P-O-P Producers' Outlook 2006

Many people have agreed that 2006 would probably look a lot like 2005 -- until August 29 of this year, when Hurricane Katrina barreled ashore as a Category 4 storm, battering the Mississippi and Louisiana Gulf Coast and especially the city of New Orleans. Energy costs were higher than they were a year earlier and were putting upward pressure on the price of both raw materials and manufactured goods, but until then, they had increased gradually enough that customers were able to cope with them. Unfortunately, Katrina, the most destructive and costliest natural disaster in the history of the United States, changed all that. Energy prices soared as consumer confidence plummeted. Economists feared that consumers would be reluctant to drive to retail establishments and, with gasoline prices hovering near three dollars a gallon, would have less money to spend when they got there. Fortunately, the economy has continued to grow at an acceptable, if not robust, pace and the most pessimistic predictions have so far failed to materialize. There is still, however, considerable disagreement among the experts as to what 2006 holds in store."I'm optimistic," says Paul Pinkus, national director of RSM McGladrey Business Services Inc., formerly American Express Tax and Business Services, now a division of H&R Block. "There was talk of $3 a gallon being the 'tipping point' at which consumers would pull in their horns and stop shopping, but it hasn't happened. People are still driving and still shopping."There has recently, in fact, been some encouraging news. "A recent article in The Wall Street Journal reported that Procter & Gamble is so convinced of the importance of in-store advertising that they will be devoting a greater part of their promotion budget to P-O-P and a smaller part of it to conventional media advertising," says Pinkus. According to the article, the first few seconds after consumers encounter a product on a store shelf or other display are critical in determining whether they stop to consider purchasing it or simply move on. P&G is so convinced of this, according to the article, that they have created a new position, Director of First Moment of Truth, or Director of FMOT (pronounced EFF-mott) to produce sharper, flashier in-store displays. "This is huge," says Pinkus. "With P&G taking the lead, you can be sure that other brand marketers will follow suit." The bad news for P-O-P producers, according to the article, is that advertising agencies are now being charged with designing everything from in-store TV commercials to special shelf displays and packaging.Outlook is MixedThere are, however, some troubling signs on the economic horizon. "Recession risks have risen rapidly in the wake of the hurricanes and resulting surge in energy prices," says Mark Zandi, chief economist of Economy.com, an economic analysis service in West Chester, PA. "Odds remain, however, that the economy will weather the fallout from the storms and the expansion will remain intact." Zandi is not predicting a recession, but he says that a cold winter, a pullback in consumer spending, a terrorist attack or some other variable could be enough to tip the scales.The impact of $3-a-gallon gas, although it hasn't stopped people from driving or shopping, is starting to take its toll on consumer confidence. The University of Michigan reported that its confidence survey for September fell to 76.9, the lowest level in 12 years. The August and September declines are the biggest back-to-back drops on record, according to an article in Forbes magazine.The Conference Board said its Consumer Confidence Index, compiled from a survey of U.S. households, dropped 18.9 points to 86.6 from a revised reading of 105.5 in August. That marked the biggest slide since October 1990, when the index fell 23 points to 62.6 with the buildup to the first Gulf war and the resultant spike in gasoline prices, according to an article in Business Week.Perhaps equally as important as its impact on consumer buying patterns is the effect escalating energy prices are having on the cost of raw materials and manufactured goods used by P-O-P producers. "We have two 2.5 million BTU ovens used to cure powder coatings on medium density fibreboard (MDF). One is a preheat oven, the other a curing oven, and both run on natural gas," says Mike Welch, general manager of Brainerd Technical Design, Plymouth, MN. "We are obviously affected by increasing energy costs and will need to increase our prices in 2006. We will be absorbing some of the increased costs ourselves in order to hold price increases to a minimum, but there is no way we can avoid passing some of them through to our customers."P-O-P producers are also struggling to hold price increases to a minimum. "We have experienced dramatic price increases in the cost of raw materials, especially plastics," says Joe Berzok, senior vice president, sales for Diam International of Yonkers, NY. "Our challenge is to provide maximum value at minimum cost by using materials creatively and value engineering every step of the manufacturing process."Rising energy prices affect the cost of shipping as well as manufacturing. "We have a first class manufacturing facility in China," says Joe Fish, vice president, new product development for Hankscraft Inc. of Reedsburg, WI, a producer of finished displays and components such as motors and molded plastic parts. "With rising energy costs, however, we have to carefully evaluate whether we should import an item or manufacture it domestically."Budget Increases ExpectedIn spite of the increasing costs of energy, raw materials and fabricated components, many P-O-P producers expect 2006 to be a good year, with budgets increasing at a faster rate than costs. "We consolidated all of our operations in a newly renovated 450,000-square-foot facility in Yonkers this year in order to better service our growing business," says Diam International's Berzok. "Not only have we experienced no layoffs, but in the past year, we have added staff in every department."John Carlson, principal of The Carlson Group, a P-O-P producer headquartered in Portland, OR, with design, production and warehousing facilities in Chicago, is also optimistic about 2006. "Budgets are still tight, but they began to loosen somewhat during 2005 and we expect this trend to continue next year," he says. "We are also doing more account-specific design and manufacturing and expect this to continue as well."Louis Hsiao, president of Concept Designs, Palo Alto, CA, sees a similar trend. "Both brand marketers and retailers are placing more emphasis on in-store displays," notes Hsiao. "As traditional media advertising continues to become more expensive and less effective, marketers are putting their money where consumers are spending theirs."P-O-P producers are also not hesitating to spend money to upgrade their design and manufacturing capabilities."As part of our move to Yonkers, we substantially increased and upgraded our fabrication department with state-of-the-art equipment," says Diam International's Berzok. "We purchased several high quality CNC routers, buffing and polishing machines, a universal laser, a flame polisher, table saws, radial deal presses, lift stations and additional silk screening equipment."Kathleen Socha, president and creative director of Phase One Design Services in Atlanta, notes that her company has made significant investments in software. "We upgraded to the latest versions of Illustrator, Photoshop and Indesign PowerPoint," she says. The Carlson Group has also invested in project management and inventory management/ordering software, while Concept Designs has purchased Solidworks as well as more computers and monitors.At the same time, however, P-O-P producers are also looking for ways to cut their expenses. "We started shipping acrylic and aluminum displays by UPS rather than by truck," says Jimmy Vianu, vice president of Concept Displays/The Pro Design Group, Gardena, CA. "It requires more creative packaging because UPS is not gentle with the packages it delivers, but the higher cost of the packaging is more than offset by the lower cost of shipping."Materials -- What's Hot, What's NotDisplays are getting brighter and more colorful in order to attract attention. "Patterned frosted panels and color mood lights were 'hot' this year," says Socha. "There was also a lot of interest in color kinetics, light and animation devices. Next year, we expect to see more layers of subtle colors."There also seems to be a trend toward more use of natural materials. "We used a lot of wood in our displays this year," says The Carlson Group's Carlson. "Many of our clients requested wood and aluminum laminates with natural colors," Vianu of Concept Displays/The Pro Design Group concurs."A few years ago, we saw metallics everywhere," says Roseanne Alletto, vice president, sales for Diam International. "Today, clients think more strategically. Preserving the integrity of the brand's positioning with materials that reinforce it is more important than riding a trend. In one case, for example, we sourced a unique plastic from Italy because it was the material that showcased our client's brand most effectively."Lighting is also a distinct design element that can be used to draw attention to a display. "In the Maybelline wall, for example, lighting is used throughout the display and its open design allows light to pass through so product is always visible," says Diam's Berzok. "Light boxes are strategically placed to create a playful environment and vertical panels provide hot spots in unexpected ways."Sandy Miller, president of Way-Light, Laguna Niguel, CA, says "Until now, our fluorescent light-sticks have been available only for indoor use, as a bar back piece, for example." The company plans to offer an outdoor version of its light-sticks in 2006.One area of growing interest is security. "Diam has a proprietary power and security system for electronics," says Alletto. "Using simple power connectors, we can create a security system with multiple alarm points so any unauthorized removal of product activates the alarm. The digital camera display we created for Staples is easy to set up and maintain and offers a single solution for both power and security."Materials suppliers are continuing to innovate in order to provide designers with the tools they need to work with, such as metal laminates. "Bronze laminates are becoming more popular, and will probably surpass copper in popularity during 2006," says Jim Burgio, president of Advanced Technology, Greensboro, NC. "We import metal laminates from Germany. Even though raw material prices have not increased substantially, we have had to increase our prices because of the growing strength of the Euro, which has increased 35 to 40% against the U.S. dollar over the past few years."The move toward natural surfaces appears to be a growing trend. "People are getting tired of surfaces that appear to be something they aren't," says Tony Damiano, president of Abet Laminati, Englewood, NJ, who noted that one designer he spoke with complained that she was "all granited out." As a result of this trend, the company introduced its Naturali line of laminates with four different textures. "We are seeing several trends in laminates," says Damiano. "One is the return of demand for metal surfaces. Another is the growing demand for recycled products. We plan to introduce seven new products during 2006, all recycled from their own waste laminate."Recycled material has been an important source of corrugated for a number of years. In fact, one of the country's leading exports is waste paper, which is shipped in bales to China, where it is processed and returned to the U.S. as corrugated. Even such an unglamorous material, however, is getting a facelift. "We are seeing more and more digital printing on corrugated," says Steve Young, president of the Association of Independent Corrugated Converters in Alexandria, VA. "Many of our members are adding digital presses because of the creative opportunities they offer and also their ability to economically handle short runs."New digital imaging media will be available in 2006 to fill digital printing needs. "Vinyl has been the workhorse of the digital printing industry since its inception, but it has some disadvantages," says Larry Delesio, product manager for the Magic media line of Intelicoat, South Hadley, MA. Vinyl alternatives include tear-resistant vinyl reinforced with polyester scrim, polyester films with a special coating for superior ink absorption, specialty coated papers and polyester-cotton canvas.Major Innovations ComingThe most significant innovations to arrive in 2006, however, will be in the areas of plastics and electronics. "One of the most significant trends in the display industry is the increasing use of light emitting diodes, or LEDs," says Bart Unger, vice president of marketing for DUCO Technologies Inc. of Henderson, NV. "During 2006, we will be introducing some new products that should help to accelerate this trend."One of these is a new integrated circuit (IC) that will dramatically increase the battery life of LEDs. "It will give in-store advertisers a much longer promotional shelf life without sacrificing brightness," says Unger. "By combining it with our proprietary flasher, designers will have LEDs able to flash nonstop for periods of three months to over a year."Several types of plastic sheet products are in store for the upcoming year, including new acrylic sheet colors and textures from CYRO, Rockaway, NJ, and a non-glare sheet with enhanced strength and durability. Altuglas International will also be bringing several new Plexiglas products to market.Acrilex, Jersey City, NJ, is coming out with color shifting sheet. "The color actually changes as you walk around it," explains Dan Rustin, marketing manager and director of new product development. "The secret is a new multi-layer pigment that changes color depending on the angle from which it is viewed."The outlook for 2006 may be uncertain, but one thing is for sure. It won't be boring.

P-O-P Producers' Outlook 2006

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