The printing industry has faced two challenging years. Many forms manufacturers have experienced difficulties due to a weak economy and severe price competition. Both the general printing industry and what traditionally has been defined as the forms industry experienced declining demand in 2001 and 2002. But the demand for printed products is expected to increase at a modest rate in 2003.
According to Alexandria, Va.-based Printing Industries of America (PIA) and Paramus, N.J.-based National Association for Printing Leadership (NAPL), the growth rate in printing demand has paralleled annual increases in real Gross Domestic Product (GDP). In the past several years, however, this pattern has changed, and the print sales growth rate has started to fall short of the GDP growth rate. This is significant for many forms manufacturers that increasingly depend on general commercial printing and direct mail products to replace declining forms sales.
Similar figures from NAPL showed declining demand for commercial printing in 2001 and 2002. Those figures indicate that total commercial printing sales will experience modest growth in 2003, but the volume will fall short of the pre-recession sales level. The number of U.S. printing establishments has decreased because of consolidations and closings stemming from intense competition during the last five years and the decline in printing demand in 2001 and 2002. According to NAPL projections, the total number of commercial printing establishments will decrease from 37,673 in 1998 to 27,310 in 2007, a whopping 27.5 percent decline. The traditional forms industry will see a similar trend in the number of manufacturers who derive a significant portion of their sales from conventional forms. (NAPL includes forms in its definition of the total commercial printing market.)
Formtrac 2003 Overview
Projections from Formtrac 2003, a comprehensive study of the document management industry that's available from DMIA, shows that sales of products manufactured internally by the industry will average $13.6 billion to $14 billion annually for 20022007.
Industry sales declined in 2001 and 2002, will remain stable in 2003, then will increase slightly through 2007. Formtrac 2003 predicts that total industry sales in 2007 will be $14.04 billion, close to the $14.09 billion level achieved in 2000. The size of the independent segment is projected to grow from 54.5 percent of the forms industry in 1998 to 58.2 percent in 2007, based on product sales.
The relative stability of projected total industry sales masks some of the turmoil within the traditional forms industry caused by major product shifts, declining product value and manufacturer consolidation. Projected industry sales growth through 2007 is below the expected rate of inflation, which means product shipments in terms of constant dollars actually will decline. Part of the reason is lack of pricing power by manufacturers in an environment of huge excess production capacity. Direct-selling manufacturers and distributors have offset declining demand for conventional forms by expanding sales of commercial printing, direct mail products, labels and print-related services. Distributors also have added promotional products to their offerings.
It's difficult for traditional forms industry trade manufacturers to keep pace with product mix shifts and the declining demand for conventional forms. Existing forms production equipment has a limited range of alternate uses, mainly direct mail and cut sheet "utility-level" commercial printing. As more forms trade manufacturers modify their presses for cut sheet products, competition for available cut sheet product volume through distributors is becoming more intense. To reach other market segments served by distributors, including labels, imprinted envelopes, presentation folders, sheet-fed commercial printing and promotional products, forms trade manufacturers have to make substantial capital investments. For this reason, a large number of specialized manufacturers from outside the traditional forms industry have joined the independent segment. As traditional forms distributors diversify, they represent an attractive distribution channel to many manufacturers of commercial printing, envelopes, labels, ad specialties and other non-forms products.
Compiling Data Fairly
Formtrac 2003 follows the traditional definition of the types of manufacturers comprising the forms industry (the same definition used in Formtrac 1997, Formtrac 1999 and Formtrac 2002):
* Direct-selling manufacturers that produce conventional forms as part of their product mixes
* Trade manufacturers that produce conventional forms for all types of distributors and resellers (most are DMIA members)
* Trade manufacturers that supply products other than forms to forms distributors. (The study includes only shipments to distributorships that traditionally have sold mostly conventional forms. Many of the non-forms manufacturers included in Formtrac 2002 are DMIA members.)
* Production from plants owned or controlled by forms industry distributorships
Formtrac 2003 covers shipments by more than 700 manufacturers that produce or sell forms, or use the forms industry as a distribution channel. This includes approximately 500 forms manufacturers. Since 1995, mergers, acquisitions and business closures have reduced the number of forms industry participants by approximately 100 manufacturers. At the same time, the industry has experienced a sizeable increase in manufacturing participants that supply products other than conventional forms or provide services that can be sold by forms distributors. The industry also has experienced an increase in printing operations owned or controlled by forms distributors that produce predominantly cut sheet products, commercial printing and on-demand printing.
Formtrac 2003 is the only industry study that reports shipments by direct-selling and trade manufacturers on a comparable basis: retail value of products and services. This approach recognizes the value added by distributors, which traditionally has been omitted from manufacturer shipment statistics compiled by the U.S. Department of Commerce. Because the independent segment represents more than 50 percent of the industry, the value added by distributors is a large component of total industry sales to end users. The market segment and product classifications shown in Formtrac 2003 are consistent with previous studies. All shipment projections for 2003-2007 include anticipated product price increases.
Formtrac 2003 highlights the future of the forms industry and print buyers' reaction to paper replacement technologies. These issues were introduced in Formtrac 2002, and the 2003 update confirms the trends.
Ivars Sarkans is president of Los Angeles consulting firm Sarkans & Associates. Email him at isarkans@sarkans.com.
