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2000 CAS/Commercial State of the Industry Report

CAS/Commercial Growth Rate Slowed in 2000

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Methodology In March, we sent a letter and survey to a sample of ST subscribers identified as being part of the CAS/commercial business. The letter requested their help with this industry survey. Then, our research supplier, Smyth Marketing Resources, randomly selected 500 participants by telephone. Smyth’s Carol Shea coordinated all of the research. ST sees none of the actual results, only the totals in chart form.

Our 2000 CAS/Commercial State of the Industry (SOI) closely parallels the results of the 2000 Electric SOI published last month. Yes, there was growth since 1999, an estimated 8% from $4.3 billion to $4.6 billion, but that rate of growth is the lowest we’ve seen in the five years of this study. Similarly, on the sobering news front, the 11.6% average net profit is the lowest this study has reported by a relatively large margin, 2.2%.

Respondents reported an average sales growth of 14% from 1999 to 2000, which should make most businesses happy. Again, however, it’s the lowest growth rate this study has shown, and it’s only half of the growth rate reported two years ago.

The best news in an apparent feast-or-famine situation is the highest sales-per-employee figure yet, $73,200. The previous four were relegated to the $61,000-$68,000 range. Additionally, the average sales volume reported per respondent, $356,000, is more than 25% higher than in any of the past three years, even though the median figure did not change from 1999. This simply means that the bigger companies contacted were significantly bigger.

Generally, the percentage of business coming from brand-new customers is 30%, with only a slight trend that, the smaller (and perhaps, newer) the company, the more it would rely on new business.

Despite the business slowdown, respondents don’t expect to measurably curtail their equipment investments in 2001, although they’ve streamlined the variety of types of equipment they plan to purchase.

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The percentage of companies involved with digital imaging maintained a slow but steady growth to finally reach a majority. The first year of this study, 1996, the percentage was only 30%. In terms of "market share," inkjet grew while the three other technologies waned over the past year. Thermal transfer dipped a bit last year, but has gained overall over the past two years. Meanwhile, superlarge-format use has plummeted.

This completely contrasts with our Electric SOI results last month, in which thermal transfer has seen a measurable drop as superlarge-format has enjoyed a resurgence. But inkjet finds increasing favor in both camps.

Those are the highlights. Below is some commentary from your peers on how things are going for them. So read on.

Economic changes

Long before his wife’s senatorial race, Monica’s infamous blue dress, the contentious health-care reform proposal or even his saxophone solo on The Arsenio Hall Show, presidential candidate William Jefferson Clinton gained notoriety with his bumper-sticker campaign slogan: "It’s the economy, stupid."

Now, nearly a decade later, it’s once again the stupid economy that’s causing investors on Wall Street – not to mention business owners on Main Street – fits.

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In the ’90s, the Dow Jones industrial average nearly quadrupled, unemployment dropped, and inflation remained static. The financial joyride hasn’t ended, but its pace has certainly s-l-o-w-e-d.

To find out how the economy has affected signshops specifically, we selected 30 companies that participated in our CAS/Commercial State of the Industry Report and asked them additional, in-depth business questions. Their insights are included below.

Recession plans

Comedian George Carlin’s "Seven Dirty Words" list comprises five words of the four-letter variety, one word with 10 letters and one with 12.

Federal Reserve Board Chairman Alan Greenspan’s list of dirty words is much shorter, as it includes just one, nine-letter doozy: recession.

When we asked signmakers whether they had a recession plan in place, most said no.

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"We just hope that the economy is not going to get worse than it is," says Hunter Mullis, Industrial Sign and Graphic (Charlotte, NC).

Those rare companies actually concocting recession plans have either been curtailing purchases, bankrolling cash or both.

Shane Branning, Pro-Decal Inc. (Canton, OH), for example, is "working my buns off at the moment, but not spending any money. I also laid off one guy. You have to make adjustments. You have to be fluid and be able to move."

Some rogue signmakers have taken other approaches. David Hermanson, Dave’s Signs (Red Bank, NJ), is reportedly "selling harder and advertising more."

And Lyle Hoover is actually expanding Hoover Graphics (Waterford, PA). "I tried cutting back," he says. "But the only thing that cut was my paycheck."

Sales trends

We asked signmakers, "Are your sales up or down? If they’re up, is it due to having more customers, or are the same customers just buying more? And if they’re down, is it due to having fewer customers, or are the same customers just buying less?"

We were surprised that the news is more good than bad. More than half the signshops report sales increases, although some qualify the good news by saying sales are up, "but just slightly." Reasons differ for the upswing.

"Our sales are coming from having more customers," explains Roger McKnight, Speedy SignHAHRama (Capitol Heights, MD). "Word-of-mouth has enhanced our reputation."

"We do get a lot of repeats," says Chuck Chapman, Fastlane Graphics (Greenville, SC), of his shop’s growth, "but we’re getting new customers too."

Mullis says sales are up, "but just barely – it’s from expanding our base and working harder."

Among the signshops we interviewed, the largest sales increases are cited by Josh Barker, American Sign Depot (Carrollton, GA), and Cliff Jette, Custom Signs & Auto Graphix (DeFuniak Springs, FL).

Barker credits American Sign Depot’s doubled sales to 50% growth in customer base and the company’s ability to customers that they offer more than just vinyl, including sandblasted signage and acrylic.

Jette says Custom Signs’ business is up 80% because "we’re just moving down here. We’re getting a lot of repeat customers, but we’re also getting a lot of new customers who are just finding out what we do."

Of the sign companies whose sales have turned downward, Brenda Hilem, Sterling Sign Corp. (Greensboro, NC), says, "The same customers are buying less. Everybody’s just holding back and being more conservative."

"Customers have cut their budgets on signage," adds Shawn Jung, Signs 2000 (Irving, TX).

And Rose Ballew, Solutions (Dalhart, TX), says many of her customers are actually moving out of town.

Capital investments

When individuals have faith in the economy, they are more apt to make capital investments. A few optimistic companies are continuing with spending plans. A company in Godfrey, IL, for instance, will soon be purchasing additional billboards.

Most shops, however, are adopting a "wait-and-see" approach in this arena.

"(Whether we make capital investments) is all according to what our cash flow is," says Debbie Craig, HA Balton Sign Co. (Memphis, TN).

Sterling Sign Corp. is likewise delaying investment plans.

And Pro-Decal Inc. is holding off on a building project that was "ready to go." "We’d planned to build a large, new facility for installing graphics on trucks, but the facility is on-hold indefinitely. The last three or four months have been pretty good financially. But we want to wait and see, so we’re building a little nest egg just in case things turn ugly," Branning explains.

Equipment purchases

To buy or not to buy? When it comes to signmakers’ future equipment expenditures, wish lists run the gamut. Cutting-plotters, CNC routers and computer upgrades are the most common items to be purchased.

But boom trucks, bucket trucks, sign trucks, computerized manufacturing equipment, UV driers, hot mill presses, CNC routers, laser cutters, computers and thermal and inkjet printers are also mentioned as "must haves."

Mark Robinson, All American Signs (La Vergne, TN) is among the few signmakers content with the equipment his company already has on hand. "We’ve only been open a little over a year," he says. "So we’re trying to hire people, not buy equipment."

Subcontracting

Subcontracting has long played a significant role in the sign industry. We asked companies about the extent and nature of subcontracted work. Not surprisingly, commercial signshops commonly subcontract complex installation tasks, electrical sign work and screenprinting projects.

For example, Craig cites hole digging and crane work more than 100 ft. in the air as the tasks HA Balton Sign Co. hires out.

Meanwhile, John Wood, Arkansas Valley Signs (Clarksville, AR), subcontracts illuminated signage and cabinet work, and Chapman outsources neon projects and installs. McKamy leaves channel letters to experts. "Most of my subcontracting is not really subcontracting. I buy some component signs outright, such as channel letters, and I do more so this year than last," he explains.

Hoover Graphics, American Sign Depot and Pro-Decal all sub-out screenprinting. "We’ve always been anxious to subcontract," Branning says. "I use a Kansas-based screenprinter that’s good and reliable. Locally, I couldn’t find the type of service they offer."

Like Branning, Doug Collins, Scotty Signs (Newport News, VA), is also a fan of subcontracting and says he’d rather concentrate his efforts on sales than fabrication: "I prefer to subcontract as much as possible – from large-format digital printing and molded-plastic work to out-of-town installations."

Just as many commercial sign companies subcontract work to others, so too do they serve as subcontractors. Many of the shops with whom we spoke supply cut vinyl to other sign companies. A few also perform installation work.

George Katona, In Sign Out (Leechburg, PA), says he designs signs for other shops, while Jette is occasionally hired by competitors to paint graphics.

When serving as a subcontractor, Dave’s Signs’ work is more broadly based. "We can bend aluminum with a box brake, we inkjet a little and we silkscreen a little. Essentially, we can fabricate anything you want. We just don’t install it," Hermanson explains.

Digital printing

Many commercial shops are cautiously testing the waters of digital printing before they take the plunge. As such, they are subcontracting digital work while they cultivate the market.

"(American Sign Depot) subs-out what little (digital print) work we can get," says Barker. "I’m in a small town, and it’s hard to convince people to buy that kind of thing."

As for what digital output shops are subcontracting, Wacker Signs (Tuscarawas, OH) subs out flexible-face projects, while the Capitol Heights Speedy SignHAHRama outsources high-resolution banners. "My shop is too small in square footage to handle digital imaging," explains McKnight. "So we stay streamlined."

Arkansas Valley Signs subcontracts "slipcovers" for the shop’s billboards. "I’m getting a little long in the tooth to be crawling around and painting them," jokes Wood. And Signs 2000 subcontracts digitally printed poster work.

Although Pro-Decal Inc. has traditionally subbed out print work, the company may soon purchase a Gerber EDGE® and an inkjet printer – and will add an employee to run the new equipment. "We’ve outsourced digital printing, but I’m sick of doing so. It’s too much of a hassle. A lot of the vinyl stuff that we cut now, we’d be printing if we had the right machine," explains Branning.

In contrast, Essex Design & Display (Haddam, CT), a sign and exhibit company that’s already fully committed to digital technology, owns an EDGE, a wide-format printer, a laminator, two plotters and a CNC router. "It accounts for 80% of the dollars that come into our shop as far as graphics are concerned," says Sue Custer. "We’re doing more of it this year than last. You name it, we print it. The only thing we haven’t gotten into yet is printed banners; we still use cut vinyl for them."

Collins says that in today’s questionable economy, short-term, digitally printed graphics comprise the one segment of Scotty Signs’ business that’s increased: "People are trying to hold onto the (permanent signage) they have and are putting off major purchases."

Signshop competition

Esquire magazine quoted David Sarnoff as saying, "Competition brings out the best in products and the worst in people."

To find out if this is true, we asked companies, "Are there more competing sign companies in your locale?"

Roughly half say, "Yes." They do have increased competition, and it stems from independent shops more than franchises.

"Signs are a good business," explains Hermanson. "It’s one of the only advertising businesses with a larger market share today than it had 10 years ago."

"There are definitely more sign companies in our city," affirms Mullis. "Charlotte is such a growing area."

Hoover adds, "You can’t kick a rock without running into a signshop. We’re a town of 2,500 people with 10 signmakers, and there are 90 shops in our county. It’s a very competitive market."

McKnight says there are five signshops within a quarter-mile of his shop. But the competition has proved healthy, not detrimental, for business. "We all do different things. Some of the shops do bigger stuff, but we all work together," he says.

"The new shops in our area have actually created markets," notes McKamy. "In the past, customers having a sale would have taken a Magic Marker® and made their own signs, but now they’re buying signs. And it helps me because most of the subcontracting I do is for smaller vinyl shops."

Work backlog

 

Only one signshop we interviewed – American Sign Depot – reports an increased backlog of work. Most say their backlog has remained steady or dropped considerably.

"Our backlog is not as heavy as it once was," says Craig. "No overtime is being worked this year, where there was overtime this time last year."

"We were really backed up until my son came down here from Massachusetts and helped us out," says Jette. "He’s a graphic artist and has worked in the printing business doing guides and invitations. He got us caught up by doing vinyl work."

Many commercial and CAS signshops’ business models simply don’t allow for backlog.

"We’re right on schedule and up-to-date. We don’t carry any job longer than two weeks," explains McKnight.

Likewise, Dave’s Signs turns everything over in a week or less. "We’re in promotional signage, so we don’t sit on work," Hermanson explains.

"We don’t keep a backlog," affirms Branning. "You order it today, and it goes today. Sometimes, we’re behind a day, but that’s it."

McKamy likens the sign business to the restaurant business. "You get those lunch rushes, and you just have to handle them," he says. "So many customers eat up lead time by taking a lot time to make their signmaking decisions. Whereas if they’d ordered the sign when we first started talking about it, we wouldn’t be in a rush. It’s been like this as long as I can remember."

Delayed and canceled projects

No signshops with whom we’ve spoken have had customers delay quantity-sign projects as a result of the economy, although one shop reports a delayed quantity-decal project.

Project sizes have diminished, however. "We had a customer that, in the past, would have given us a blanket order for 20 signs, but has now cut back to 10," Hilem says. "They’re being more watchful."

McKnight says he has worked to cultivate relationships with non-industrial consumers to avoid economy problems. "I have 60 churches that are my continuous customers," he explains. "I had a friend that took a $30,000 loss when his big corporate contract went under. I don’t feel comfortable with those types of contracts. Since churches are growing in this area, I’ve strategically marketed to them because I don’t think they’ll fail."

Future predictions

For the most part, signmakers remain positive about their business’s future. Individual predictions include the following: "More money and a bigger building." "I’m hoping things will stay steady." "An increase from last year." "More all-out custom vehicle-graphics work." "Turnaround in a year." "Growth and two more employees." "I’m trying to close it down; I have several other businesses." "A growth pattern later this year." "Even out in the local market area." "Slow and steady 10-12% growth." "We want to open a couple more shops; we’re expanding quite a bit." "I want to make some cash!" "It’ll remain as is, but advance orders may drop a little."

Hilem credits her positive outlook to Sterling Sign Corp.’s diversity. "We’ve always limited ourselves on the number of major accounts we keep. We do local restaurants and salons and whatever keeps us going. We have never put all our eggs in one basket."

Hermanson says that the temporary sign industry can grow by "taking over much of the retail-advertising business once owned by local newspapers that no longer exist." He continues, "Local merchants’ customers are usually within five miles of their store. Many dry cleaners’ businesses won’t reach over two miles. So signs become a fundamentally important part of their business and work well with other forms of advertising. If someone places a Valpak ad, for example, they’re foolish not to get a sign that ties into that Valpak promotion."

But Hermanson thinks the industry needs to educate customers about signs’ value, and the importance of replacing banners and promotional graphics regularly. "If a sign is left on a window too long, it becomes institutional signage. Signs left unattended really damage business. They need to be rotated, and that’s a matter of customer education. A sale that never ends really isn’t a sale!"

McKamy concludes by saying he believes the sign business is "basically recession proof." He explains, "When the economy is tough, people actually have to use more signage to pick up for the business they’ve lost. So they purchase more, but less expensive, signs."

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