Pinpointing Profitable Markets

Printing managers who take the time to monitor, analyze, and understand their customers' industries have found that their efforts lead to stronger, more profitable relationships with clients. Also, by understanding the dynamics and trends in those industries, the managers can better develop unique products and services that, in turn, elevate their status from being merely suppliers of commodity products to being providers of unique and essential services.

What's more, keeping up with customers' industries can pinpoint new opportunities or warn of possible threats.

Following are profiles of five key print-purchasing industries, along with reports on major trends and growth performance. We selected these industries based on their large contribution to the printing industry, not necessarily on their general growth potential.

Last year was the second-strongest for auto sales, trailing 2000 only slightly. According to Bank One Corp.'s AutoWatch newsletter, automakers sold 17 million cars and light trucks in 2001, just short of the 17.2 million sold during the prior year.

Estimates for 2002 range from a high of 16.8 million vehicles down to just 14.8 million, which reportedly would be the lowest level since 1995. Bank One analysts forecast sales of 15.9 million.

The big sales driver in 2001 was the 0% financing deals offered by many manufacturers. While many analysts believed that the move would cause a sales vacuum in subsequent months, AutoWatch reported, "There is also the possibility that financing incentives actually pulled new customers into the market, not just borrowing from later sales. With vehicles so cheap, many people have delayed other purchases (large furniture or home upgrades) to purchase a vehicle."

Still, even if sales rebound well, the growth may jeopardize automakers' profitability. Following the end of 0% financing offers, many makers rolled out rebate programs. CNW Marketing/Research, Bandon, Ore., reported that incentives from auto manufacturers were averaging up-wards of $2,300 per vehicle by the end of 2001, nearly 25% higher than levels before the September 11 terrorists attacks.

In this industry, the home of accounting, legal, management consulting, and public relations services, the big news is the impact that the Enron debacle will have on firms that offer both management consulting and accounting services.

Many accounting firms in this sector have blossomed into one-stop shops that derive an increasing portion of revenues and profits from consulting, along with selling computer systems, advising clients on tax shelters, and evaluating their business strategies. According to the Securities and Exchange Commission, in 1999 half of the "big five" accounting firms' revenues came from consulting fees, compared to 13% in 1981.

This expansion strategy has come under fire in the wake of the fall of Enron and the problems noted in other public companies where their accounting firms missed or ignored serious financial problems.

In Enron's case, Arthur Andersen assumed the dual role of serving the public by auditing and serving Enron's management by consulting and conducting internal auditing. This double duty triggers fierce debate as to whether auditors can objectively audit their firm's own creations, and the changes required to ensure honest financial reporting.

This year, the restaurant industry is expected to post its 11th consecutive year of sales growth, says the National Restaurant Association. The group forecasts that restaurant industry sales will reach a record $407.8 billion in 2002, up 3.9% percent over 2001. Still, restaurant owners and managers worry that the growth rate lags the 5.4% growth achieved in 2000.

The association projects that inflation-adjusted sales will increase 1.4% this year, compared to 0.8% in 2001. On a typical day in 2002, the restaurant industry will post average sales of more than $1.1 billion.

The restaurant association also reports the following:

• Sales by full-service eateries will grow by 4.5%, to reach $146.7 billion in 2002, a $6.3 billion increase above the prior year.
• Sales by quick-service restaurants are expected to increase by 3.7%, to $115.2 billion, up $4.1 billion from 2001.
• Among quick-service restaurant operators and full-service operators with average checks below $8, this year's top operational challenge will be recruiting and retaining employees.

The National Retail Federation, recalling that the retail sector rang up sales of about $3.2 trillion in 2000, characterized 2001 as a tough year marked by single-digit sales declines. Still, analysts hope that 2002 may offer sector growth of 3% to 5% this year.

What ultimately happens in this sector hinges on consumer confidence. However, even if the economy picks up, the consensus is that consumers will look to stretch their dollars, so discount/value stores like Wal-Mart, Family Dollar, and Target will continue to steal market share from department stores and specialty stops.

Recent years have shown the effects of bitter competition. Montgomery Ward and Bradlee's both closed in 2000, and in December Kmart declared it would close 54 stores this year, then declared bankruptcy protection on January 22. J.C. Penney Company, stricken with declining sales, has responded by closing numerous stores.

Continuing to add pressure, the discount/value stores are expanding their offerings to include groceries and pharmacy services. In response, the large drugstore chains are building larger stores stocked with groceries, and grocery stores are offering pharmacy services.

This industry—a broad segment that includes banking, insurance, and securities—also had a tough time in 2001 as the stock prices of many publicly held technology and telecommunications companies plummeted. Then the industry sustained physical and financial trauma from the World Trade Center attacks.

Still, the industry appears to be recovering, notes a "State of the Industry" report issued by the Securities Industry Association. It states, "The performance of the U.S. securities industry, like that of the U.S. equity markets, appears to be recovering from a cyclical downturn. The steady deterioration in industry revenues and profits, which began after record levels were set in 1Q '00, halted during 4Q '01 and a partial, slow recovery appears to be underway. Revenues and profits are expected to show improvement in 4Q '01 and into 2002, and if so it would obviate the need for another round of cost cutting by securities firms."

The terrorist attacks also rocked insurers, which expect to pay out half of the estimated $70 billion needed to cover the property and casualty losses in the tragedies in New York, Pennsylvania, and Washington, D.C. If this happens, the industry's $100 billion worth of assets will be severely depleted.