We've all heard the stories about the layoffs, the dire economic circumstances, even the occasional Chapter 11, or worse, Chapter 7. Some suppliers to the narrow web industry, particularly the large equipment manufacturers, are making significant cuts in order to stay alive. It hurts to do so, all around. The recession is upon us.
Narrow web converters are holding on. Though many have tightened belts, they are still making labels. As expected, little growth will be reported in general for 2001. But there are pockets — market niches as well as geographical locations — where the books will show decent growth for the past 12 months. It's safe to say, however, that no one is comfortable, and even those who are doing reasonably well sleep at night with one eye open.
Add to recession the impacts of the attacks of September 11. Changes in consumer behavior since then have reached into every business on the continent.
"The only part of our business that was hurt by September 11 was the direct mail business," says Terry Fulwiler, chairman of W/S Group, headquartered in Algoma, WI. "Companies started putting mailings on hold." Other converters with significant numbers of customers in the direct mail business report dramatic drops in account activity.
"The rest of our business is a reflection of the economy," says Fulwiler, whose company includes converting and printing operations in 18 locations throughout the US. "Across the board, customers are using fewer labels because they are selling fewer products." Fulwiler says that W/S has had to make only a few layoffs, and those were in "select areas, small segments that were really focused." As for growth, "We're ahead for the six months ending December 2001, slightly ahead of the year before, though we're behind where we wanted to be."
In the middle of the continent, Mid South Graphics is having a good year. "We're probably up 20 percent from last year," says Mark Davenport, whose company is in Nashville, TN. "Some lines of work are way down, some are way up. We're a small company, about $5 million a year, and we've grown quite a bit, with fewer but bigger customers. I've been so busy that I've given business to label converters on the East Coast."
Davenport says 2001 has been a roller coaster. "It's probably the weirdest year I've seen. We'll have a great month, then the next will be just lousy, then another great month, then so-so."
Like many converters, Davenport began taking steps early to fend off the likelihood of tighter conditions. "I felt that the economy was going into the tank in late 2000," he says. "So I tightened things up in the company, little things: Employees now have to clean their own uniforms. We spent $6,000 last year in coffee supplies, so now they have to bring in their own cups."
On the West Coast, some businesses are quiet, others are doing well. "We'll see a good 10 percent increase for 2001," says Craig Dahlgren, president of Craftsman Label in Clackamas, OR. "Profits are up, and we've added one more employee. Not bad."
Some up, some down
Prime labels are down, Dahlgren says. "Labels for products such as sauces are down, too. Industrial labels are up and down, but more consistent. Vitamin supplements are about the same, or up." Craftsman acquired a new Mark Andy press in late 2000, and is working to open new markets by producing such products as booklet labels. "We're trying new things," Dahlgren says.
In Florida, Graham Lloyd reports that his company has done "surprisingly well in a tough economy. We have a strong position in a number of markets, and that helps. We'll probably be on a par with last year." Lloyd is president of Convergent Label Technology, in Tampa, which employs more than 200 people in two plants and does over $50 million a year in sales. Convergent recently phased out its plant in Lenexa, KS, and its other operation is located in Joplin, MO. The company has adopted a 24-hour, seven-day work schedule.
Convergent is strong in the over-the-counter pharmaceutical segment — "With the aging population that's a growing market" — and in logistics, focusing on distribution. A third area of focus is in food processing labels.
Trevor Maunder is general manager of Adams Label & Tag in Surrey, BC, Canada, a company that finished 2001 up over 10 percent. "We're solid," Maunder says. "We're a niche player — 30 percent of our work is wine labels, and 20 percent is pharmaceutical and nutraceutical labels. They're growing. Our winery customers are estate and family run, and those are pretty much recession proof."
Adams also produces labels for the food industry. "We target those three markets and don't much deviate. We don't want to be a commodity printer, where some of the variables are purely price. Our customers want the best and will pay for the best; they want the service and will pay for it," Maunder says. "We want to maintain that focus and not deviate from that philosophy."
A sizeable part of Adams' business comes from the US. "When the US pulls out of a recession, Canada trails it, and it's the same with dipping into a recession. Our economy is geared for exports, whereas the US economy, because of its size has more of an effect on our economy."
The price battle
Converters are feeling strong pressure on margins. "There's a lot of squeezing," says Fulwiler. "Part of that is the economy, part of it is overcapacity. If you have overcapacity you have people willing to do the work for a lower margin. And you have people who don't know that they're dying who will underprice for a while, then they'll go away."
"Everybody wants a deal on their price," says Davenport. "Some are getting it." In Oregon, Dahlgren says a bigger challenge is "just trying to find out who wants to buy. Our new accounts are way down this year."
"It isn't killing anybody," adds Fulwiler, "but margin pressure is as strong as I've ever seen it."
Collecting money can be a challenge with business conditions the way they are. "The big customers have been taking 45 to 60 days," says Dahlgren. "Fortunately, we're able to manage our cash well so it hasn't hurt us. Davenport says that "a lot of customers are taking 60 to 90 days to pay their bills, and some customers want consignments. It isn't nearly as fun as it was five years ago."
Moreover, customers never fail to come up with new ways to be demanding. "They put is through the paces," Davenport says. "They want favors. And when you can't do favors for them you bend them out of shape."
"I hate to say it, but war is good for the economy," observes Dahlgren. "The government will spend more money. Smaller companies will do better at first, because they can react faster to customer needs. Then the big guys will start coming around. Sometimes they can also get the price down further."
"There's no way of projecting what will happen in 2002," says Mark Davenport. "I think it will be a tough year. Business owners have to stay on their toes, have their debt in line, have their cash in line. A lot of label company owners had better pay attention. I think most of them are."
Several organizations have set their sights on the economic future of the printing industry, and have published reports of predictions, which vary to some extent.