P-O-P Producer Trends 2004

The past couple of years have been rough ones for business in general and for P-O-P producers in particular. The economy, which began its slide even before the events of 9/11, took a nosedive in 2002 as the stock market reached new lows and the acronym IT ceased to mean Information Technology and began to stand for, "It's Terrible."Fortunately, as the economy began to show signs of improvement toward the end of 2003 P-O-P producers began to see increases in their business. The signs continue to point to continued recovery, and the outlook for 2004 seems to be universally optimistic."The first half of 2003 was better than 2002 but still did not meet our expectations," says Lisa Boyd, director of marketing for Graphic Converting Inc. of Niles, Ill. "During the second half of 2003, however, we saw improvements each month demonstrating that we are turning the corner," she says. "We are very optimistic for 2004 based on client commitments and projects that are in their infant stages."Louis Hsiao, president of Mountain View, Calif.- based Concept Designs Inc., agrees. "Certain sectors of the market did tighten their budgets during 2002 and 2003, but not necessarily due to 9/11," he explains. "Rather, expenditures were cut back because of general economic conditions. The outlook for 2004 looks good, however, as economic indicators continue to look more favorable."Clients Facing Cost PressuresAs a result of generally depressed corporate earnings during the past couple of years, many brand marketers are coming under increased pressure to control costs. This has resulted in the waves of corporate layoffs that have consistently been making the news. Unfortunately, it has also manifested itself in the way that clients deal with their P-O-P producers.Evidence of this can be seen from the way that clients are soliciting bids from their suppliers. Some, for example, have begun to utilize incredibly detailed Requests for Quotation (RFQs), demanding information such as labor rates and profit margins formerly considered confidential. Others have turned to online reverse auctions to drive down project costs."We have definitely seen an increase in the number of RFQs," says Menasha Display Group's Deb Runte, director of retail research, in Mequon, Wis. "And, yes, they are more detailed, requesting information that we have not previously made available. To date, however, we have not participated in any reverse auctions."Sylvester Johnson, a designer with Triangle Display Group of Englewood, N.J., agrees. "We have seen an increase in both the frequency and the amount of detail requested in the RFQs we have received during 2003," he says.Graphic Converting's Boyd sees this trend as simply an increased cost of doing business. "Both the number of RFQs we received and the amount of detail they requested were up during 2003," she explains. "However, the number of jobs we have been awarded has also been up over the past four months, leading us to see a significant increase in volume."Material IssuesWhile brand marketers were operating on "beer budgets," however, they still had champagne tastes. "We had a lot of requests for light woods, metallic laminates and colorful laminates," says Jimmy Vianu, vice president of Gardena, Calif.-based Concept Displays. "It was often a struggle trying to fit them into the budget."Bob Johnson, chief designer for Harbor Industries, Grand Haven, Mich., experienced similar demands. "Translucent and dimensional plastics were definitely 'hot' during 2003," he recalls. "Our task is to find less expensive materials that can add elegance without multiplying costs."Hsaio agrees. "We are constantly exploring the use of new materials, or innovative uses of already familiar materials," he says. "However, the cost of new materials often limits our ability to produce within project budgets. (See "20 Top Decorative P-O-P Materials from 2003" for snapshots of popular materials requested by P-O-P Design readers.)In order to get an idea of what 2004 might bring in terms of materials used by P-O-P producers, P-O-P Design spoke with some experts in various other fields to get their predictions.The outlook for corrugated is "a mixed bag," according to Jim Curley, editor of Northbrook, Ill.-based Board Converting News. "While domestic supplies are tightening somewhat, leading to pressure for moderate price increases, this is more than offset by increasing overseas capacity," he says. "Imports from China, especially, are growing rapidly. In fact, because of lower labor costs in China, we are beginning to see an increase in imports of pre-printed board."Plastics represent another area of uncertainty, according to Frank Esposito, a reporter for Akron, Ohio-based Plastics News who covers materials pricing and supplies. "Both polyethylene and polypropylene are extremely dependent on natural gas supplies," he explains. "About 70% of all polyethylene, and a smaller percentage of polypropylene, is made from natural gas, which is selling for about twice as much now as it was 10 years ago. While recent price increases have moderated, a cold winter could obviously throw a monkey wrench into the whole equation."Kristy Schlossberg, editor of Finishers' Management, sees powdercoating, especially UV-curable ones, poised for rapid growth. "Although the growth we expected during 2003 did not really occur, probably because of the reluctance of finishers to invest in new capacity, the technology is now ready to take off," she predicts. "In fact, with the economy looking better for 2004, suppliers are now setting up test lines to produce prototypes of various finishes."Therefore, because UV-curable powdercoatings can be applied at lower temperatures, they are also being tested on substrates such as medium-density fiberboard and even corrugated. "Advances in technology now permit application at lower temperatures and faster color changes in the booth," says Jeff Palmer, communications director for The Powder Coatings Institute, Arlington, Va.Tom Hutch, president of Youngstown, Ohio-based Aerolite Extrusions, saw a trend during 2003 toward forward integration on the part of suppliers to the P-O-P industry. "Instead of shipping 16-foot lengths, for example, we now offer them pre-cut, pre-drilled and pre-finished," he says. "Because we work in such high volumes, we can perform such operations at lower cost than individual P-O-P producers."Hutch expects this trend to not only continue, but to accelerate during 2004. "Powdercoating technology, for example, has advanced to the point where we can offer not only matte or gloss finishes, but even textured ones as well, such as mild sand, wood grain or crinkle coat," he says. "One of the most exciting new finishes, in fact, is one that mimics marble."Cost Savings Versus LoyaltyWhile acknowledging that brand marketers are making increased use of such short-term, cost-cutting strategies as detailed RFQs and reverse auctions, most P-O-P producers do not regard such tactics as threats to long-term customer loyalty. "Although we are seeing more project work being done on the basis of bids or auctions, we are fortunate to have long-term relationships with clients who have been with us for many years," says Harbor's Johnson.Similarly, says Triangle's Johnson, "Brand marketers will always try to save a few cents here and there. At the end of the day, however, they realize that loyalty to their long-term marketing partners can contribute even more significantly to their bottom line."There are, however, forces at work to erode client loyalty. "Our best clients are extremely loyal, but increasingly we see that the business climate is forcing companies to forego relationships in exchange for bottom line pricing," explains Boyd.People Behind the ScenesEven though many brand marketers, especially publicly traded companies subject to the pressures of the stock market, experienced the need for significant layoffs to reduce costs, many P-O-P producers found ways to cope with reduced revenues without reducing staff.Some P-O-P producers even managed to grow in spite of tough economic times. Hsiao says, "We actually added to our already streamlined staff during 2003. If the economy improves as predicted during 2004, we expect to grow even more."Even producers who experienced temporary cutbacks in staff are now predicting growth. "We had a hiring freeze for most of 2003," says Boyd. "The last quarter of 2003, however, presented some real growth opportunities, and we are once again hiring for both the office and the plant."One way in which P-O-P producers manage to cope with fluctuating demand, of course, is through the use of freelancers -- especially freelance designers. Runte says that familiarity with freelancers is important. "Our freelance partners are all local," she explains. "We are very familiar with the capabilities of each one and select them according to the strengths they can bring to a particular project."Finding permanent employees, however ã especially designers ã is not such an easy task. "Kids coming out of college today have all the basic skills they need," says Triangle's Johnson, "but they still need to complete our in-house training program to be able to function in the real working world."Account-Specific on the RiseLike many industries, P-O-P faces a constantly changing marketplace as both brand marketers and retailers continue to fight for increased market share. One trend almost universally acknowledged by producers is the growing use of account-specific P-O-P.All of the P-O-P producers interviewed agreed with this projection. "It seems to be a trend," says Bob Johnson. "In fact, we have seen occasions in which multiple brand marketers combine their products in the same account-specific display with the costs being allocated proportionately."Another growing trend is the use of wide-format P-O-P, and producers are taking steps now to meet this anticipated demand. "We use our wide-format printers as part of the design process," says Sylvester Johnson. Runte notes that Menasha also makes heavy use of wide-format printers, but primarily for finished P-O-P. "Demand for wide-format displays is definitely growing," she says. "We expect it to increase even more during 2004." Other producers find it more efficient to use outside suppliers. "We outsource all of our wide-format printing and concentrate on the finishing side of the business," says Boyd.RFID Wait and SeeOn June 11, 2003, Linda Dillman, CIO of Wal-Mart, dropped a bombshell by announcing that as of January, 2005, the world's largest retailer would require its 100 largest suppliers to put radio frequency identification (RFID) tags on all pallets and cases shipped to its distribution centers and stores.What does this mean for the P-O-P industry? Will producers need to put RFID tags on pre-stocked displays? If so, will Wal-Mart dictate the supplier of the RFID tags, or will it be the responsibility of the P-O-P producer to make sure the tags are compatible with the readers used by Wal-Mart and possibly by other retailers in the future?No one seems to know for sure. Some cite a phenomenon that economists call the "network effect," which basically says that the more people use a physical network (such as eBay, for example), the more valuable it becomes, encouraging even more people to use it and creating exponential growth. Others cite privacy concerns and the possible misuse of shared information as factors discouraging growth."RFID is still in its infant stage, but certainly moving forward, no different than the evolution bar coding underwent," says Scott Greenberg, vice president of visual merchandising for Skechers USA, Manhattan Beach, Calif. "Wal-Mart will certainly be a driving force with regards to this technology rollout."P-O-P producers, however, have been slow to react. With two exceptions, most of those we interviewed replied, "No," when asked whether they were currently using or testing such technology.Like most years, 2004 seems to offer more questions than answers. Yet if most of the P-O-P producers interviewed are correct, the year should wind up being pretty good for everyone.

P-O-P Producer Trends 2004

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