The 2015 Electric-Sign State of the Industry Report

The only negative aspect of this year’s Electric State of the Industry (SOI) Report was our response rate. We revived this study last year as an inhouse exercise, and we received 73 useable responses. We were confident that number would grow this year, and we added a small incentive to ensure success. It didn’t work.
We only received 63 useable responses, and no individual question solicited more than 40 answers, which means our continuation of this study is questionable, although we will definitely have its counterpart, the CAS/Commercial SOI, in next month’s issue.  In each of the following tables, we will compare last year’s data (for 2013) with this year’s results (for 2014).

The respondents
Although we did receive 98 responses, 35 came from people who answered “no” to the question: Are you primarily an electric-sign company? The survey ended there for those people.
Table 1: Our first question asked about 2014 sales volume, and the average annual figure was $6,242,838, which was approximately 50% higher than last year’s $4,219,376 average. Last year’s biggest reported sales volume was $41 million, while one company this year reported $50 million. Seven of last year’s respondents (9.6%) reported annual sales of more than $10 million. This year, we again received responses from seven $10 million+ sign companies, but with half as many respondents, they doubled last year’s percentage of overall companies.

TABLE 1: Our Respondents

                              2013           2014
Respondents           73               37
Average Sales   $4,219,376    $6,242,838
Total Sales      $308,014,468  $230,985,000

Table 2: The average number of employees, 34.3, nearly replicates last year’s average of 33.4, although the average number of part-time employees nearly doubled from 2.0 to 3.7. The biggest company reported 300+ employees, while last year’s biggest company reported 250. Four companies last year had more than 100 employees, and there were three such companies this year. Nearly half of the respondents (16 of 33) have fewer than 10 employees. Three companies also reported having 20 part-timers.
If we take the total sales volume of all respondents ($230,985,000) and divide it by the total number of employees (1176, which we calculated by taking the 1131 full-time employees and counting the 99 part-time employees as 45 full-time employees), we get an overall sales-per-employee figure of $194,416. This number isn’t exact, because the respondents in Tables 1 and 2 aren’t the exact same group, but it should be reasonably close. But this figure is approximately 30% higher than last year’s figure of $159,098, which resulted from dividing total respondent sales ($308,014,468) by the total number of employees (1936). The last time Smyth Marketing Resources conducted a formal Electric SOI for us for fiscal 2010, average sales per employee were $164,345, which was the highest ever in the 25+ years of conducting this survey. Perhaps the acceleration of automation has been a key factor.

TABLE 2: Number of Employees

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                             2013    2014
Respondents          55         33
Average Full-time   33.4     34.3
Average Part-time   2.0       3.7
Total                      1936    1230

Sales
Table 3: The overwhelmingly positive statistic from this year’s study is an average sales-volume increase of more than 30% from 2013 to 2014. Of the 30 respondents, 24 (80%) reported a sales-volume increase; four said their sales volume remained the same, and only two said they’d suffered a sales drop in 2014. Three said their sales doubled in the last year, and seven others stated their sales increased by 50% or more. Last year, only two-thirds reported a sales-volume increase in 2013.

TABLE 3: Sales-volume change from 2013 to 2014

                                          2013     2014
Respondents                       51         30
Average Change                9.7%    30.4%
Sales Increased                   34          24

Sales Decreased                    8           2
Sales Stayed the Same          9           4

Table 4: Although the average reported profit margin of 25% doesn’t seem accurate, at least it’s extremely positive. When Smyth Marketing Resources conducted our formal SOI report for two decades, the highest profit margin ever for electric-sign companies was 11.8% in 2006. So we somewhat qualified last year’s 13.0% average profit margin. And this year’s figure nearly doubles that. We had companies reporting profit margins of 75%, 70% (twice), 50% and four others over 40%. More than two-thirds of this year’s respondents (23 of 34) reported profit margins higher than the benchmark average figure from 2006 of 11.8%. Calculating profit margin can be amorphous for smaller companies with single owners:
Does the owner factor in an official salary for him/herself, or is “profit” and owner compensation the same thing?
The adage holds that, the higher a company’s sales volume, the lower its profit margin. Yet, this year’s respondents’ average sales volumes were 50% higher than last year (Table 1), so one would expect this year’s average profit margin to be lower. Of course, one limitation of this study is that we didn’t weight the profit-margin figures. A 5% profit margin for a $20 million sign company is weighted the same as a 5% profit margin for a $300,000 sign company.

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              TABLE 4: Profit Margin for 2014

                            2013   2014
Respondents         49       34
Average %          13.0%  25.0%

Table 5: Whenever we ask for projections for the current year, the figures are always rosier than the completed figures for the prior year. This year is no exception, but the anticipated average profit margin for 2015 is only slightly higher than the stated actuality of 2014, 27.2% versus 25.0%. The actual figure for 2013 was 13%, while companies projected a 16.3% for 2014. So, while companies typically anticipate better results than what actually transpires, their projections last year were delightfully subdued compared to the subsequent reality. But clearly, companies believe 2015 will be at least as good as, and perhaps slightly better than, 2014. Only four companies expect profit margins of less than 10% in 2015. One company estimates an 85% profit margin, and another one sees 75%.

                  TABLE 5: Anticipated Profit Margin for 2015

                                2013    2014
Respondents              47       31
Average %               16.3%  27.2%

What they make
Table 6: We ask sign companies about the broad categories of signs they make. In terms of importance, all four of the primary categories received the same ranking this year. Channel letters are the clear leader, but by a greater margin this year. More than a third of all illuminated signs (38.3%) are channel letters, which represents a decent increase from last year’s 32.3%. Cabinet signs remain a solid #2, with roughly equivalent figures of 28.5% this year and 26.3% last year. Freestanding, main-ID signs remained at #3, although the percentage dropped from 19.3% last year to 14.6% this year. Rounding out the Top 4 are electronic message centers (EMCs), which exactly matched last year’s 10.8%. While dynamic digital signage (DS) barely registered a blip last year at 0.6%, it quadrupled to a still-small 2.4% for 2014.

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  TABLE 6: Percentage of Types of Electric Signs Sold

                                    2013    2014           
Respondents                 54        33
Channel Letters         26.3%   38.4%
Cabinet Signs             32.3%   28.5%
Freestanding Main ID 19.3%   14.6%
EMC                           10.8%    10.8%
DS                               0.6%       2.4%
Outline Lighting           1.6%       1.2%

Table 7: If these figures are accurate, then the LED takeover has accelerated exponentially. Last year’s Electric SOI indicated slightly less than 60% of all electric signs were illuminated by LEDs. That figure was corroborated in our Lighting Survey (see ST, March 2015, Table 4, page 71) at 59.2%. Yet here, it’s skyrocketed to more than three-quarters of all electric signs, at 78.5%. Could the new Dept. of Energy Conservation Standards for Fluorescent Lamp Ballasts (see ST, October 2014, page 96, and June 2015, page 120) be a catalyst? As long as you’re faced with having to switch from a ferromagnetic to an electronic transformer anyway (once existing supplies are depleted), are you simply going to opt for LEDs? (One product manufacturer told me that newly developed electronic ballasts for fluorescent signs, in deference to the November 2014 DOE standards, are merely a stop-gap measure for a few years. He figures fluorescent illumination of signage is being phased out.)
All 35 respondents said LEDs constitute at least 40% of all of their sign illumination. Seven of those companies reported not using any fluorescent lighting. Somewhat surprisingly, half of the companies (18) still reported using neon, although the question didn’t ask if it was produced inhouse or purchased wholesale. Overall, fluorescent usage plummeted from 33.4% last year to less than half of that at 15.9%. Neon dropped as well, from 8.0% last year to 5.1% this year.

     TABLE 7: Illumination-source Percentages for Electric Signs Sold

                                   2013 2014
Respondents                54      35
LEDs                         58.4%  78.5%
Fluorescent              33.4%  15.9%
Neon                         8.0%     5.1%
Other                        1.6%     0.6%

Table 8: As stated in the introduction, responses were restricted to those from self-described “predominantly electric-sign companies.” So, by that definition, the lowest possible response to “How much of your sales volume is electric signs?” would be limited to 51% and higher. Last year, electric signs accounted for an average of 78% of respondents’ sales. This year, seven of the 40 responses were less than the requisite 50%, so we deleted them. The 33 remaining responses averaged similarly to last year at 80.4%. The adage remains there’s a vinyl shop inside every electric shop.

TABLE 8: Electric Signs as a Percentage of Total Sales

                            2013   2014
Respondents          63      33
Average %         77.9%   80.4%

Table 9: Significant digital imaging also regularly occurs within electric signshops. Nearly 90% of all respondents (31 of 35) feature digital printing in their signs, and only six of the respondents (17%) incorporate digital imaging in less than 10% of their signs. Conversely, five companies utilize digital imaging in a majority of the signs they sell. Overall, it’s used in roughly a quarter of all their signs (25.8%), and this exact same percentage was reported last year!

TABLE 9: Percentage of Signs Sold with Digital Printing

                             2013   2014
Respondents           54      35
Average %           25.8%  25.8%
Yes                           51     31 (88.6%)
None                         3       4 (11.4%)

Table 10: By a similar percentage (27.8%), electric-sign companies report owning a flatbed printer. This more than doubles the 13.5% ownership figure reported last year. (In the following table, we ask about plans to purchase a digital printer in 2015, but we don’t get specific enough to ask about purchasing a flatbed.)

TABLE 10: Owning a Flatbed Printer

                             2013         2014
Respondents          52             36
Yes                          7 (13.5%) 10 (27.8%)
No                         45 (86.5%) 26 (72.2%)

Table 11: We asked readers about anticipated equipment investments in 2015. The $163,516 average figure is almost exactly 50% higher than last year’s $109,644 average, even though six of the 32 respondents said “zero.” However, if we believe there is a direct correlation between company size and company equipment investment, then this year’s planned equipment investment should increase by approximately 50%, because Table 1 tells us the average company size is approximately 50% larger this year. One company will reportedly spend $2 million on new equipment, and another will spend $1 million. In addition to those companies that don’t plan to buy any equipment, nine respondents plan to invest less than $100,000 in equipment in 2015.

TABLE 11: Planned Equipment Investment for 2015

                                2013          2014
Respondents            53               32
Average Amount $109,644    $163,516
Total                 $5,701,500   $5,232,500

Table 12: So what do they anticipate buying? As occurred last year, slightly more than half (51.6%) plan to buy a bucket truck, crane or some other kind of installation vehicle. Last year was virtually the same at 53.2%. However, it ceded the top spot to software, which 54.8% of the respondents plan to purchase in 2015. Last year, software purchases were slightly lower at 48.9%. Metal-forming equipment (brakes, folders, benders, etc., and probably channel-letter equipment) again ranked third, although it dropped from 29.8% last year to 22.6% this year. In order, routers (19.4%), digital printers and laminators (both at 16.1%) and vinyl-cutting plotters (12.9%) round out the other choices. Digital printers dropped the most (from 23.4% to 16.1%), while laminators nearly tripled from last year’s 6.4%. “Other” was conspicuous in its absence.

TABLE 12: Planned Types of Equipment Purchases for 2014

                                   2013          2014
Respondents               47              31
Crane/Bucket Truck   25 (53.2%)   16 (51.6%)
Digital Printer            11 (23.4%)     5 (16.1%)
Router                        9 (19.1%)      6 (19.4%)
Vinyl-Cutting Plotter      8 (17%)      4 (12.9%)
Laminator                    3 (6.4%)       5 (16.1%)
Metal-forming            14 (29.8%)      7 (22.6%)
Software                  23 (48.9%)     17 (54.8%)
Other                       23 (48.9%)       0 (0%)

Wholesale, etc.
Table 13: This year’s respondents purchased slightly less of their sign output wholesale (14.9%) versus last year’s average of 17.2%. Exactly 40% (16 of 40) of the respondents didn’t purchase any signage on a wholesale basis, while two companies said every sign they sold had been purchased wholesale. Otherwise, only one company said it purchased a majority of its sales volume (75%) from wholesalers. For companies that did purchase wholesale signage, it accounts for approximately 25% of their output. And those companies were more numerous last year, with 53 of the 72 (74%) buying some wholesale signage.

TABLE 13: Percentage of Signs Sold in 2014 Purchased from a Wholesaler

                          2013   2014
Respondents       72       40
Average %        17.2%   14.9%
Some                    53       24
None                    19        16

Table 14: Conversely, we asked sign companies how much of their overall sales were wholesale. We disqualified four companies who reported that a majority of their sales were wholesale, because this survey distinguishes between entities that primarily supply to sign companies (wholesalers) and direct-sale sign companies. The highest remaining percentage was 35%, along with two responses of 30%. Overall, the percentage increased significantly from 4.4% last year to 6.5% this year. Fourteen of the 36 companies said they sold nothing on a wholesale basis.

TABLE 14: Percentage of Overall Sales from Wholesaling in 2014

                       2013    2014
Respondents     67        36
Average %       4.4%    6.5%

Table 15: We asked sign companies what percentage of their 2014 sales came from customers who were new last year. The overall average figure of 30.7% eclipsed last year’s average figure of 26.9%. Only one company this year credited new customers for less than 10% of their overall sales. For six companies, new customers accounted for a majority of their overall sales, topped by one company that reported 85%, two others at 80% and ones at 75% and 70%.

TABLE 15: Percentage of 2014 Sales from Brand-new Customers

                         2013    2014
Respondents       51       34
Average %       26.9%   30.7%

A brand-new question
We’re still trying to get a handle on dynamic digital signage (DS). We went to the Digital Signage Expo for the first time this year (see ST, May 2015, page 34). The Intl. Sign Assn. has had the Dynamic Digital Park at its Sign Expo the past two years. Yet we still don’t see much DS activity in the “static” (traditional) sign industry. And even Table 6 in this study, despite quadrupling, indicates minimal activity. We keep waiting, so we added a question this year as to the likelihood that survey respondents would sell some DS in 2015. Interestingly, those who absolutely said “yes” and “no” were the same percentage, 14.3%. The most “likely” is those who says its “somewhat likely” (45.7%, nearly half of all respondents). Less than half (40%) say it’s likely, very likely or definite.

TABLE 16: How likely are you to sell dynamic-digital signage in 2015?

Respondents          35
It Won’t Happen       5 (14.3%)
Somewhat Likely    16 (45.7%)
Likely                        7    (20%)
Very Likely                2   (5.7%)
Definitely                  5 (14.3%)