The Retail Graphics Roundtable: Changing Market Conditions

Graphics screen printing most likely originated with retail displays more than a century ago, but that doesn’t mean this sector is staid or safe. New retail construction tailed off even before the Great Recession and may never recover. Amazon and other online-only merchants have taken an astounding share of the consumer’s budget in a very short time. Marketing strategies have been turned upside down as retailers seek new ways to leverage the vast information they have accumulated about their customers and develop highly targeted promotional campaigns.

Graphics screen printing most likely originated with retail displays more than a century ago, but that doesn’t mean this sector is staid or safe. New retail construction tailed off even before the Great Recession and may never recover. Amazon and other online-only merchants have taken an astounding share of the consumer’s budget in a very short time. Marketing strategies have been turned upside down as retailers seek new ways to leverage the vast information they have accumulated about their customers and develop highly targeted promotional campaigns. These factors are combining to create an extremely volatile environment that is not just changing the types of signage and graphics found in stores, but the very existence of the brick-and-mortar retail environment itself.

Recently, Screen Printing sat down with three leading retail-graphics printers to discuss the changing market conditions and the threats and opportunities they present:

* Jim Blee is chief operating officer of Graphic Tech, a full-service graphics provider based in Fullerton, CA serving the retail, entertainment, automotive, food service, and banking industries. In addition to screen printing, digital printing, and photographic imaging, Graphic Tech provides complete project management services from design through installation.

* Dave Bales is vice-president and chief operating officer of Image Options, based in Foothill Ranch, CA. Founded as a provider of photographic imaging and digital printing, Image Options subsequently added a five-color inline screen-printing press. Through Refraction, a wholly owned design company, Image Options offers design services including strategy, branding, research, and execution.

* Dan Pratt is director of business development for Vomela. Headquartered in Minneapolis, MN, Vomela offers retail and environmental graphics as well as fleet, vehicle, and OEM graphics through a family of ten companies located across the US. Previously, Pratt was president of Pratt Visual solutions in Indianapolis, IN, acquired by Vomela in 2012.

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Here are highlights from our conversation.

SP: It’s a very interesting time to be in retail. How is the climate of change in this industry affecting your companies as graphics providers?

Dan Pratt, Vomela: The changes have been going on for a few years—they’re not new, and probably go back to 2009. The requirement is to be faster to market. We’re not building and shipping finished goods for inventories any longer. Mass customization is a reality. We’re not just producing 500 of one part number to sit on a shelf. Clients are asking for real-time information. They don’t want a phone call to say everything is OK—they really want to know the status of work. Some want a real-time customer portal for that information. The trend toward less brick-and-mortar retail can be an opportunity for the graphics industry. Fewer fixture are being bought and less architectural renovation done, so there are opportunities for us to do graphic makeovers rather than just signage to sell and feature product.

David Bales, Image Options: The speed to market is changing dramatically, as well as the complexity of the programs. The need to grab a shopper’s attention is higher than ever, which is causing highly customized windows and in-store retail campaigns, upping the degree of difficulty of the work. Not only is the real-time information critical, as Dan said, but it’s not just in the printing department. Print is almost secondary now. It’s the front-end control of the program and the back-end distribution and visibility to the client. Print is now just a piece of the whole workload.

Jim Blee, Graphic Tech: I totally agree. We used to differentiate ourselves in our printing capabilities, but now my (digital) printers do what Dave’s do, or what Dan’s do. The print quality isn’t really the main factor in the sale of the graphics. It’s more of what I call the “origami component” of a bigger project that involves print. The poster or window graphic isn’t enough to get that attention and level of exposure that the retailer is looking for. There is and probably always will be a shopping component centered around the mall, but how you differentiate yourself from one retailer to the next is where the innovation happens. We’re putting a lot of extra people and support equipment into taking something that is printed flat or on a roll and converting it into something interesting, and it’s expensive. It’s all about getting the attention of the customers and making it more enticing for them to shop, and the complexity of the graphics is becoming more and more demanding as a result.

SP: This drive toward complexity—is it something that helps you stand out from the pack or is it simply expected now?

Pratt: Retailers have been forced to be a lot savvier with their print and media budgets. Demographics and consumer information are much more prevalent, and retailers are trying to customize and localize to get more out of their budgets and better appeal to the consumer. The result is an exponentially higher degree of difficulty on these programs, and it’s part of the cost of doing business.

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Blee: I absolutely agree. I wish we could charge for it. It’s almost a shame to think that the things we have to do today are an expectation and not an opportunity to “amaze” our clients.

SP: With the client’s focus on your upstream and downstream capabilities, is the printing process in the middle increasingly seen as a commodity?

Pratt: It’s been commoditized for awhile. Companies that are just figuring that out are five years too late and may be no longer in business.

Bales: We need to be careful, not that we can do anything about it, but the capacity in the industry is far outstripping the demand. With the latest innovations in equipment, print speeds have increased exponentially, so the capacity that any one company has is far above what it had in the past. I don’t care what major manufacturer’s equipment you have—it’s all going to produce commercially acceptable quality, and therefore it is a commodity by definition. So differentiators come from the distribution side, the value you add to the print, and your ability to turn a graphic into something that creates an experience. From our standpoint, the front end is where buyers today have far less experience and more pressure on them to get things accomplished with fewer resources.

SP: Are run lengths continuing to fall, and is a demand for more variable-data work helping to drive that?

Bales: We believe runs lengths are still decreasing. Even for a large chain, they are customizing each store to try to get more out of their budgets. Before, we used to do a rollout and every store would get the same kit. After studying it and doing some case studies, we found out stores are throwing away 20-50% of the items because the store configurations are different and they can’t put the same things up everywhere. Now, people are beginning to understand what they have in each location. Every store almost becomes its own kit, which changes your run lengths on everything that you do.

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Blee: When you get into the super big box category with multiple thousands of locations, I don’t think customers realize how shallow of a vendor pool is out there. Let’s say you have chain with 8000-10,000 locations. From what I’ve seen as the technology shifts from screen to digital, I think there are fewer companies that can handle it. Digital is obviously the way of the future, but I still see a capacity speed gap between 2000-8000 sheet runs. I can’t do them at the same speed with my digital equipment, and there becomes an intersection point when the cost of machinery and ink associated with it favors analog.

Bales: Jim, you are absolutely right. There are still great applications for screen printing out there. That’s why we acquired screen printing technology and brought it into the digital age. We do see run lengths shrinking, though. Longer runs aren’t gone, but they continue to go down.

SP: Dave, Image Options is one of the rare breed of printers with a digital background that subsequently added screen. Have you been able to keep the inline multicolor press busy?

Bales: We have more capacity on our five-color inline than we’re currently using, so there is room to grow, but the decision to do it was an excellent one. In hindsight, we’ve opened up our customer base considerably. Most of the work we’re printing on the five-color inline is hitting the digital presses as well—for instance, bus shelters that are in the longer runs for the major markets will be runs of 20, 30 or 50 in smaller markets. The five-color line has opened up a completely new customer base for us that we really couldn’t touch before because we didn’t have the capability to do the long runs. But we still have capacity to grow in our analog line. We run 7/24 in our digital lines and we don’t do that yet with screen.

SP: Dan and Jim, your companies were both originally screen-printing operations. How do you view the ongoing transition from analog to digital printing?

Pratt: Pratt became part of the Vomela companies a couple of years ago, so we’re now part of a $200 million company with assets across the US. Most of our assets are digital, but they include everything from flatbed to roll-to-roll and inline presses stretching from Vancouver to Indy to St. Paul. We’ve got a lot of print and converting horsepower in our group. Like Jim and Dave, there are times we’re over capacity and other times where we have gaps. We all wish we had level loading, but that’s not the way the business is. One of the things we do is have our operation folks talk to each other on a daily basis, so we’re able to move work around the group to satisfy our customers and maximize our production capacity. We are fortunate to have the capacity so we don’t risk losing an order based on turn time. We might produce the order from a couple of different locations.

Blee: I may actually be in the minority within the industry, but I don’t see us ever retiring our screen equipment completely. As long as there is a PMS book and a desire for fluoresescents, metallics, and special effects, screen has a distinct advantage. We are probably the prototypical model of the transition. We were 100% screen—we didn’t have roots in any other process. But to be quite candid, we are systematically removing equipment on the screen side because of the revenue it produces and, especially problematic for us, the floor space. A traditional inline is extremely large and it becomes a question of real estate. Is it worth running that equipment when I can place two to three digital presses in the same footprint? I believe digital will get faster and screen’s speed advantage will eventually not be there, but I believe there is still a niche.

Pratt: I concur, there is always going to be a place for screen printing. The analogy, and it might be a bad one, is a camera. If you’re old enough, you probably had a 35-mm single-reflex camera and you had to alter all the f-stops, get the lighting right, and manipulate the variables to get a really good picture. With a digital camera, you just point and click. Screen printing has an enormous amount of variables, but if you manage them correctly, you get a depth of printing and color gamut that you just can’t get digitally. Depending on what the application is, there is definitely a niche in looking at that process, doing the research, and taking those capabilities to a different level. If you do that, there are margins. If you’re just trying to print four-color process on banners, that’s not what screen printing is for anymore.

SP: We touched on consolidation, and obviously Dan’s company is an example of that trend. It isn’t just happening with companies like yours, but with your customers and vendors as well. Does anyone see a possibility that this dynamic might change?

Blee: Absolutely not. There is no question that when a retailer buys another retailer, you are either on the winning side or the losing side of who’s acquiring who. As you said, the consolidation is not only on the customer side, but on our side too. Ten years ago, if I thought about partnering with another graphics company, I would have said no—I’m OK and I can go it alone. Now, I take that call. I obviously think there is strength in numbers and I admire the diversity and the nationwide coverage that a company like Dan’s has. For a single-location company, it is becoming extremely challenging.

Pratt: One of the most significant changes we haven’t talked about yet was the entrance into our market by the large litho companies. It was a trend anyway, but when the publication market got knocked on its ear in 2008-09, these billion dollar companies looked at retail and said “Man, this is a market we’re not in.” That’s the biggest change in the industry. It isn’t us; it isn’t screen versus digital. Our industry has been flooded by large-format offset companies. Some of them have formed their own buying groups as a natural extension of what they’re offering. We’ve had new entrants into the market that are hugely funded, and they are relentless and ruthless. It has a trickle-down effect on everybody.

SP: Let’s talk about electronic signage in retail. Do you see it as a threat, an opportunity, or something that is developing on a parallel track of its own?

Pratt: All of the above. I think it’s a natural extension of what we do. We have done some interactive things in store using touch pads, which by the way has worked. The results have been dramatically increased sales for the customer. We’re trying to figure out how to take advantage of that trend.

Bales: We believe that digital signage is clearly an opportunity. It’s going to continue to invade our space. If we consider it a threat and don’t deal with it, we are going to lose ground, so we’ve embraced it as an opportunity. It’s not simple or straightforward. There is a lot to it, and figuring out your place in that workflow is really the critical area. We feel as a company we have to take it to our customers, because if we don’t, then our competitors will. If it’s not our competition, then someone else will present a turnkey solution to take not only the digital work but the print and all that comes with it.

Blee: Well, you guys can have at it: We have no interest in going down that road. I have a mantra at the shop that if it’s got a plug, we don’t do it. I don’t think people understand how expensive it is to get truly good content on a video screen. And I don’t want the liability. It you look at a paper poster or banner you sent out and it’s damaged on delivery, you can ship one out pretty quick. If you are sending out $2000 video screens with a 10% failure rate, I don’t think that’s a problem I want to be running around trying to solve.

SP: What would you say your biggest challenge is right now—the one issue that keeps you up at night?

Blee: I think for me the biggest concern is the spike in volatility of our industry. You can go nuts for 4-5 days and then be on your death bed the next two. It’s a roller coaster ride that plays on your emotions, and doesn’t allow for a strong plan to forecast your business.

Bales: One of the most important challenges for us as a company is to look at the changing landscape out there and make strategic decisions about what we are going to be involved with and what we aren’t. It’s changing so rapidly. How do we navigate the changes and decide what to go into and make sure we understand the long-term needs of the customer and not just chase fads of the day?

Pratt: Remaining relevant. Making sure as business owners we understand our niche and dominate it. One thing I’ve learned: If you get to a certain size and think you can keep growing, perhaps you can, but you’ll have more competition with deeper resources, more things to keep you up at night. Be the very best at what you can be and your survival rate and ability to make money will be OK.