Economic Outlook 2022: Graphic and Sign Production

Wide-format printers surveyed by PRINTING United Alliance and NAPCO Research view 2022 with a mix of optimism and realism. They expect to grow and see opportunity in a broad range of products. But they also expect supply shortages and labor shortages — and all the problems they create — to continue deep into the new year. Central to their plans: capital investment that promotes productivity, expansion into new markets, and automation.

The 53 companies we surveyed have annual sales ranging from less than $500,000, to more than $60 million and are located across the United States and Canada. More than 80% have diversified beyond graphic and sign production, with 42.9% moving into commercial printing, 22.4% into functional printing, 22.4% into apparel decoration, and 20.4% into package printing/converting.

On average, they expect their sales (all sources) to grow 14.1% this year, after growing an estimated 13.9% last year. (Estimated because we completed our survey prior to the end of 2021.) Like last year, gains will reflect both the pass-through of rising operating costs, and real advance rooted in the reopening of the American economy. Heading into the final quarter of 2021, 81.1% of graphic and sign producers surveyed reported quote activity was trending higher, and 73.6% reported work on hand was trending higher, up significantly from 42.6% and 33.2%, respectively, one year earlier.

There is broad agreement that opportunity is abundant and diverse. As Figure 1 shows, 61.3% expect vehicle wraps/graphics to grow over the next two years. Smaller majorities expect compliance/safety signage (52.6%), wall/architectural/building graphics (51.6%), and fleet graphics (51.6%) to grow. Between one-half and two-fifths expect digital displays, retail graphics, window graphics, and dimensional signage to grow. Floor graphics, cited by 39.5%, and labels/decals/tags, cited by 36%, are not far behind.

There is also broad agreement that 2022 will bring significant challenges. Half of our survey panel cite ongoing supply shortages, 41.3% ongoing labor shortages, and 91.3% at least one of the two. Cost inflation is a concern for 30.4%. Expect that number to rise sharply as, for reasons explained below, resistance to price increases stiffens. One graphic and sign producer gives this heads-up: “We are renegotiating contracts with our two largest clients at the end of this year. If we can’t get them to increase their rates, this will have a major impact on our profitability in 2022.” The possibility that another round of COVID will shutter trade shows and events, slow the economy, and create more “misinformation and scare tactics” is a concern for 19.6%. Other concerns range from “protectionism,” to “political unrest in our city,” to “getting people vaccinated.”

These concerns are justified. No one knows what COVID will bring next. On the plus side, however, we know much more about the virus than we did two years ago; have vaccines, boosters, and therapeutics; and better understand the consequences of economic shutdowns.

We also know that inflation is not transitory. It would have been had supply quickly caught up with demand, but now inflation has embedded itself in the economy by raising “sticky” prices, such as wages — as the growing number of businesses offering COLAs shows — and rents.

Embedded inflation can slow the economy in two ways. Forcing the Fed to raise interest rates faster and more aggressively than planned is one way. As recently as last September the Fed did not expect to raise interest rates until 2023. Now the plan is to begin raising rates this year at a gradual pace the economy can tolerate. The expectation is that nothing more will be necessary because supply will catch up with demand as 2022 progresses. The reality may be quite different.

Dampening consumer spending by eroding real purchasing power and consumer confidence is the other way. During the three months ending in November 2021, average hourly earnings of private-sector employees rose 4.7%, but inflation, as measured by the Consumer Price Index, rose 6.2%, according to the U.S. Bureau of Labor Statistics. The longer that continues, the bleaker the economy’s prospects.

How do graphic and sign producers make what’s ahead an opportunity rather than a threat? Four actions will be essential. Efficiency-enhancing capital investment is the first. Last year, when inflation was supposed to be transitory, clients largely accepted price increases. Expect greater resistance this year as clients try to protect their margins from persistent inflation. That means counting less on cost pass through, and more on the kind of efficiency gains capital investment can create.

We asked graphic and sign producers where they would most like to invest in 2022. Nearly 30 investments, from print enhancement technologies to database creation, made the list. The five most frequently cited are in Figure 2; investment objectives are in Figure 3. Notice that increasing efficiency, cited by 75.5%, is the top objective by far. Increasing production speed, automation, and expansion into new markets follow. Competing more effectively on price is an investment objective for just 14.3%.

Overcoming structural labor shortages by building an effective employer brand is the second action. An employer brand should distinguish a company in the minds of the most desirable job candidates, just as its company brand distinguishes it in the minds of the most desirable clients and prospects. Ben Slater presents the key elements in “Employer Branding: Definition, Process, Strategy and Resources” (blog.beamery.com):

•  An informative, easy-to-navigate company career page: Not just job openings, but the company’s vision, mission statement, why what it does matters to clients and community, and its employee value proposition, which Slater defines as “the unique policies, programs, rewards, and benefits that you offer candidates.”
• Content: Blogs, videos, presentations, articles, podcasts, infographics, and anything else that shows what the company is, what it values, and what kind of employee fits best. The right content helps candidates decide if the company is right for them, discourages those who probably would never be a good cultural fit, and encourages those likely to be long-term contributors.
•  Employee advocacy: Slater recommends having employees create content — short videos are particularly effective — for the company career page because “they have peer-to-peer credibility.” Topics include what attracted employees to the company, why they have stayed, their career path, the satisfaction they derive from their jobs, and “what makes you different from places they’ve worked before.”
• Building a “culture of graduation/advancement” is equally important, according to Rhoma Abbas, author of “How to Improve Your Employer Brand” (resources.workable.com). She writes, “Don’t try to be cool. Just think like a school. Regardless of age, gender, or background, employees with the most to offer want to develop their skills ‘more than they want free snacks and ping pong.’” Encourage employees to explore new responsibilities and find better ways to do their jobs. Facilitate their advance by building mentorship programs, whether peer-to-peer or manager to direct report.

Finding New Opportunities

Effective opportunity evaluation is the third action because the challenge in graphic and sign production (and in the printing industry at large) is not a lack of opportunity, but rather deciding which opportunities to pursue. The right choices contribute to sustainable competitive advantage. The wrong choices deplete resources, fragment operations, and undermine core capabilities.

Lean canvas is a proven opportunity evaluation tool. The canvas is a single sheet of paper that is divided into nine blocks. Each block pertains to an issue that must be evaluated to determine if an option is an opportunity. Blocks are evaluated one by one, with key considerations listed as bullet points. Debate must be rigorous, and assumptions challenged. Additionally, the company must have the discipline to pass on opportunities that are not a fit given its resources, capabilities, and circumstances — no matter how much buzz they are creating. Here are the blocks and the order in which they are addressed:

1. Problem: The pain the option will eliminate or the value it will create for clients.
2. Customer Segments: The target market.
3. Unique Value Proposition: Why you, rather than all the others who offer the product/service being evaluated.
4. Solution: How, exactly, the product/service will make clients’ lives easier and create value for them.
5. Channels: How best to reach the target market. Their preferred communication methods: social media platforms, articles, blogs, lunch & learns, newsletters, emails, open houses, etc.
6. Revenue Streams: All sources of revenue the product/service will create.
7. Cost Structure: All the operational and capital costs, including the monthly burn rate, of taking the option to market.
8. Key Metrics: How performance will be monitored, and success measured.
9. Unfair Advantage: Not something everyone claims, such as quality, reliability, or timely delivery, but rather, specific attributes and capabilities that support the company’s unique value proposition.

For more on lean canvas, see “An Introduction to Lean Canvas,” Steven Mullen (medium.com).
Maximizing remote/virtual sales capabilities is the fourth essential action. COVID-19 forced businesses of all types into remote/virtual selling and they aren’t going back, according to Steven Bookbinder, author of “3 ways COVID-19 is accelerating the future of sales.” He cites statistics such as “B2B companies expect digital interactions to be two to three times more important to their customers than traditional sales interactions” to make his case, and lists these steps as key to preparing for the new world of sales:

• Develop the sales team’s social-selling skills. Learn the digital platforms customers and prospects prefer and how to use them to research their needs, preferences, and behaviors, generate leads, follow up on the leads, and “get to know customers again” because “what was true pre-COVID-19 may not be true now.”
• Help each sales rep develop a “social-selling persona.”Fundamentals include sharing unique insights, rather than retweeting the same content as everyone else; having a consistent voice and message across all the platforms clients and prospects use; and being a listener because through social media, clients and prospects share “exactly what they want, need or desire.” It’s worth the effort because “75% of B2B buyers and 84% of C-level or vice president level executives use social media to make purchasing decisions,” according to International Data Corporation.
• Create a standard operating model. Bookbinder emphasizes that “virtual sales require the same discipline and standardization as face-to-face sales.” Processes and procedures must be carefully defined and communicated.”

Legendary business educator Peter Drucker said, “In business, one does not begin with the answers. One begins by asking, ‘What are the questions?’” Among the questions every graphic and sign producer should ask this year: How do we protect margins from persistent cost inflation, especially as resistance to price increases grows? How do we decide what’s really an opportunity for us? And how do we prepare for the new world of virtual sales? Taking the actions above will help answer those questions — and so capture the opportunities for profitable growth that 2022 will bring.