Upgrades and Price Wars Drain Revenues
There are many pressing issues on the minds of the local commercial printers as they readjust business strategies to increase profit margins.
Due to fierce competition in the industry, profit margins are slimmer as commercial printers lower prices and raise capital costs to remain afloat.
The San Diego Business Journal ranked the largest commercial printing companies on The List by its 1999 revenues. Overall, the top 21 printers on The List reported revenues of $215.5 million, an increase of 9.7 percent from 1998.
But only nine of the 21 companies reported an increase of revenues in 1999 from its previous year.
Competition among commercial printers may have drained revenues and profits.
“It’s been very competitive in the last five to six years,” said Dave Taylor, a consultant to Spectrum Printing, Inc., No. 13 on The List. “Some printers try to dominate by either impressing their customers with their press sizes, bigger runs, or cheaper prices.”
The Alexandria, Va.-based Printing Industries of America, Inc. reported profits before taxes (as a percent of sales) averaged 3.3 percent in 1998 for large and small printing companies in the United States. PIA also reported printers typically spent 36.2 percent of their sales volume on material purchases and 25.4 percent of sales volume on factory payroll costs.
“The printing industry isn’t quite as robust as one might think,” said Don Secrest, a principal of Webtrends, No. 2 on The List. “There’s a big concern for keeping up with newer technology to keep up with the competitors.”
– Millions Spent
Secrest said Webtrends spent $3.3 million last year for some upgrades in infrastructure and a new 10-color UV Web press. He expects another $1.6 million will be spent this year in upgrading the electronic prepress and a six-color sheet-fed printer with coater.
“The company needed to add the necessary equipment because it improves our throughput,” Secrest said. “Clients demand more color, better quality and being on time with the printing.”
Taylor of Spectrum Printing agreed commercial printers need to keep up with technology to maintain its competitiveness in the industry.
“Printers may be turning out the work faster due to technology,” Taylor said. “The combination of rising costs and lower prices will affect many of us.”
Taylor suggested many printers’ profit margins decreased due to the elimination of cost centers for a commercial printer. A cost center is defined as an area for the generation of income. Some of the cost centers included graphic designing, scanning and labeling.
“With computers today, they eliminate some cost centers with commercial printers,” Taylor said. “Companies and designers can generate most of their work themselves and give it to us on film or on disk.”
As for prices, Taylor said competition pushed prices to an all-time low for the industry.
“It’s a matter of liking one’s sales representative and company reputation,” Taylor said. “Some customers will now shop around for 20 different prices and only go with the commercial printer with the lowest prices.”
– Undercutting The
John Rush, president of Graphic Communications, Inc., No. 16 on The List, said there will always be commercial printers trying to undercut other printers just to get business.
“There’s a long history in San Diego of undercutting the competition and they create a sense of unrealistic expectations from the customers,” Rush said. “Customers have the control of setting the margins on the price of commercial printing.”
He said many commercial printers may have gone out of business due to lowering their prices and eliminating the profits.
For Rush, however, survivability meant his business needed to combine resources with other commercial printers. In June 1998, Graphic Communications affiliated itself with Houston-based Consolidated Graphics, Inc., a conglomerate of commercial printers in the United States. Two other San Diego commercial printers also affiliated with Consolidated Graphics ,Precision Litho and Rush Press, No. 1 and No. 5 respectively on The List.
By acquiring commercial printers, Consolidated Graphics provides financial and operational resources, management support and technological advantages.
“Day-to-day people are left in charge to run a local commercial printer,” Rush said. “All the unnecessary worries like finances, negotiating, equipment and human resources are handled by the corporation.”
– Company Helps In
He said Consolidated Graphics helped Graphic Communications in acquiring more than $1 million in equipment and infrastructure.
“Our digital equipment is very costly and can be outdated almost immediately,” Rush said.
Secrest warned expanding too quickly could also put a commercial printer out of business.
“Overhead continues to climb and margins are coming down,” Secrest said. “That’s why many printers obtain newer equipment to enhance their margins.”
He suggested diversification of a commercial printer’s business plan to keep the newer machinery busy. His company diversified by handling mailings for companies on a national basis.
“If one hung out too much on equipment and space without enough work, all the expansion simply doesn’t spell ‘success.'”