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.
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.”
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.
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
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
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%.