieved in a mature but
growing industry by focusing on demand and
not cost.
•
Finally, cost control and productivity enhancement remain important, even in growing sectors.
The inform/communicate function of print is
a classic case of a declining industry—sales (both
nominal and inflation-adjusted) are in secular or
long-term decline. On a year-to-year basis, there
may be a scattering of total sector sales growth in
years when the economy grows at a particularly
high pace. Also, not all firms in this sector will experience declining sales, since some will gain market share at the expense of others. However, there
are no paths to easy sales growth and, in most
cases, firms must aggressively compete for a higher share of existing and declining industry sales.
Firms can grow in this sector through increasing their market share (possibly through mergers
and acquisitions). Another source of sales growth
for a firm in this sector would be if the proportion
of firms closing or exiting the industry exceeds the
overall percentage of sales decline (which has often happened in the printing industry).
The key strategy issues in a declining industry
situation are:
•
Play a market share game through cost control
and productivity increases to become a sales
leader in a declining market.
•
Gain share through mergers and acquisitions.
•
Become more and more of a niche printer by
finding a niche within this sector that is either
growing or declining at a less than average
pace.
•
Accept a harvest strategy of gradual and controlled disinvestment and liquidation over a
long period.
•
Liquidate the firm or sell the business to a
rival.
The last functional sector, market/promote,
is somewhere between the above two sectors—in
the late stages of maturity but not yet in decline.
Shipments of print designed to market and promote will likely increase, but at a pace less than
the economy.
Many of the strategy options for this sector are
similar to those for print logistics:
•
Since this sector is projected to grow, you can
still focus on increased sales of current products and services from existing customers.
Additional sales growth can come from sales
of existing products and services to new customers (increased market share) and sales of
new products and services to existing and new
customers.
•
Innovation can pay off big in mature but growing industries. Both process (manufacturing
and distribution) and product or service (product differentiation, new service and ancillary
options) should be pursued.
•
Pricing power can be achieved in a mature but
growing industry by focusing on demand and
not cost.
•
Finally, cost control and productivity enhancement remain important, even in growing sectors.
Special Report: A Planning Guide for 2012–2013 • 15

20. Future
Unemployment
Rate
*Past
Recessions
How
Fast
a
Recovery?
12.0%
*Recent
Recessions
Government
Forecast
Unemployment
Rate
10.0%
2007-­‐2009
Recession/Crisis
Our
Forecast
8.0%
6.0%
4.0%
2.0%
2*
r
1
1
ea
/
Y
18
20
17
/Y
e
ar
1
Year
During
Current
Cycle/Year
Corresponding
to
Past
Recessions*
20
16
/Y
e
ar
ar
20
/Y
e
1*
0*
*
9
*
15
20
/Y
e
ar
8
*
14
20
/Y
e
ar
7
*
13
20
/Y
e
ar
6
*
20
12
/Y
e
ar
5
*
11
20
10
/Y
e
ar
4
*
3
/Y
e
09
20
20
ar
ar
/Y
e
08
20
20
07
/Y
e
ar
1
2*
*
0.0%
Figure 27
Finally, remember that, above all, a positive
attitude is important. Whatever your print market segment, equipment status, customer base, or
other situation, your attitude and the collective
attitudes of your management team and employees matter. While you can’t hide from the very difficult reality of the economy and print markets,
a positive can-do outlook can be very beneficial.
Demonstrate this attitude to your management
team and employees on a constant basis even as
you address the difficult road ahead in 2012 and
2013.
People and Attitude
Don’t forget the softer sides of planning—people
and attitude.
Even with the projected path of the recovery,
labor markets will remain in an oversupply situation for a long while. A standard rule of thumb is
that the economy has to grow at around five 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 of economic turmoil
(Figure 27).
The bottom line is that both
2012 and 2013 offer attractive opAnnual Printing Shipments
portunities for employers looking
By Function in $Billions: Likely Scenario
to either upgrade their personnel
180
ranks or to staff new positions with
qualified candidates at relatively
160
bargain wages and salaries. Also,
140
while you need to keep costs under
120
control, don’t be penny wise and
pound foolish and under spend on
100
employee education and training.
80
Our studies show that profit leaders typically outspend profit chal60
lengers by a two-to-one margin in
40
terms of education and training
cost as a proportion of payroll.
20
0
2011
2016
Note: Inflation and cycle adjusted projection
Figure 28
16 • Special Report: A Planning Guide for 2012–2013
Marketing (+2%)
Inform/Communicate (−2%)
Logistics (+3%)
Total
2021

21. A Longer-Run View: A
Review of Our Expectations
through the Next Decade
Shipments per Plant ($ Millions)
By Function 2009−2021 (Likely Scenario)
What about the longer-run future
2009
of print? We have created some
possible scenarios ten years into
Marketing (+116%)
Inform/Communicate (−16%)
the future based on trends of the
Logistics (+99%)
past ten years. Our first scenario
projects real or inflation-adjusted
2021
shipments to decline by 4 percent
per year for the inform function,
increase by 2 percent per year for
0
5
10
15
20
25
30
35
the marketing function, and in2009
2021
crease by 3 percent per year for the
Marketing (+2%)
2.49
5.40
logistics function. In this scenario
Inform/Communicate (−2%)
7.22
6.08
Logistics (+3%)
15.66
31.20
total printing shipments grow over
the next ten years.
Adjusting for an expected con- Figure 29
tinuing reduction in the number of
printing plants specializing in each function provides a scenario for future shipments per plant in
Percent of Total Shipments 2021 (Likely Scenario)
2021. As can be seen in Figures 29 and 30, surMarket/promote
viving plants in the marketing and logistics func59.0%
tion enjoy substantial growth in shipments while
surviving plants specializing in the information
experience sales declines.
Looking deeper we see that the percentage
composition of total shipments at the end of our
ten-year projection shows significant decline in
the share for the inform function and growth for
the logistics and marketing functions.
Logisitcs
Of course, this scenario is only for examination
25.0%
Inform/communicate
purposes and is not necessarily a forecast of print’s
16.0%
future. However, it does offer a possible glimpse of
the direction of current trends and an environmenFigure 30
tal scan for discussion and planning purposes. The
bottom-line implication is that print and surviving printers can have a thriving future. The key
imperative for today’s printers is to implement the
strategies and operating tactics for survival as the
industry continues to restructure.
The key conclusion from this analysis is that
there can be a very positive long term future
for print and printers. Today’s printers that are
aware of the emerging industry environment and
crucial business strategies and tactics have a very
bright future.
Print by Function
Special Report: A Planning Guide for 2012–2013 • 17