Pinpointing Promising Markets

Successful printing company managers know that analyzing, monitoring, and understanding the dynamics of the industries served by their customers and prospects is a basic business tool and a powerful competitive weapon.

Taking the time to research an industry segment—learning about its

size, structure, performance, growth potential, and market characteristics—aids in designing better products and services, pinpointing opportunities, and identifying possible threats.

Following are profiles of five key print-purchasing industries, along with reports on major trends and growth performance in those segments. Our goal is to provide printing managers with salient information on these important print-purchasing markets and provide a framework for further analysis.

We selected these industries based on their large contribution to the printing industry, not necessarily on their general growth potential (for details, see the sidebars on pages 38 and 39).

Advertising: Spending Rebound

Nobody knows better than a printing manager how crippling a prolonged plunge in advertising and promotion dollars can be. The contraction of advertising expenditures during the last two years has had a brutal effect on the printing industry.

What lies ahead? The forecast for the coming year is still hazy. Industry forecasters, facing mixed and erratic signals, are projecting increases in advertising spending that range from a low of 1.3% up to 6%.

In response to a down economy and a slump in advertising spending, agencies have streamlined operations, consolidated offices, and focused on client services that offer higher growth rates than creative advertising. These services include direct marketing, customer relationship management, and corporate communications.

Yet despite such strategies, ad firms continue to live or die by their creative work. Clients are demanding greater returns for their ad dollars and have been more than willing to switch agencies that don't measure up to expectations.

Technology is also a major industry influence. The emergence and growing popularity of services that allow consumers to avoid television ads is an issue that the agencies must confront. Also, ad firms are working to exploit the convergence of television and the Internet, along with finding ways to reach consumers over wireless devices.

Financial Services: Ways to Save

Banking, securities, and insurance are the core segments that make up this broad and important financial services sector.

Today, three-fourths of Americans' liquid financial assets are invested in securities-related products, such as stocks, bonds, mutual funds, and money market accounts, according to Federal Reserve data. In 1975, 55% of Americans' assets were in bank deposits.

The steady growth in equity ownership over the past three decades has been fed by a sustained period of economic growth, a record bull market, the baby boomers' need to prepare for retirement, and the change in employers' retirement programs from defined benefit to defined contribution plans.

The Securities Industry Association reports that the total value of assets grew from $1.7 trillion in 1975 to a peak of $18.7 trillion at year-end 1999, before falling back to $15.0 trillion by mid-year 2002, still about an eight-fold gain since 1975.

The U.S. securities industry is projected to raise an estimated $3.1 trillion in capital in 2002, just shy of 2001's record $3.4 trillion. This capital is obtained through the sale of newly issued stocks and bonds through underwriting, private placements, and medium-term notes; it does not include funds generated for the federal government, states, cities, municipalities, and overseas issuance by U.S. business and the government.

On the insurance side, such events as the terrorist attacks of September 11 and the Enron scandal have led to higher premiums and tighter underwriting standards.

The biggest change in the life insurance industry, which is said to account for about 60% of worldwide premiums, is in the products it sells. Over the last 25 years, life insurers have seen their business shift from providing life insurance coverage to providing annuity products. As a result, insurance firms now compete more directly with financial services firms.

How products are sold is also changing. Some analysts predict that within three years more than 60% of insurance firms will sell products via the World Wide Web.

Retail: Growth Ahead

The retail sector—which accounts for about $3 trillion in annual sales, according to Census Bureau data—is, like many other industries, coming off a year of ups and downs. Still, 2002 was better than 2001, and forecasters see some growth ahead.

The National Retail Federation (NFR) reports that in 2002 sales grew an estimated 5.4%, compared to a single-digit decline in 2001. The group predicts a 5.6% sales increase in 2003 in GAFS (a common abbreviation for a segment that includes general merchandise stores, apparel stores, furniture and home furnishings stores, electronics and appliances stores, and sporting goods, hobby, book, and music stores).

NFR expects that the major contributors to growth this year will be gains in consumer income and low interest rates.

Retailers posted lackluster sales in January, following a sluggish Christmas shopping season. January, often described as a clearance month for getting rid of leftover holiday merchandise and making room for spring clothing, typically accounts for less than 10% of retailers' annual sales, even counting special sales.

Retailers continue to struggle to boost sales amid rising fears about job security, a possible war with Iraq, and a stop-and-go economy. Results in this sector hinge on consumer confidence.

At the same time, a focus on cost reduction has helped to insulate earnings growth.

Meanwhile, competition among retailers is fierce. Superstores are battling each other on every corner, while product expansions by discount/value and drug stores into each other's markets have narrowed the lines of demarcation between store categories.

Telecommunications: A Battle

Telecommunications is defined as the transmission, emission, or reception of signals, images, sounds, or information over wire, radio, optical, video, microwave, or other electromagnetic system. It encompasses voice, video, data, broadband, wireless, and satellite technologies.

Understanding this industry segment is essential for all printers, even those that don't sell to this industry, given the trends to linking digitally with clients, building distribute-and-print models, and establishing wide-area workflows.

Following the approval of the Telecommunications Act of 1996—which broke apart local phone monopolies—the industry invested hundreds of millions of dollars in network deployment, created thousands of new jobs, and exploited the promise of the Internet with the delivery of high-speed broadband services.

Today, competitive local exchange carriers (CLECs) and Internet service providers (ISPs) compete vigorously with the Bell companies. CLECs now provide service to nearly 12% of the nation's local telephone lines, according to the Federal Communications Commission (FCC), up from just 4% at the end of 1999.

The big news here is on the legislative front. The FCC is poised to make a decision that could set back all of the progress made by the 1996 act.

FCC chairman Michael K. Powell is pushing to eliminate the unbundled network element platform (UNE-P), an FCC rule that requires incumbent local exchange carriers (ILECs) to make their network facilities available to competitors at rates determined by state public utility commissions.

ILECs complain that the UNE-P rule effectively makes them subsidize competitors; competitors argue that UNE-P was part of the deal that the ILECs made during negotiations over the 1996 telecom deregulation act in exchange for being allowed to get into the long-distance market.

Travel: Gains Ahead

Travel and tourism is the nation's largest services export industry and one of America's largest employers. In 29 states, it is the first-, second-, or third-largest employer.

The Travel Industry Association of America (TIA) reports that in 2001 the U.S. travel industry earned $555 billion. These travel expenditures, in turn, generated nearly 7.9 million jobs, with nearly $174 billion in payroll income. Adds TIA, approximately one out of 18 U.S. residents in the civilian labor force was employed as a direct result of travel spending in the U.S. during 2001.

When it was still compiling figures for last year, TIA predicted that full-year 2002 would show an increase of less than 1% in total travel volume, including both business and leisure travel.

Business travel volume for full-year 2002, the group predicted, will be 4.3% lower than for 2001, following declines in 2000 (3%) and 1999. Business travel is expected to stabilize in 2003 with a gain of less than 1%, followed by a 1.5% gain in 2004.

Leisure travel volume, says TIA, will likely show a 2% gain in 2002.

The association reports that domestic and international travel spending dropped $33.3 billion in 2001, to $537.2 billion (-5.8%). Expenditures are forecasted to decline another $1.9 billion in 2002, to $535.3 billion.

In addition, TIA believes the industry will see a 5% gain in domestic and international travel spending in 2003, to $560.1 billion. Another 5% gain is projected for 2004, to $588.2 billion, finally exceeding 2000's record level of spending ($570.5 billion).

Industry Name	SIC* Code	Spending in 2002**
Phone Communication, Except Radio Telephone	4813	$25.6 billion
Pharmaceutical Preparations	2834	23.4 billion
Food and Kindred Products	2000	19.2 billion
Motor Vehicles & Car Bodies	3711	17.9 billion
Computer Programming, Data Processing	7370	7.4 billion
Radiotelephone Communication	4812	6.7 billion
Cable and Other Pay Television Services	4841	6.2 billion
Television Broadcast Station	4833	5.3 billion
Motion Picture, Videotape Production	7812	5.3 billion
Department Stores	5311	4.8 billion
Household Audio & Video Equipment	3651	4.8 billion
Soap, Detergent, Toilet Preparations	2840	4.3 billion
Security Brokers & Dealers	6211	4.3 billion
Variety Stores	5331	4.0 billion
Grocery Stores	5411	3.5 billion
Electronic, Other Electronic Equipment Except Computer	3600	3.4 billion
Prepackaged Software	7372	3.4 billion
Perfume, Cosmetics, Toilet Preparations	2844	3.3 billion
Eating Places	5812	3.0 billion
Distilled and Blended Liquor	2085	2.9 billion

Industry Grouping	Ad Spending* 2002 January through October
Automotive, Automotive Accessories & Equipment	$9.5 billion
Retail	7.2 billion
Media & Advertising	5.0 billion
Financial	3.8 billion
Automotive Dealers and Services	3.7 billion
Telecommunications	3.4 billion
Miscellaneous Services & Amusements	3.2 billion
Restaurants	3.1 billion
Public Transportation, Hotels and Resorts	3.1 billion
Direct Response Companies	2.9 billion
Insurance & Real Estate	2.1 billion
Department Stores	2.0 billion
Government, Politics & Organizations	1.8 billion
Computers, Software, Internet NEC	1.7 billion
Cosmetics & Beauty Aids	1.3 billion
Beverages	1.3 billion
Personal Hygiene & Health	1.2 billion
Dairy, Produce, Meat & Bakery Goods	1.2 billion
Prepared Foods	1.1 billion

Industry Grouping	2001 Expenditures*
Non-Store Retailers	$8.36 billion
General Merchandise Stores	2.57 billion
Wholesale Trade	2.48 billion
Printing & Publishing	2.12 billion
Insurance Carriers & Agents	2.04 billion
Membership Organizations	1.76 billion
Social Services	1.69 billion
Depository Institutions	1.58 billion
Communications	1.54 billion
Non-depository Institutions	1.39 billion
Household Appliance Stores	1.36 billion
Other Services	1.35 billion
Business Services	1.35 billion
Transportation Equipment	1.31 billion
Entertainment	1.17 billion
Security & Commodity Brokers	1.15 billion
Apparel Stores	1.12 billion
Electrical Machinery & Equipment	1.09 billion
Transportation, excluding Airlines	995 million

Industry Grouping	2002 Expenditures*	% Change 2001-2002
Automotive	$1.8 billion	7.6%
Toiletries & Cosmetics	1.5 billion	9.3%
Drugs & Remedies	1.4 billion	16.6%
Household Furnishings & Supplies	1.4 billion	15.5%
Food & Food Products	1.3 billion	11.2%
Apparel & Accessories	1.3 billion	-3.3%
Direct Response Companies	1.1 billion	6.4%
Technology	1.1 billion	-8.2%
Media & Advertising	1.0 billion	8.2%
Financial, Insurance & Real Estate	938 million	1.4%
Retail	864 million	-0.2%
Public Transportation, Hotels & Resorts	696 million	-4.8%