Tom Callinan
In 2013 we will see an acceleration of changes in our industry. When you have the leadership of public companies in the print space make a point of saying, “Paper is not disappearing,” that’s telling. Look at the stock price, P/E, and enterprise-to-book value of the major companies in our industry; the investment world is making a statement that they are experiencing a slow death.
The manufacturers have artificially kept dealers’ margins high by offering phenomenal deals to those that could stock up their warehouse. I believe manufacturing output will decrease to match demand and pricing will stabilize, reducing dealer margins. Dealers have time to adjust to this new reality by planning for it today. The decline in units placed and pages printed will result in the continued contraction of our industry at the dealer level. The big will get bigger and the small will disappear.
You see the $30-million dollar plus dealers across the country growing way above industry average both organically and through acquisition. This will continue and accelerate (as the acceleration in unit and average unit price declines that doesn’t necessarily equate to a bigger growth rate in future years for these companies just a growth rate that further exceeds the industry E.g., +7% for this group vs. –5% for industry). At the OEM level you have very aggressive printer companies that are clearly making headway in their hybrid A4/A3 approach. The legacy copier companies are adapting to the new reality of how companies are matching device type and placement to workflow, but it will continue to be painful as the mix of business drives lower revenue that is compounded by a somewhat new group of true competitors in the legacy printer companies.
MPS is still a wild card as we’ve seen very few companies enter this space successfully. I define success as minimally service and supplies revenue from printers equaling service and supplies revenue from copiers. I strongly believe that pages will decrease faster than the industry research firms are predicting. There is a fairly new and very disruptive combination of technologies in the cloud and tablets that is going to wreak havoc on paper use.
I agree with the CEO’s of our manufacturing companies that say paper isn’t disappearing, but it will be a lot harder to find. The good news, there are hundreds of billions of pages being printed that aren’t under a contract today. Dealers can add those pages to their reoccurring revenue stream at great margins. We are a highly profitable industry so even if overall margins decrease by five points we can absorb it through sales productivity increase and G&A expense decreases.
There are many good years left for those in the industry that can adapt to a service model and those that focus on reducing SG&A. Dealers should also look to IT services and become the consultative entities that help their customers move to a less paper intensive organization. This will drive new consulting and software revenues.
