Reprographics 101

The IRGA annual convention will be held in Palm Springs, CA, May 19-21, 2010.

I will be attending this year’s convention. I hope to see some of you there.

I’ve been told by friends that attendance at this year’s convention will be down, compared to previous years. I had remarked, in a post I did about the 2009 convention (the one in Pittsburgh), that attendance at that convention was light, compared to previous years. Even though business is down, I encourage you to attend the convention, even if doing so is only so that you can network with others in the industry; this to talk about strategies for now and the future.

When I looked at the list of “presentations” and “educational breakout sessions” for this year’s convention (which you can find at http://www.irga.com), I was hoping to find at least one “breakout session” that would be kind of a real debate about “the future of the reprographics business and industry.” Even though there are a few presentations/sessions that look like they are going to talk about “future” and “survival” and “post recession”, I am sad to say that, apparently, NOT ONE OF THEM is really going to provoke the real debate that owners of reprographics businesses should be having … that debate being: the future of the reprographics business and industry from a sales and profitability perspective – especially considering future revenues from “prints-on-paper”, which, for most reprographers, represents 85% or more of their revenues.

Just a guess, but I would imagine that that particular topic is one topic that everyone dreads, and the one that no one really wants to debate or discuss. (Why not just bury our heads in the sand; whatever is going to happen, will happen, no matter what we do, so why bother to debate or discuss it? Or, As Alfred E. Newman might have put it, “What, Me Worry?”)

Here are the presentations/break-out sessions planned for the IRGA:

Paperless and Virtual – Future of the AEC Industry and Reprographics,
Bob Middlebrooks, Industry Programs Manager, Autodesk
Adapting to change and becoming an extension of a firm’s every practice, with a strong portfolio of support options, is the key to future survival. Understanding the impact of these virtual technologies, the demographics of the market, the future needs of the design professional, and the future of a collaborative AEC industry will help you position yourself for those opportunities.

Joel’s comment: Well, even if one understands the “portfolio of support options” they should offer in the future, is that really going to be the “key” to their future survival? The “key” to future survival can be expressed much more simply: How, in the future, can I, and will I be able to, generate revenues that exceed my total costs?

Survival of the Reprographics Industry… Evolution
Shaun Meany, The PEiR Group
In this session Meany will discuss five effective strategies for positioning your reprographics business for success in the new economy. Owners and managers of reprographics companies are aware of many of the trends that are forcing the evolution of the reprographics industry but many do not know how to take advantage of these trends for maximizing sales, market share and profitability.

Joel’s comment: Well, Shaun is one of my favorite speakers. But, Shaun, survival will depend not just on taking advantages of trends and maximizing sales, market share and profitability, but on “the total sales” a company will need to generate in order to generate the total amount of profits the business owner will need to earn a decent living (and, someday, be able to afford to retire.) We cannot spend percentages, we can only spend dollars. If, in 2007, I had 180 employees and was doing $23 million in sales (and earning very decent profits), then even if, in 2011, I have twice the “profitability (percentage-wise)” that I had in 2007 – but my total profit dollars, for 2011, are well under what they were in 2007 – how is that survival? In other words, even if I adopt the five effective strategies Shaun is going to talk about, how am I going to survive if my prints-on-paper revenues decline by 50 or 60%? (unless, of course, I’m willing to seriously down-size my printing capabilities, my production facilities and my manpower, which is what the “real debate” should be about.)

The Amazing Race: What the Data Says about the Post-Recession Economy
Anirban Basu, Sage Policy Group, Inc.
The focus of this presentation will be the respective outlooks for the global and U.S. economies and implications for the reprographic industry. Particular attention will be given to the business performance, labor markets and risks to the economy.

Joel’s comment: I hope this speaker understands that reprographers are not just suffering, sales and profit-wise, because of the huge downturn in the design/development/construction industry, but are also suffering from two trends – “distribute-then-print” and “printing to CD’s and DVD’s instead of printing to paper” – that are serious and expected to accelerate in the future. If all this speaker is going to talk about is “when” the design/development/construction industry is going to come back to life, well, we all know that that rebound will happen, eventually. But, just because we see that rebound, does not guarantee that our industry’s revenues will pop-back-up commensurately (as was always the case when past recessions ended.)

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Joel’s last comment for this post: If you are going to be attending this year’s IRGA and want to get into a debate/discussion with others to debate the real question that should be debated this year – “what is the future of the reprographics business and industry and what will I need to do with my business in order to survive in the future and make enough money to warrant being in the business in the future?, well, then, I would encourage you to gather up people at the networking reception on Thursday night, then retire to someone’s hotel room or suite to get into this debate/discussion. I’d be happy to host such a get-together.

This post is a bit “off-topic,” but that’s only because the information that appears below came from a web-site primarily focused on the “printing” industry, as opposed to the “reprographics” industry. We in the reprographics industry do know that there are similarities between businesses in the printing industry and businesses in the reprographics industry, and, since the information I read in a couple of posts on “www.printceo.com” were particularly thought provoking, I decided to talk about them in this post on my blog-site.

First, someone did a post about “do you know your Z score?” I’ve never before heard that term, but, after reading about what that is (what the Z score is), I found it very interesting, and I would suggest that reprographer-owners compute Z-scores for their companies, simply to see what the outcome is. This is the post that talks about the Z-score:

Do You Know Your Z Score? You Should!
By David Dodd on March 25th, 2010
It’s no secret that the past 12 to 24 months have been especially difficult for many printing companies. Dr. Joe Webb is estimating that the printing industry lost 2,844 firms in 2009. Bankruptcies, foreclosure auctions, and other closures have been well documented by WhatTheyThink as well as by other trade publications.
Having a clear picture of your company’s financial health is always important, but it becomes essential when business conditions are difficult and the margin for error is reduced. And while no single tool or formula provides a complete picture of financial health, one popular measure is known as the Z Score.

The full post and the formula used for computing a company’s Z-score can be found at this Internet address:
http://printceo.com/2010/03/do-you-know-your-z-score-you-should

Secondly, there was another post – actually, an interview – on the http://www.printceo.com site that talked about the shut-down (the closing) of a printing company. In this “interview” article, the owner of the company that was shut-down responds to questions, basically, about “what happened?” This particular printing company was 33 years old (the owner who shut down the company, owned it for the last 22 of those years.) Sad article, but revealing and interesting (and provokes “food for thought” for any struggling printing OR reprographics business owner.) Here’s that post:

Jim Duffy talks about closing Alonzo Printing
By Gail Nickel-Kailing on March 16th, 2010
In mid-January, Alonzo Printing closed its doors after more than a year of struggling financially. Jim Duffy, owner of Alonzo Printing for 22 years, shared his thoughts on the closure and had some advice for others in the same situation.
WTT: Alonzo Printing was not just a flagship green printing company, but seemed to be a successful web, sheetfed, and digital printing company. And yet, in January 2010, after 33 years in business, you shut the company down. How did it all unravel?

The full post and can be found at this Internet address:
http://printceo.com/2010/03/jim-duffy-talks-about-closing-alonzo-printing
and, I encourage readers to go to that post and read all of the “replies” to that post, because many of the replies are quite interesting and thought-provoking. One of the replies was this one:

By Kate Dunn on Mar 17, 2010 | Reply
Erik,
No one should have been “caught off guard” by this situation. As communication channels have expanded and been adopted by the population it should have been a “no brainer” that print volumes were going to go down. Other channels offer better ways to communicate some messages and to get those messages to some people. The recession only sped up the process. The fundamental problem here is that the business model for most printers was and is based on volume. The more you run, the cheaper it gets. There simply isn’t enough volume to go around and the industry is self-correcting. If you don’t have the volume to bring your costs down but the market will only bear a certain price – you lose money on the things that you sell. It doesn’t take long to run out of cash especially when you owe on a lot of iron. Just putting in digital equipment doesn’t fix the problem especially if you are still selling digital or purls or store fronts on price. As long as the sales people in this industry can’t figure out how to solve a strategic problem and create value for their clients, this is going to continue unless of course you can find enough volume to make the old model work which is a really big if.

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Now, I’m going to make one last comment. If you are an owner of a reprographics company and your business is struggling (and is likely to continue to struggle, to the point where you might just end up on the brink…), you might want to consider the idea of approaching one or more of your competitors to discuss “merging” your businesses together. That is not only a valid business strategy when times are good, but is also a valid business strategy when times are bad. Two can live cheaper than one. However, any merger (or otherwise consolidation of two or more former competing businesses) requires that the owners swallow their egos.

This article appeared in Business Week, this morning ….

Construction Spending in the U.S. Decreases to Seven-Year Low
April 01, 2010, 10:08 AM EDT
By Courtney Schlisserman

April 1 (Bloomberg) — Construction spending in the U.S. fell in February to the lowest level in more than seven years, signaling this part of the economy remains in a recession.

The 1.3 percent decrease to $846.2 billion, the lowest since November 2002, followed a revised 1.4 percent drop in January that was more than twice as large as previously estimated, Commerce Department figures showed today in Washington.

Housing will be slow to rebound as foreclosures climb and Americans are uncertain about job prospects. At the same time, commercial and government building are also slumping, restrained by a lack of credit and swelling budget deficits.

“It’s one of the headwinds that we’re facing,” Michael Moran, chief economist at Daiwa Securities America Inc. in New York, said before the report. “There’s plenty of excess capacity in business world, plenty of vacant buildings and state and local governments are facing tight budgets so their spending is weak as well. In residential construction, we started to do better last spring and summer but we seem to have stalled.”

Construction spending decreased 13 percent in the 12 months ended in February.

Private residential construction spending fell 2.1 percent in February from a month earlier, taking it to the lowest level since September, today’s report showed.

Private non-residential construction decreased 0.4 percent from January, reflecting declines in commercial, office and lodging projects. Public spending dropped 1.7 percent from a month earlier, as state and local governments trimmed outlays by 1.8 percent. Federal construction fell 0.3 percent.

Economic Growth. The U.S. economy grew at a 5.6 percent pace in the final quarter of 2009, the Commerce Department reported last week. Commercial construction fell at an 18 percent pace, while homebuilding expanded at a 3.8 percent rate, the figures showed.

A renewed slump in residential construction may hurt growth this quarter as sales of new homes fell to the lowest on record in February. Also, housing starts declined last month.

Housing may get some support next quarter from the government’s extension and expansion of an $8,000 tax credit for home buyers. The program requires that contracts be signed by the end of April and closed by June 30.

Lennar Corp., the third-biggest U.S. homebuilder by revenue, said March 24 that cuts in administrative costs and reduced buyer incentives helped narrow its quarterly loss. “We are extremely well-positioned to navigate the rocky bottom and ultimate recovery that lies ahead,” Chief Executive Officer Stuart Miller said on a conference call with investors.

–With assistance from Hui-Yong Yu in Seattle. Editor: Carlos Torres
To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net
To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

PAA Research, LLC, the company that operates the investment research web-site, http://www.pleaseactaccordingly.com, just posted, yesterday, a lengthy report; this report is based on the CEO of PAA’s recent discussions with ARC management about ARC’s current initiatives.

The title of the report is called:

􏰀 Conversations with ARP Management: Answering the BIM Question

You can access the full report at PAA’s web-site.

Courtesy of Reuters – –

2010-03-24, 04:16
NEW YORK, March 24 (Reuters) – A leading indicator of U.S. nonresidential construction spending recovered slightly but a measure of future projects dipped in February, partly because a ,lot of stimulus financing for building projects has yet to be awarded.

The Architecture Billings Index was up 2.3 points to 44.8 last month, according to the American Institute of Architects (AIA). A measure of inquiries for new projects fell 0.5 points to 52.0, after a 7-point drop in January.

‘Funding dedicated for construction projects in the stimulus package has not yet been awarded, resulting in a bottleneck of potential projects that could help jumpstart the economy,’ said AIA Chief Economist Kermit Baker.

Private sector projects continue to face ‘a persistently rigid credit market,’ Baker added.

All four U.S. geographic regions were below 50 in billings in January, with the Midwest highest at 49.4, as were all of the four construction sectors. Billings for apartment buildings dipped back below 50 after an uptick the prior month.

AIA’s other categories include institutional architecture, commercial and industrial space, and the mixed-practice category, which often combines retail with other uses.

The AIA’s billings index, begun in 1995, is considered a measure of construction spending nine to 12 months in the future.

PLEASE NOTE: WHEN THE ABI INDEX IS BELOW 50, THAT MEANS THAT A/E ACTIVITY IS STILL ON THE DECLINE.

Over the last several years, there’s been a lot of discussion and debate over revenue trends in the reprographics industry. I don’t see any need for me to do a full-blown article about that trend, because virtually all reprographers, if not all, are experiencing the trend.

The three sentences that immediately follow were copied from an e-mail I received, very recently, from a recently retired top-management-level reprographer … in other words, from an “industry veteran.”

“Saw an article in today’’s paper that said commercial and residential construction will continue to suffer. Add to that the fact that most of the info is going out digital these days and it is a double whammy. Last big project I tracked went out 75% digital (CD/DVD)’s at about 15% of the paper revenue, stunning top line difference!”

And, shortly after I received his e-mail, I saw Shaun Meany, President of The PEiR Group, announce a (very-related) webinar session on this subject: ….. “Are you able to get your customers to accept your charges for digital services? If not, then you should plan on attending our webinar “How to Justify Charging your Customers for Digital Services”!

I found this article posted on the web-site known as ……..…. http://www.benzinga.com/ …….. and it is a web-site for investors.

After reading the article, I wasn’t sure if it was good news, bad news, or no news. Don’t you just love articles that start with —– “things look like they are going to improve”, ….. followed by a ….. “but, who really knows?”

Is Commercial Real Estate A Disaster?
Posted on 03/14/10 at 5:59pm by Swing Trader

Commercial real estate.

Upon hearing those words you are likely to immediately think of the negative implications: more defaults, more bank losses, next shoe to drop, derailed recovery..well, you get the idea.

But, will commercial real estate really have such a pernicious effect on the economy? Here are some facts about commercial real estate:
1) Commercial mortgages usually are from three to 10 years and at the end of the term the entire principal is due;
2) The Congressional Oversight Panel estimated that about $1.4 trillion in commercial real estate loans will reach maturity between 2010 and 2014, and nearly half are underwater;
3) Commercial real estate values have fallen more than 40% since 2007;
4) Losses in commercial real estate could be particularly destabilizing for smaller community and regional banks as they have higher percentages of commercial loans in their portfolios.

While these points are clearly worrisome, commercial real estate may not collapse for the following reasons:
1) Commercial real estate losses will not all hit at once in 2011, giving the market some time to improve its fundamentals, such as unemployment;
2) Borrowers, such as strip mall operators, may lose tenants during a recession, but may still have enough tenants to generate rental income and stay current on a loan;
3) Borrowers with commercial real estate loans often occupy at least part of the building they own and can weather the rough economy and wait for occupancies to increase;
4) Regional banks such as Marshall & Ilsley (NYSe: MI) and Synovus Financial (NYSE: SNV) have said they believe loan losses have peaked and credit trends have improved. These banks have already written off a bulk of their non-performing commercial loans and may return to profitability this year.

So, while commercial real estate remains in trouble, it may no be the total disaster that everyone expects it to be. As is often the case with the financial markets, when the consensus expects something to happen, the opposite usually occurs.

Commercial real estate will most likely improve along with the labor market. Thus, it will most likely be a slow recovery.

Well, I just noticed that Tanner Bechtel, formerly a member of the management team of ReproMAX, has left ReproMax* and joined the American Reprographics team.

I don’t know Tanner all that well and I don’t particularly like to comment about people coming and going, changing companies, teams, etc, other than to mention that a change happened. I’ve met Tanner a couple of times in the past – and have read some of the articles on his blog – and I do know that friends within ReproMax spoke highly of him.

What I noticed, just today, was that at the very bottom of Tanner’s web-site, it mentions this:
Tanner Bechtel, CSI CDT, serves as a Global Solutions Executive for American Reprographics Corporation (NYSE: ARP)

As a Global Solutions Executive with ARC, that means he’s on the same team with one of my ex-NGI partners (Martha Korman Zumwalt)

Good luck and best wishes to you Tanner.

(* and, this probably happened months ago, but don’t ever expect me to be swiftly up to date on personnel changes)

UPDATE: Well, apparently (based on input from someone who would know), Tanner changed horses around 6 months ago.

In the post just previous to this one, I mentioned a press release about the “January 2010” ABI Index.

The press release that I previously mentioned was not the “full” article that Kermit Baker (Chief Economist of the AIA) wrote.

The “full” article that Kermit wrote can be found at this Internet address:

http://www.aia.org/practicing/AIAB082315

Although the article is full of “bad news” for the current outlook in the Architecture Industry (and, therefore, for the Construction Industry), I encourage all of my colleagues in the Reprographics Industry to read the entire article that Kermit wrote. To not do that would be tantamount to burying your head in the sand. Also, keep following articles about the A/E/C Industry, because there will be, at some point, a turn in the other direction (and, what I really mean is a turn “up”); if you track what’s going on, you will be ready for the turn up, even before it begins to affect your cash register.

Latest (January 2010) ABI Index …. from the AIA Press Release issued Feb 24, 2010

Significant Drop in Architecture Billings Index
Tight credit markets and weak demand for new projects continue to be main challenges for design and construction industry

For immediate release:
Washington, D.C. – February 24, 2010 – Beginning its third year of negative conditions, the Architecture Billings Index (ABI) had a drop of almost three points in January. As a leading economic indicator of construction activity, the ABI reflects the approximate nine to twelve month lag time between architecture billings and construction spending. The American Institute of Architects (AIA) reported the January ABI rating was 42.5, down sharply from a revised reading of 45.4 in December. This score indicates a continued decline in demand for design services (any score above 50 indicates an increase in billings). The new projects inquiry score was 52.5, down more than seven points.

* Every January the AIA research department uses a procedure from the Department of Commerce that re-estimates ABI data based on seasonal patterns, resulting in a recalibration of recent figures.

“Projects are being delayed or cancelled because lending institutions are placing unusually stringent equity requirements on new developments. This is even happening to financially sound companies with strong credit ratings,” said AIA Chief Economist Kermit Baker, PhD, Hon. AIA. “This serious situation is being compounded by a skittish bond market, decreased tax revenues for publicly financed projects and declining property values – all which serve as deterrents for construction activity. Until these factors are resolved, the design and construction industry — which accounts for roughly 10 percent of GDP and is facing unemployment figures in excess of 20 percent — will continue to face deteriorating market conditions.”

Key January ABI highlights:

Regional averages:
Midwest (48.0),
Northeast (45.7),
South (41.32),
West (40.5)

Sector index breakdown:
multi-family residential (50.1),
commercial / industrial (44.9),
institutional (43.1),
mixed practice (40.3)