Maintaining a Stainless Reputation More Difficult
A few years ago it was not all that difficult to maintain a solid reputation with your clients by simply taking orders and getting them out the door in a timely manner. During the high times of the last economic boom manufacturers were spending so much money on inventory they would spend months unloading out of program products. That all changed during the financial crisis and the net result is it is tougher today than it has been in many years to provide reliable service to your clients.
When providing a proposal to your client be sure to check and make sure the inventory is deep. If you are quoting a thousand piece order and the supplier only has a thousand pieces in stock your best bet is to find another product. Nothing screams amateur more than giving your client a product to select and then having to go back and tell them it is out of stock. Take the Colorband Stainless Bottle which is made in three colors. All of these colors are available to the point of several thousand in immediate inventory. Surely you cannot control quick and unexpected shortfalls but there are enough color options and enough pieces in each that you should be safe even if it takes a week to decide. With deep availability in the same three colors the Leeds Deco Band Stainless Bottle is another choice that will provide you and your client with some level of security in the coming weeks and months. If you are researching large orders you may want to even check with the manufacturer to check into overseas production at a discount. Be aware though that there are some significant difficulties getting containers across from Asia as prices have skyrocketed. In either case please remember to check inventory before recommending a product to your customer. Almost all of the major vendors provide instant public access to this information so there is no excuse for leading your client down the wrong path.
Apple announced the release of their 4.0 software this Summer. Hopefully it will take care of some of the existing problems such as the voice control issue I discussed earlier. It is likely that the introduction of multi-tasking may get around the issue entirely as it would no longer overtake the other controls. At the same time news of initial sales of their newest product have been strong but whether or not that continues in the weeks ahead remains to be seen.
iPhone 3GS Voice Control Activates Randomly
About a month ago I upgraded the original iPhone 3G which I had purchased a year ago to the new 3GS. I had decided to upgrade the 3G for two main reasons. First because I was tired of the GPS issue that occurred whenever I locked the phone with a pass-code and second because the battery life had become so bad I needed a new phone.
Little did I know I was just picking up another phone with a new set of problems. After picking up the phone at the AT&T store I could not make calls for several hours. Calls to the service center yielded apologies for problems with the activation servers which seemed strange as we were months from any product launches. I took that time to update to the latest software and setup the phone. That evening I headed to the gym with a phone that still would not make calls but at least a functional music player. Upon arriving to the gym all seemed great until I accidentally bumped the voice control interrupting my workout and music. Ten minutes later it happened again, five minutes after that it happened once again. A month later it has probably happened a thousand times with no clear resolution available from the manufacturer and widespread forum reports of the problem.
The only fix to the iPhone voice control issues seems to be a hard reset. At least in the case of my phone it buys me another twenty or thirty minutes of uninterrupted usage before it happens again. I have tried new headphones and different model headphones to no avail. I have tried to reset and restore the iPhone as the troubleshooting pages indicate without any success. The only thing that seems to help is a hard restore which would seem to indicate a potential software problem. Between the issues of reduced battery life and inaccurate battery gauges I am at the point of wondering whether or not Apple® is back where they were in the 1990's where success went to their head. With so many other smart phones touting higher resolution cameras, faster processors and greater battery life one of the key features that separates this device is the access to iTunes. If that feature is defective as it is now for some users you have to wonder if the loyalty of customers will change down the road.
Two Tiered Memberships Lead to Angry Clients
Everyone is looking to save as much as they can with the bad economic news. Every bit helps and now more than ever your clients are more aware of piece prices and also any charges associated with orders. The same holds true in the regular world as consumers look to save on everything from coffee to cereal. Private label brands continue to outperform more expensive national brands as people try to extend their resources. Memberships in all types of civic organizations are suffering and charities are having some of their worst year in decades. Smart business owners are doubling their efforts to gain customers from weaker competitors but not all of their decisions make sense.
Take for instance the local fitness center that is struggling to increase their membership base as customers have moved to a newer less expensive nearby competitor and others have just decided there was no longer enough money in their personal budgets to pay dues. There are three ways this business could have made an effort to make up for the lost revenues. The first and easiest method would be to increase the per person revenue. In this setting that would be accomplished by extending the services offered such as opening a juice bar or adding equipment or classes that require additional fees. Other opportunities would exist in terms of selling promotional gear to clients but that ship has sailed so to speak and the days of "cool" gym gear are gone. Another option is to simply raise monthly rates which in good times might work but in the recession it would simply result in customers either forfeiting their memberships or going elsewhere. That leaves the third option which is the age old method of increasing sales which is to obtain new customers. This is easier said than done and most gyms have already exhausted potential clients in any given area. After newspaper ads have failed and signage in the streets have blown over the only way to draw people into the gym are special offers. The problem with any second tiered pricing strategy is that it will inevitably alienate the customers that have stayed with you all along.
In this case new customers off the street or those that have been gone for a few months are rewarded with paying one third of what steady clients are required to pay. It may increase sales initially but it will create a significant amount of negativity amongst old members and will cause some to outright leave and go to other facilities. The only way to pull off this type of discounted membership is to offer existing clients something in return which is either a discount on premium classes or at the juice bar. Perhaps giving them a piece of clothing with the gym logo would also help but all too often the gym owners blinded by the influx of what will mostly turn out to be short term customers see the money coming in the door without realizing they have won the battle but lost the war. Newspapers are littered with stories of these types of programs going bad and facilities vanishing. In fact many States have now adopted laws that protect citizens with insurance in the case that a facility were to vanish.
Consider your sales activities closely and weigh the possibility that an existing client may not view it as favorably as new clients. In the end it is customer retention that will keep you profitable not new customers constantly jumping from vendor to vendor shopping only on price. No business will ever survive catering to clients that shop purely on price.
The Invisible Shoe is Already Dropping
With jubilation on Wall Street this week comes the ridiculous news stories and hype of the economic return of the US. The stark reality is the winds pushing against reasonable growth are far stronger than the tailwinds the markets can provide today. There is some good news at first glance with the major banks reporting profits but a closer inspection would again show that the reality of the situation is that without taxpayer funds and massive federal support many banks would still be in trouble.
The single biggest factor that argues for continued difficulties is the rapid contraction again of available credit to both consumers and small businesses. For various reasons this critical issue remains under the radar of the major media outlets and most financial reporters likely because they are disconnected from that segment of the economy. When they report from the floor of the Dow they are not capturing the pulse of a majority of the economy that produces a majority of the new jobs over the last few decades. What they instead see is the one portion of the corporate sector that can borrow which is large corporations. Last week I had "Fools Rally 2009" stamped on an Alicia Klein Bookmark and sent it to an associate in the markets. Why do I say this with certainty? Because the lifeblood of the economy is being cut out of it as credit to small businesses has already contracted 25-30% or trillions of dollars since last year. Even worse leading expert Meredith Whitney reported in a recent Wall Street Journal article that another 1.5 trillion will be chopped from available credit to small businesses and consumers by the end of next year. Some may shrug off this news thinking they are immune as their customers pay via cash or check but that does not account for the fact that your customer may pay you with a check but they likely pay at least a few vendors with credit cards or lines of credit. When those vanish entirely or are decreased they now have less spending power and the previously rapid paying check customer may be on a restricted cash flow. Worse yet the psychological impact of reduced lines or the fear of reduced lines changes consumer behavior and will have a negative effect on commerce as the dismal September retail sales figures show.
So what is being done to support 38% of the US GDP? Not a thing is being done. There are no government programs providing direct loans to small businesses. Banks are not lending which means the engine that drives a third of our economy and 50% of our employment is being strangled. The pace is accelerating and anyone reading financial forums such as creditboards or myfico forums will see that in the past week many big name banks have been furiously chopping lines. Their favorite tactic is slashing lines right after payments are made in full. It's a trap as they don't want to see high balances but the moment a consumer pays off the line to avoid interest they are sometimes being closed out entirely. This can be absolutely fatal blow to a business that had expected to be able to use that credit again the following month. Profitable businesses are failing all over the US not because sales are poor but instead because the recent changes have left them without the cash to operate. Take for instance recent reports of a new tactic by the banks that involves them holding the available credit for up to two weeks after a payment is made. In essence a customer makes a payment today prior to the due date or statement date expecting to be able to use it the next day. Instead the payment is made and credited against the balance but the bank does not release the funds for 7 or sometimes 14 days. No doubt it is a temporary mechanism for reducing potential exposure without directly cutting the lines.
It is likely that banks are about to accelerate the credit closures to prevent the potential exposure that the holidays bring. This may be good news for their losses but it is terrible news for the economy and for anyone running a small business in this country. The question now becomes what will it take for Washington to offer support for small businesses when trillions have been given out with little explanation to major corporations foreign and domestic?
Implosion Continues in the Trinket Industry
Despite the veiled attempts by the various associations and groups to paint the current situation as improving the destruction of the industry continues. Depending on which source the official 2008 sales were down either a little or a lot but there are few suppliers within the industry reporting even mediocre sales. The fact is business was horrible in 2008 and was even worse in 2009 for the majority of suppliers and distributors. There are people that have been in the industry for decades that have never seen it this bad. To find out where the industry is going we have to look at where it has been.
The promotional products industry started decades ago from the concept that there was a market in the corporate arena for branded items. For most of the last few decades that relationship involved three parties, the end user, the distributor and the supplier. Distributors worked to open new accounts by traditional means of cold calling, knocking on doors and networking. They relied on small groups of suppliers to provide product for them and the average distributor historically did well under $200,000 in sales. Along came the associations to act as the de facto referees and central database for the industry. All of these associations would require a membership fee and in turn provide the distributor access to information that would be difficult to obtain elsewhere such as catalogs, pricing, ratings information on the suppliers and credit services for the suppliers. In short they provided a useful service and acted as a go-between greatly reducing acquisition costs for both sides of the aisle. Distributors that did not have entire sourcing departments now had access to hoards of information they would not otherwise be able to gather and suppliers had a targeted and priceless mailing list.
This all began to change in the late 1990's as major online distributors like Branders began to appear. At the same time the use of the internet for sourcing products began to skyrocket circumventing the need for expensive membership services that often did little when subscribers needed them most. Indeed most played a hands off role even in blatant abuses of the system such as suppliers stealing customers directly from distributors. As suppliers began to ramp up their online product listings the ability to jump online and search for the needed product information began to trump the need for expensive and non-eco friendly catalogs. Along came Sage which provided the same basic services as ASI but at a much lower price and the fight was on for the remaining market share. Sadly what the increase in competition did was drive the desire to report success within each association. However the PPAI annual survey has probably summed up the trends most appropriately. Prior to 2000 the industry had experienced consistent and rapid growth. After 2000 the industry has been contracting 50% of the time. Sales are probably still being grossly overestimated as the few companies that reported publicly have taken a huge beating. Several like Norwood and Broder Bros. which occupies the number one spot in the industry for supplier size either threatened bankruptcy or have gone bankrupt. Major suppliers such have Cyrk have also gone off the grid and are no longer in business. Sales for 2008 were atrocious dropping at least 10% and most major suppliers are reporting 20-40% drops in 2009. I am sure the major associations will spin it as just a slight drop but when two of the top 5 suppliers were in danger of or went bankrupt and most of the top 10 had significant staff layoffs the situation is grim. Actual sales will likely be down more than 20% in the promotional products industry in 2009. There will be more failures on both sides of the aisle as distributors collapse under the weight of shrinking credit and increasing delinquencies of customers. Suppliers face the same concerns as distributors are increasingly stressed. Although the data is rarely released it is obvious the credit departments of many suppliers are under strain trying to deal with collections. In general the business credit reporting agencies report the average days beyond terms has extended to 10 up from 2 earlier in 2009. That's a rapid descent and with credit availability scheduled to shrink in the trillions this year and next it will only get worse.
Increased Costs Downfall of Recycled Products
A little more than ten years ago when a major ASI supplier first introduced recycled products made from reclaimed rubber the industry collectively ignored the offerings. Although the brand name was nationally recognized there was very little interest in the products and within three years the offering had vanished from the product line. A couple of years ago recycled promotional items were again introduced into the mainstream corporate channel and almost instantly became a mega success. Several issues have come together to create a perfect storm that is blunting sales.
First consumers and distributors were burned last year with horribly underestimated inventories. With some manufacturers the Spring of 2008 saw entire lines back-ordered for the critical Earth Day celebrations. Other products had serious quality control issues including melted buckles and inferior fabrics. Distributors had to deal with both of these issues in unmet expectations on delivery or worse angry customers when the more expensive recycled products proved to be of lesser quality than their non-recycled counterparts. Adding insult to injury some industry players such as Norwood suffered through inclement weather and flooding at some locations only making the problems worse. Manufacturers rushed to address these issues and the lack of color choices for the 2009 season.
Which leads to the next problem - collapsing sales the result of the ongoing recession. Everyone wants to promote eco friendly options but when budgets are severely cut customers are left with two choices, spend less money or spend no money at all. Although there is nothing official yet released by the major suppliers a quick look at online inventories shows excess quantities and also demonstrated no shortages this year leading up to Earth Day. This is partially the result of the economy but also directly reflects the increased costs associated with these products. Recycled apparel has been a major dud by most accounts with end users not liking the feel of recycled shirts and fleece. Taking a look at second quarter sales from suppliers there is an abundance of recycled and organic items which would again indicate an overstock situation. Higher prices and the recession explain much of the decrease but an overall change in buyer behavior may be behind the shift. It is too early to draw any conclusions but the 2010 "green" season will likely determine the fate of recycled promotional products in general.
Manufacturers need to bring to market some sub $3 items in popular categories to help continue the shift to recycled items. They also need to source some in the USA versus bringing them all in from overseas factories. Given the state of the economy and particularly domestic factories United States sourcing would help sell recycled items.
Broder Bros.appears to have dodged bankruptcy. Although there is no official word as of tonight it would seem they secured the needed percentages to prevent their filing. This is good news for the industry as the recent filing of Norwood already had the industry on edge. Changes are already underway at Broder with Columbia being dumped from the product offering. Once they sell through the remaining inventory it will be the first time in decades that Columbia has no presence in the industry. Meanwhile Callaway has landed at Perry Ellis. Once Ashworth officially exited the business Callaway was left orphaned until the announcement was made last week.
We do have an update to the Major Retailer Provides Lessons in Poor Customer Service but will update that story Monday morning. Suffice to say the demonstration is ongoing.
Marketing Your Way Through A Recession
Recessions can provide a unique opportunity to build your business and market share but requires a level of planning and patience. Under most theories economic slowdowns require rapid and measured budget cutbacks. However these actions are contrary to what you would need to do in order to grow your business and proportional market share.
Instead consider expanding your promotional and marketing budgets during downturns such as the one we are in currently. Your competitors are probably cutting back and spending less money while cutting staff. Pick up any newspaper and it is full of stories involving cancelled trade shows, conventions and other corporate retreats. In some cases it's necessitated by a business in jeopardy of failing but in other cases it is the result of over compensation to perceived market conditions. If finances allow these periods can be full of opportunity for your business as you fill a void being left by your competition. While they are spending less to keep and capture new clients any dollars you spend will go further and have less direct marketing competition on the other end.
The American Marketing Association has a multitude of information on their site as do groups such as the Direct Marketing Association for those looking for general marketing information. If you are looking for promotional product information PPAI is a great place to start. Taking it a step further there are various vendor websites end users can browse such as Sweda and sites such as Ashworth. Most of these manufacturers are prohibited by agreement from selling to direct end users and instead use a network of local distributors which you can generally find by browsing their sites.
Take the opportunity as it presents itself and get a head start on the recovery. Most of the recent economic data points to the economy now being in the trough and showing the beginning stages of recovery. Now is the time to increase your marketing efforts and make new contacts.
Tighter Budgets Lean Times
Not every economic downturn is created the same. This one is global and is occurring at the same time which has major ramifications for all industries. It is also the best time to gain market share for those willing to double or triple their efforts.
Take for example big box retailers like Costco and Walmart who are both still enjoying solid success despite the current climate. They have done this through a concerted marketing effort and accompanying message of low prices. By now everyone knows the bouncing yellow smiley face and many of you probably remember the cowboy version of the smiley face slashing prices. Walmart positioned itself properly going back several years during the good times. Back then lower prices didn't seem all that important as the economy was booming and people were flocking to stores like Target which was perceived as having a higher value.
Fast forward twenty four months to today. Target has announced major changes to both store expansion and to the credit portfolio their bank holds. They are tightening credit standards, lowering and eliminating limits all the while they are trying to get the message out that they are now the low price leader. A few years back they prospered being portrayed as the higher end retailer and they are now left scrambling to make customers understand they too are price competitive.
Costco is another interesting case. By providing massive amounts of goods at reasonable prices they have done very well and in many respects have been recession proof. Instead of promoting low prices they instead have promoted maximum value which was done by selling large blocks of goods at bulk prices. Whether or not the bargains are really there is still up to the consumer to decide which to this point they have by continuing to spend money in the stores.
These are two dramatically different approaches but they illustrated the importance of picking a message and sticking with it. Both brands have flourished and continue to prosper during difficult economic times by having a multi-year coherent message. The economy is going to have some historic lows and will continue to be extremely volatile over the next two years. Use this time to build your brand message and brand loyalty.
Oil Greased The Economic Tracks
The Nikkei has hit a 5 year low in early morning trading in Japan. An ocean away the ASX 200 was down over 4 percent and Topix was down close to 6 percent. The rout cuts across all sectors. The economic turmoil continues to slam the economies of the World.
This afternoon on a major business network owned by GE (hint hint) one of the on air reporters said his sources are telling him business essentially came to a halt on or about September 30th. Our sources within the marketing industry tell us much of the same with dozens of ASI suppliers and distributors reporting slow sales at recent trade events. Of course the figures released later this winter will show a growing industry in 2008 but those numbers can end up being about as accurate as the real estate numbers we kept hearing the last two years from NAR.
Media advertising budgets continue to be ravaged by the economic stall. Newspaper advertising sales are at decade lows with no end in sight as readership of the traditional print offerings has vanished. Online advertising sales continue to grow but for the big print publications it will likely not be enough to offset the losses. Compounding the problem is the demise of the US Auto Industry and as a result all of those weekend sales advertisements that helped support the bottom line.
Consumer confidence is falling by record amounts, car sales are terrible, consumer sales are terrible but hey we have lower gas prices! It is disgusting to see how far off the predictions have been for oil prices and oil consumption since the spring. One has to think it was deliberate manipulation, how can any expert have predicted $200 for oil and actually believe it wouldn't collapse demand? How can everything have changed so quickly in just 70 days that oil prices have fallen 50%? What are we doing to prevent such manipulation in the future? All the candidates talk about it but will any of them refuse the money from the oil lobby to protect the citizens?
The equity markets are bi-polar, up one day down the next to such extremes that in the last 40 days the market has been up or down by less than 100 points only three times. On Monday the market goes up and everyone is happy and talking about how it may not be that bad, by Wednesday we are back to hearing about just how bad the economy is now. The bottom line? Major corporations struggled for three weeks to fund operations. While they were searching their market caps were smashed eliminating one possible avenue. Budgets were slashed and expenditures cut. The immediate effects were not felt until the last week or two when businesses further down the chain noted lost sales. Retailers, car dealers and other front line businesses saw the initial shock instantly but it was tough to gauge as business has already fallen off in August. As business fell at an incredible pace organizations began laying off, cutting back hours and pay of staff. This process is accelerating now as we head into the crucial holiday season. A bust of a holiday season will put some retailers out of business including large national brands that were symbols of our success in the 1990s.
It is going to get much uglier before it gets better and it is going to happen quickly in the next few weeks. Oil prices are not falling because the oil companies decided we needed a break, they're falling because nobody is buying gas with 5% decreases in the last month versus the same month last year. That decrease is the result of commerce stalling and Bernanke and company are right in realizing we need another stimulus immediately or the long road down will be another Depression. Hopefully the assistance programs we have in place are enough to help but they will surely get tested barring an economic Houdini by the Federal Reserve and Treasury.
From this point on the discussion will mainly center around the ad specialties industry, products, businesses and trade issues.