Europe is currently the talk of the town due to the EU Parliament elections and the crisis in the Ukraine. As far as the economy is concerned, there have been worse predictions: For the first time in years, even the crisis states are showing cautious optimism. What is the mood like on the promotional products market? eppi magazine aims to provide an overview of the current situation.

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A few weeks ago, on May 5, 2014, the European Commission published its Spring Forecast. The document provides a detailed report on the economic situation in the EU Member States. The tenor of the document: “After a period of timid and scattered recovery, there are genuine signs that a more lasting upturn is now ongoing in the EU and the Euro area. In recent months, confidence has improved and business indicators have remained above their long-term levels pointing to a recovery gradually gaining strength and spreading across the EU. Growth turned positive in a large majority of Member States over the course of last year and the outlook has improved even in the more vulnerable ones.”

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Total turnover category (excluding VAT) in 2013

Developments that are also being observed within the promotional products industry: For example, at the trade fairs in Southern Europe tender optimism was observed for the first time this year and the lion’s share of the market participants of the crisis-ridden countries were of the opinion that the trough of the crisis has been overcome.

A new market survey that was carried out among the European promotional products distributors in March 2014 gives a current overview of the economic outlook. The survey that was initiated and sponsored by the Dutch importer, Giving Europe, was compiled in cooperation with eppi magazine and conducted by the independent research company, One Question. Approx. 300 promotional products distributors from 24 European countries took part in the online poll. Similar to the forecast of the European Commission, the promotional products survey also gives cause for quiet confidence – in spite of the many challenges that evidently exist.

The survey leaves no doubt whatsoever about the fact that the entire European market suffered as a result of the economic crisis: Over the last five years the turnovers in Europe have declined on average by 9.7%. In contrast, the economic developments of the past two years show a different trend: 40% of the respondents stated that they had achieved a growth in turnover in 2013 compared to 2012, a phenomenon that doesn’t differ significantly from country to country and a similar development was even observed in the crisis states. The average number of customers is evidently also rising: Over 50% of the interviewees reported that they had more customers in 2013 than in the previous year.

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Market development over last 5 years

For many companies, predominantly suppliers, the export business within the EU offered a solution to the plight: “Right now exports are the locomotive of the economic recovery,” commented Alexandre Gil, CFO of the Portuguese import company, Paul Stricker. According to the survey, 61% of the European distributors are counting on further growth for 2014 and 31% are expecting the current fiscal year to show a constant level of growth – the country-specific differences are also relatively low here.

Growing markets, even if there is tough competition for the market shares. The average European promotional products distributors are small or micro enterprises: 30% of the companies interviewed by One Question make a turnover of less than half a million euros, the European average is merely 1.8 million euros. What’s more, an increased amount of effort is evidently required in order to achieve the same result. Despite the crisis, the number of orders only sank by 4.5% over the past five years, whereas the turnover fell much more sharply – a lot of effort for little turnover.
The numerous EU regulations, which are harmonised between the Member States to varying degrees and which are often more than questionable, certainly don’t make life easier. A very topical example: A bid to ban products, which ‘imitate food and appeal to children’. If this legislation proposal is approved, innocent USB sticks, fridge magnets or soap designed like food will soon be history. “In times like these, it could be useful to change some of the regulations,” stated Mauro Chech, CEO of the Italian manufacturer, Responsor. Eva Jelnikar, Executive Director of the Slovenian promotional products agency, Axis Mundi, demands: “The European Union should be less bureaucratic and more homogeneous.“

Because sifting through the regulations and legislation texts often has to be done after work hours, as if the everyday work routine isn’t demanding enough: If the results of the survey are anything to go by, in many cases acquisition, order processing and customer service are obviously still “manual tasks”: 50% of the deals are finalised per email, followed by orders wound up during customer calls (14%) and per telephone (13%). Web shops only rank fourth with 11%. Only 33% of the distributors sell products directly via their website and in the case of half of the distributors that sell online, the turnover generated by sales transacted on the web make up less than 10% of the total turnover. Other channels are apparently more important at least at the moment – which is one reason why catalogues for example are still extremely popular. “Catalogues will continue to exist. Final customers need to feel that they are making a choice, which is impossible per Alibaba or other similar platforms,” said Gil.

Increased price wars

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Direct import by distributors

Almost 80% of the respondents are however expecting eCommerce to become more significant as a sales platform – which is just one reason why the price and margin pressure is definitely going to increase further. “The sad reality is that in the end, in most cases the price is still the determining factor,” noted Jelnikar. Of course, this is passed on to the suppliers, as Gil confirmed: “Prices are the customers’ priority number 1, 2 and 3 in terms of deal closures. The events and promotions still take place, but at significantly reduced budgets. This obviously places huge pressure on the pricing of distributors and implicitly of stock keepers.”

Shortening the value chain – either on the distributor or supplier side – is an excellent way of combatting price wars and dwindling margins. More than half of the distributors interviewed by One Question stated that they import goods themselves – the share is particularly high in the Netherlands (95%), Austria (90%) and Belgium (75%). On average 28.5% of the turnover is achieved through direct imports. The survey delivers little reliable data on the strong markets in Northern Europe, however according to Kjell Harbom, President of the Swedish industry association, SBPR, direct imports is an issue there: “For the last five years, an important and sensitive issue in Sweden has been cutting costs: The distributors are buying directly from the producer and are cutting out the distributors. This has forced the distributors to offer more efficient services.” Especially since the products of the importers are frequently interchangeable, as Gil illustrates: “The catalogues are international and the main ones are widespread across the continent. One example: Power banks are this year’s ‘sexy product’, whether you ask a Portuguese customer or a Finnish one.”

CSR and service count

The answer is therefore to raise one’s profile – through good service, professionalism, good quality and through safe and ethical products. Without question, compliance and Corporate Social Responsibility are gaining relevance – especially in view of the fact that the legal requirements within the EU are becoming stricter all the time. “I think the awareness of compliance, sustainability and quality is not just an important theme in the UK, but across all global markets,” stated Gill Thorpe, Managing Director from the British advertising agency, The Sourcing Team and Fellow of the Chartered Institute of Purchasing and Supply (CIPS). “The involvement of procurement continues to grow, this is not just to save money, but to manage global corporations’ reputational risk. There is a huge drive for buyers to take responsibility to ensure they have an ethical, sustainable and transparent supply chain. The market will continue to see an increase in measurable and demonstrable compliance and ethicality. The power of social media means any bad news is communicated to the masses instantly.”

The survey comes to a similar conclusion: 46% of the interviewees consider certifications to be an important criteria for imported products, 40% assess them to be of some importance. In terms of profile-raising services, for the suppliers individualisation is clearly at the top of the list: According to the survey, 96% of the promotional products distributors order customised products. 56% use the capacities of the respective supplier partner, 30% have the products customised by contract printers, and 14% customise the items themselves. Last, but not least manufacturers, who produce in Europe or suppliers who buy Europeanmade products are in high demand, since they not only normally comply with the strict EU regulations, but also score highly in terms of fast delivery times, high quality and safety levels as well as in terms of ethical responsibility. More and more importers are showing interest in products from Europe – Portugal and Romania are already important textile manufacturers within the EU. “European production will gain market shares in favour of Asia sourcing,” forecasts Gil and Thorpe has also observed that, “the market has changed, with a reassessment of the Far East imports and a greater focus on European producers for speed, sustainability and quality.”

Chances and Challenges

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Expected turnover 2014, compared to 2013

One thing is certain for all market participants: The challenges of the market are increasing – that applies for both the distributors and the suppliers, in Madrid just as much as in Rejkjavik, London, Berlin, Prague or Athens. “A relevant understanding and fulfilling the customers’ needs and wishes will become of vital importance,” stated Jelnikar. “The market leaders will seek far more individual marketing approaches, allowing them to humanize their brand through storytelling and emotions.

We will talk about human to human (H2H) business much more and look for personal value propositions. ”There are not only opportunities on a local level, but also on an international level. Because in spite of all the problems, the common, open market still also offers advantages – because if the customers operate globally, there are no obstacles impeding the distributors and suppliers from doing the same. “The industry will move towards more long-term partnership style relationships, often managed by procurement,” noted Thorpe. “We have some really great companies in the UK and there is a lot of tendering activity for European wide distributor partners.”

“In times of crisis everyone wants to find a scapegoat and the European Union is an easy target,” added Gil. ”Yes, the lack of a fiscal union and of a correct auditing of the banking system transforms local imbalances into epidemic crisis. However, the EU and the euro in particular also create a global European market full of opportunities and, therefore, solutions for the companies facing the crisis.” Hence, the expansion of the EU not only brings with it a further problem, but also huge growth potential. Gil commented, “the integration of Turkey into the EU, which will happen sooner or later, will open a 70 million people market and a platform for operation in the Middle East region.”

And what is the forecast of the experts in Brussels? Not bad at all: According to the Spring Forecast the European Union forecasts a growth of 1.6% for the gross national product of the entire EU for 2014 before picking up further speed in 2015 with a growth rate of 2.0%.

 

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Colin_Loughran_Goldstar_Europe_150x133“The current economic situation in Ireland is improving and we’ve noticed a healthy increase in confidence among merchandise distributors. People are more optimistic, and consumer sentiment is higher than it’s been for six or seven years. The market is showing signs of improvement. The European economy must continue to bounce back, but overall the industry in Europe looks set for some positive growth. Personally I am pro-EU but anti-Euro – without the option to devalue our currency Ireland experienced much greater pain during the last recession.”
Gill_Thorpe_150x133“The British market is blooming. Activity appears to be up across the board, which is really exciting to see. The level of activity and orders is back to where it was pre-recession. People are very optimistic – there is a huge amount of business out there – of course, competition remains high so making sure you stand out and deliver over and above the standard is critical. We have seen clients question products they use to ensure they truly are in keeping with the values and are relevant to the campaign activity in question. Ultimately, it is time for everyone to up their game to meet the growing global demand.”
Mauro_Chech_150x133“The economic situation in Italy is not that different to that of the other countries in Europe. Yes, we do have still have a number of political problems, but a lot of European countries were and to an extent still are affected by the crisis. Still, a lot of people have cause to be somewhat pessimistic, because the economic situation and opportunities for the future remain unclear. On the other hand, a certain amount of optimism is necessary in order to be able to react. This situation calls for companies in the industry to be innovative and improve their products and services to suit the times. A lot of distributors have gone out of business or reduced their sales. As a result, some suppliers are directly approaching the users in order to increase their sales volume. For us as a supplier, we don’t feel that this is the right way. We will continue to focus our attentions on the promotional products trade. The EU legislation has caused some problems and in times like these, it could be useful to change some of the regulations. However, we mustn’t forget all the benefits we have gained through the single currency and the open market.”
Konstantinos_georgiadis_schief_150x133“I believe that the market will start growing since we have reached the trough. This will happen slowly but steady, especially in touristic places. Sectors where some growth can be expected are for example tourism, services, IT or agriculture. Important promotional trends in Greece at the moment are textiles and also smart items that cost little and impress a lot. I believe that the EU should place import duties on all Chinese products in order to boost the European production and make way for good quality products.”
Kjell_Harbom_150x1331“Although many people in Sweden are not satisfied with the government, the economic situation here is far better than in many other European countries. Our promotional products industry has been experiencing a downturn for several years, but now we can see light at the end of the tunnel. The second half of this year will be the start of a significant upturn. What is also very positive in this respect is the fact that promotional products are more and more highly regarded and are used as advertising media integrated into campaigns, instead of just being implemented as give-aways.”
Alexandre_Gil_150x133“The Portuguese economy is presenting signs of growth at moderate rates this year (that is precisely what was stated by the European Commission in the Spring Forecast issued on May 5). But, because the Government Budget targets must be met, there continues to be a huge tax burden on individuals, companies and consumption in general. The positive outlook is there, but it will still take at least one or two additional years before the internal market fuels the growth of the private sector. Our industry was at an historic low between 2011 and mid-2013. With the local elections in October last year, the market started moving forward and this created a positive dynamic that is ongoing in 2014. However, a lot of traditional players went out of business prior to the elections and life is especially difficult for those that specialize in the pharmaceutical sector this year. The overall market lost probably around 40% of its size during the crisis and it will take a long time to get back to the levels of 2009. Of course, as in any crisis, the companies with financial stability and a clear strategy are coming out on top. Stability of the markets will lead to the emergence of a number of big corporations – either by M&A or by organic growth. And yes, the mug, the pen and the t-shirt will continue to be star products of our sector.”
eva_jelniar_mrak_150x133“Slovenia was seriously hit by the crisis and it highlighted the numerous weaknesses in the management of our country. We had to wait longer than elsewhere, to see the beginnings of recovery. Despite the first improved economic indicators, which are here, it will take more time for a real feeling of optimism to return. New political instability due to the fall of our government, certainly isn’t aiding the situation. The crisis had a very negative effect on our industry, since due to the uncertain future, promotion was quickly seen to be a cost factor rather than a sales tool. However, market leaders have tackled the crisis with creativity and co-marketing and are certainly focusing on sustainability and corporate social responsibility. I think the industry still has a bright future, but it will shift towards a much more targeted distribution of promotional gifts. In many cases mass promotion will become too expensive, but certainly not extinct. Most of us still rate the EU positively, even though some have lost faith in it.”
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