A very different industry has emerged from the downturn
Monday, August 11, 2014
It has been six years coming, but the UK economy has finally surpassed its pre-recession peak. That it is the last of the G8 to do so bar Italy, which is still 9% below its 2008 maximum and headed into its third recession, illustrates how protracted the recovery has been; nevertheless, for the past year our economic future has been looking progressively brighter.
This is as true for print as it is for all sectors and can be seen in the rising number of firms investing in the future and the decline in the number of CVLs, pre-packs and phoenixes.
Yes, there continue to be significant casualties – we have already had one major one this year in Global MP – and this will continue to be the case, due to the structural challenges facing the industry.
While these will perhaps be lessened by the start of a new economic growth cycle, the fact remains that print is part of a much larger media mix than it was even six years ago.
Nowhere is this more evident than in the look and feel of the ‘print’ businesses that have survived the downturn. Whether they’ve added new data and digital marketing services or invested in processes that increase the value of the print they produce, these companies are much stronger, leaner and keener than the majority of their 2008 counterparts.
This evolution can be seen from the very top to the very bottom of UK Print PLC. Take two of the biggest companies around: St Ives and Polestar. Both have changed substantially since 2008. St Ives by disposing of its commodity print businesses (St Ives Web and St Ives Direct) and investing heavily in marketing services business; and Polestar by continuing to drive web offset consolidation (through its BGP acquisition and investment in new presses) while forging new partnerships that go beyond print (via its recent tie-up with River Group).
These changes are well documented, but the drivers behind them and the evolution they have provoked are not unique to large printers.
Even among the smallest printers, change has been a necessity and a key to success. Awesome Merchandise was founded in 2005 in then 19-year-old Luke Hodson’s bedroom with £300 and a giveaway Lexmark printer. By 2008 it was an emerging micro-business with a staff of around six and its own premises in Leeds.
“We were just starting to get some traction with a few companies that were placing bigger orders, but that led to us getting hit with some bad debt,” says Hodson. “We were growing fast, which meant cash flow was quite tight and a £5,000 or £6,000 bad debt was enough to have an impact on our ability to invest.”
Hodson’s Darwinian response was to adopt a B2C model – many of its customers were consumers anyway – and only accept payment upfront. This policy has stood the company in good stead and Hodson says it has only just started to be relaxed for certain customers with whom the company has a good relationship.
He adds that the other key for Awesome Merchandise was that it has “never been fussy about taking money”. “We’ll take an order for £3 on the basis that it might lead to a bigger order down the line, either from the same client or because of a recommendation,” he explains.
Today the company has a host of digital, screen printing and embroidery equipment and offers an end-to-end website hosting, printing, stock management and distribution service to clients in the music industry for their band merchandise.
Another prime example is Brighton-based Generation Press, run by fourth-generation printer Paul Hewitt, who went back to the future in his quest to diversify the business – bringing letterpress back into the mix in around 2010 as a high-quality craft service for agency and brand clients.
This led to jobs such as Three’s latest campaign, which featured Hewitt’s letterpress-printed business cards and led to a further 120,000 cards being printed (with a mix of litho and letterpress) after the initial run of 500 letterpress cards.
“The cost of print is perceivably higher than it has ever been, so the use of added-value processes and materials is important to make sure that print delivers,” says Hewitt. “It’s a lot more about quality now than quantity – a company that might have ordered five or six print jobs a year a decade ago is probably only going to order one a year today, but it’s got to be one great one rather than five or six average ones.”
The recession served to accelerate the painful process of consolidation that had already begun – notably in the web offset sector – as far back as 1998 (with the creation of Polestar), but it was not the root cause. In a cocktail that already included overcapacity and unsustainable levels of debt, 2008 brought constrained credit and a rapid increase in the rate of decline in print volumes.
As the pressure on companies increased, so the need to adapt increased and as a result, the printers that survived are the ones that were most open to change. This can be seen across the industry – printers, equipment manufacturers, exhibition organisers – nobody has been immune to the need to change.
The result has been a shake-down on a grand scale, but while it has been painful, it has not been without benefits. “If you look around at the printers that are left, they’re all bloody well run, they’ve got really good teams and they’re much more aware of the market than they were before,” says Hewitt. “I’m really positive about print and about other printers.”
Hopefully, when boom inevitably follows bust, this willingness to adapt will make the many businesses that make up the UK print sector in 2014 more resilient than those that failed to survive the past six years. A final piece of advice from Timon Colegrove of Hunts Paper & Pixels: “Put something away for a rainy day.”
Stay flexible, keep a lid on costs and keep your eyes open
Kathy Woodward, chief executive, BPIF
Good economic news stories are being trumpeted loud and clear. Business secretary Vince Cable is taking every opportunity to point out that growth is up, innovation is up, unemployment is at its lowest level for five years, all adding up to the economy being bigger than it was in 2008.
While the print industry can’t claim to be bigger than it was in 2008, the buoyancy of the general economy is certainly driving a new optimism for the sector. The industry is probably seeing levels of investment not seen for over a decade. Rarely do I walk around a business where I am not shown the latest innovation coming off the blocks, the newest piece of equipment, or trumpeting the merits of investment in lean thinking. Meanwhile, those out front are re-engineering their client propositions to engage in a multi-channel, multi-data world.
The availability of finance is no longer an obstacle to genuine investment requirements and the canny are maximising the opportunities of regional grants and R&D tax credits.
A word of caution, however: Printing Outlook, our quarterly industry survey, has shown the levels of optimism quarter-to-quarter are more heightened than actual delivery and the industry is still in the early stages of building back margins.
For some skinny margins, rivals’ under-pricing is like a dead weight on business development, forcing an eternal cycle of cost-cutting. While this is true in the print sector it is also true in most of our customers’ markets. We could see this as a threat to the sustainability of the recovery or as an opportunity to help our customers maximise their own positions.
I would suggest that we take a few lessons from the past. Keep as much flexibility as you can, keep fixed costs as low as possible, read every lease agreement for what happens if the good times stop rolling, and give total attention to skills and process requirements when you have signed the cheque for your latest investment.
Has the UK print industry recovered its pre-2008 pomp?
Nigel Lyon, managing director, Pinstripe Print Group
“Reading PrintWeek suggests that there are still many hurdles to overcome. The wider economy remains too dependent on spending, especially when you think that it was the crazy levels of borrowing and spending pre-2008 that led to the crash. I think the print industry is stronger for the clear-out, which has helped the industry refocus and made it a bit more robust. The people who have survived are a little bit stronger and more flexible, although there’s perhaps one or two around that are still hanging on by their fingertips.”
Timon Colegrove, director, Hunts Paper & Pixels
“Comparisons with 2008 are virtually impossible as ‘print’ businesses like Hunts have changed beyond recognition. Print revenue has grown but so have other revenue streams, such as creative design for print, web and e-marketing. Other technology areas such as image recognition and augmented reality are enhancing our growth. Print is still the lead revenue generator for us – hence our recent investment in a Komori HUV B2 press to differentiate and add value to our offering – that has to be the flavour for print companies today: offering differentiation and adding value.”
Paul Hewitt, managing director, Generation Press
“The industry has changed so much over the past six years but I’m not sure how much of that is down to changes in the way we use print versus the actual impact of the recession. Everyone has had to be more adaptable; added-value print processes are a necessity rather than a luxury, because print is comparatively expensive versus other media, so it needs to work harder to stand out and to deliver the highest return. Agencies and brands are much less focused on quantity now than on quality and I think they’re spending their budgets a lot more wisely.”