Thursday, January 21, 2010

The E-Mail I sent to the gents at Baird who conducted and published the Q4 2009 IRGA Survey

Referencing the previous post ....

..... I now want to share with you the e-mail I sent, last night, to the gents at RW Baird.
(Please note that I have eliminated, from the following, a few sentences that were in the e-mail I sent to them, as that information was simply "my personal background" information, and that information is not necessary for this post. Please also note that I did not proofread the e-mail I sent them, so there might be a few typographical errors.)

From: joel salus
Date: January 20, 2010 3:45:42 PM EST
Subject: 4Q09 Baird/IRGA Reprographer Survey Results - Comments / Questions


First, I'd like to say "thank you." Many of my friends in the U.S. repro industry are very grateful that your firm decided to "survey" the industry ... and that you are continuing to do that.

Although I am retired from the repro business in the U.S., I continue (it is my hobby) to follow what's going on in the U.S. repro industry and what's going on in the A/E/C industry. In addition, I still have lots of friends who are owners or managers of U.S. reprographics businesses, pretty much all around/across the U.S., and I keep in touch as much as my time, and their time, will permit. I used to get contacted, fairly frequently, by a couple of different Baird guys, but I don't recognize your names, so I guess they moved on or are covering a different sector. I write a blog about the reprographics business and industry, and my blog-site, if you are interested in looking at the articles I've posted, is located at this internet address: As to my background, I took my first reprographics company public (that was in 1985), and the second company I was involved in, 1997-2007, was sold to ARC (which allowed me to retire once again, thank goodness.)

I reviewed, this evening, the Q4 Survey results you published. My "quick take" on the survey is that it looks to me like my friends in the U.S. repro industry are suffering from "wishful thinking" and/or have their heads in the sand, for it appears to me that there is a pretty big disconnect between news in and around the Architecture/Engineering and Construction Industries and projections by reprographers for the next quarter and for the next year. I would like to think that the reprographics industry has hit, or is near, the bottom, but I am very afraid (and believe) that is not the case. Since I only work part-time, I devote a lot (a ton) of time to researching what's going on in the Architecture industry and in the Construction Industry, paying attention, also, to what's going on in the Real Estate Development Industry. I have been trying to find anything that looks like good news, but, unfortunately, I have not yet found anything recently (or in the past 18 to 24 months) that would be considered good (upside) news.

The ABI index continues to be terrible.
Residential is getting ready for another wave of foreclosures.
Non-residential Design/Development/Construction - office, retail, hospitality and distribution facilities - is growing worse - in terms of vacancies rising, construction activity falling off, and lack of financing (banks tightening credit to investor/developers)
Non-residential Design/Development/Construction - K-12 education - is suffering from erosion in property and other tax revenues being experienced by virtually all state and municipal government entities. (I spoke to an Architect last week - who has been in business for 30+ years - he said that "education" work pulled him through in 2009, as he expected in would - but he said that the municipality he does most of his work for has cut funding to the bone for 2010 - he said that that action is "unprecedented" and that, in his opinion, 2010 will be a very scary year for the architecture industry, even worse than 2009 was.) (Certainly, one firm does not guarantee that that will be the case; and I'm hoping it will not be the case.)
Non-residential - education, University level - I'm certainly hoping that the rise in the market, between March 2009 and the end of 2009, yielded value increases for endowments of the Universities who have endowments (most do), to the extent that they will move back to the front-burner the design/development projects they "back-burnered" after the market tanked (Lehman Brothers and forward to March 2009). That could be a positive sign for the A/E/C community and for the repro community, but I don't think anyone can make a real call like that just now.
Non-residential - healthcare - if the Healthcare reform gets quashed (due to the balance of power shifting to neutral because of the Republic Senator elected to replace Ted Kennedy), which I think will now be the case, we will probably see an uptick in spending on Healthcare projects. (The only real good sign I see.)
Non-residential - transportation and infrastructure - well, stimulus money has helped that sector the past year and stimulus money will probably "maintain" that industry this year. However, transportation projects are not like "other non-res" projects, in two aspects; one, there is a lot less printing involved (compared to the construction cost of the project) and a lot of the printing, by default, goes to reprographics firms who are "certified" (affirmative action) companies, MBE, DBE, WBE, HBE, etc.; that latter thing gives no help to the larger reprographics companies in the U.S.

On the 'developer/investor' side, most people I've read, who follow that industry, say that that industry is going to be subject to a wave of foreclosures, this year and next year, even more so than was the case the past year, as vacancy rates have risen, cap rates are adjusting, commercial property values have, and are declining drastically, lenders are making refinancing difficult at best. For developers who "portfolio" property they developed in the past (instead of building and then selling it), problems with their existing properties, rising vacancy rates, difficulties with re-financing and financing, will hold them back from going forward with new projects.

Remember that any "recovery" trend in the A/E community - for either res or non-res - will take at least 9 to 12 months to show up in reprographers' revenues (and the repro industry numbers you track.) That "lag" in recovery has ALWAYS been the case (at least it was the case during my 39 years in the industry.)

Just my S-W-A-G, but my "prediction" is that reprographics industry revenues for year 2010 will be about 10-15% under (i.e., less than) year 2009. I hope I'm wrong about that, but, until I see some positive news, rather than all of the negative news I've seen the last month, if not the last several months, with respect to lack of forward traction in the A/E or Construction communities, I'm going to stick with that. Although I do not see a lot of price-pressure on reprographers (a lot of work reprographers do - printing-wise - is "reimbursable", at least that's the case in the U.S.), I am hearing people talk about "digital-service" revenues being, or going to be impacted. (Meaning that those who finally figured out they should charge for digital services - and did do that - will "cave" on that just to get printing work.)

Which brings me to my questions, if you would be so kind to consider responding.

Your survey "reported":

Respondents indicated revenue was down -13.4% on average during the fourth quarter. Last quarter the average revenue of respondents was down -14.8%.

How could the -13.4% actually have been the case, when ARC - which is large enough to be used for industry trend comparisons - was down nearly twice that (if I'm recalling that correctly), Q3 2009 vs. Q3 2008? That's a double-digit difference, between ARC and your survey-group, and I really can't see how that could be the case. In addition to that, I do speak to a couple of people who own very large reprographics enterprises and their numbers are down much more than your survey group's numbers show.

Your survey "reported":

The average six-month revenue growth forecast of reprographers was -1.3%, up from -5.8% last quarter as comparisons finally begin to ease.

With all of the "negative" news out there, news that was out there and continues to be out there (ABI, Construction forecasts, horrible A/E activity in Q3 and Q4 2009), how in the world can any U.S. reprographer reasonably project that business will be basically flat in 1st Half 2010 vs. 1st Half 2009? (Word to the wise, reprographers are notoriously bad at predicting forward trends; most of the smaller business owners do little homework on what's going on beyond their businesses. (This is not a knock on the industry. It just is what it is.)

I am pretty familiar with European reprographers, their community, by now. It would be a good idea for you to take European and Canadian reprographers out of your survey (at least for one version of your survey), because their revenues have not declined as much as the revenues of U.S. reprographers - because a) their run-up in revenues, prior to the recession, were not nearly as robust as was the case in the U.S., and b) their customers don't print nearly the volume (for individual projects, and, collectively, as a whole) than is the case in the U.S.

Your survey also said ....
.....while the Southeast and Southwest also posted single-digit declines.

I am very, very familiar with reprographers in the Southeastern U.S. Reprographers in that region are suffering from "depression conditions in the repro industry", not "recession" conditions. There is no way that business in the Southeast (in Q4 2009), collectively, was only off by single digits. I can only conclude that you did not get response from the bigger players in the S.E.

Thank you for allowing me to submit comments and questions.


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