Sales growth increased even as industry confidence dropped.

That’s the broad takeaway from the just-released Distributor Quarterly Sales Survey from ASI Research, which found that North American promotional products distributors collectively increased sales, on average, by 5.6% in the second quarter of 2023 compared to the same quarter in 2022.

The business acceleration outpaced the growth rate of the year’s first quarter, when the collective distributor revenue rise was 3.3%. Q2 2023 also marked the ninth consecutive quarter in which distributors increased sales year over year following the revenue retreats experienced during the COVID-19 pandemic.

“While concerns about the economy persist, it’s clear that distributors overall are finding ways to not only keep business moving, but to keep it moving at an even faster rate,” says Nate Kucsma, ASI’s senior executive director of research, who spearheads the quarterly survey.

Notably, it was the industry’s mid-sized distributorships – those with annual revenue between $250,001 and $1 million – that were especially pivotal in powering promo’s stout second-quarter performance. Such distributors grew Q2 sales, on average, by 9.2%. That was the most robust rate of increase of any distributor revenue class.

By comparison, firms in the $1 million to $4.9 million demographic spurred a 3.8% jump, while the smallest distributors doing $250,000 or less in sales each year registered 3.1% growth. Promo’s largest distributors – those with $5 million and above in annual revenue – were up 6.1%.

Another encouraging finding: 53% of distributors increased sales in the second quarter, up from 46% in Q1. While down from Q4 2022 (71%), the figure is still strong compared to historical norms – specifically that between Q1 2016 and Q1 2021, not once did more than 50% of industry distributors experience revenue growth in a quarter. As the marketplace settles into a more stable pattern, 53% of distributors seeing a sales rise this past quarter is a strong showing, according to Kucsma.

For sure, many distributors were even bit a surprised at their own success. Exactly 4-in-10 firms reported that their Q2 sales exceeded expectations. Another 36% said sales were about as expected. “It may be difficult to say exactly what lies ahead, but so far in 2023 distributors are proving they’re able to continue building the industry’s post-pandemic recovery,” says Kucsma.

Confidence Drops Again

Despite the sales increases, the Counselor Confidence Index, which measures distributor financial health and optimism, declined for the second consecutive quarter.

The index, which has a 22-year history of tracking sentiment, fell from a reading of 104 in Q1 to 101 in Q2 – just above the baseline of 100. The tally marked the lowest reading since the 103 experienced in last year’s Q2. What gives?

“It’s a strange quarter in that promo industry sales in Q2 were up fairly strongly yet the Confidence Index dropped, which signals that distributors are facing some challenges and are concerned about certain headwinds they may be feeling, even though many are continuing to grow their businesses,” says Kucsma.

Distributors ASI Media spoke with pointed to both industry-specific hurdles and broader marketplace/economic challenges that are weighing on positive sentiment.

“My concern for the remainder of the year starts with a possible UPS strike,” says Memo Kahan, president of California-headquartered Top 40 distributor PromoShop (asi/300446) and a member of Counselor’s Power 50 list of promo’s most influential people.

“I’m also concerned,” Kahan continues, “about suppliers not having appropriate service levels. It’s taking too long to get answers, and that’s not good for anyone. Lastly, the world has been distracted with so many different things, getting anyone – including clients – to focus is hard and sometimes a barrier to getting things done.”

United Parcel Service (UPS) drivers and logistics workers could strike starting Aug. 1 if they don’t receive a new contract, which would have a significant impact on promo and potentially cost the U.S economy billions. After a two-week stalemate, talks are set to resume next week.

Other distributors also cite the potential UPS strike and longer production times as problematic.

“Many clients did not prepare for the additional weeks for production time and had firm event dates,” says Linda Milano, owner of New Jersey-based CFB Promotional Products, an authorized dealer with Top 40 distributor Kaeser & Blair (asi/238600). “We often suggested alternative products with suppliers closer to their delivery location to gain some time with shorter transit. We also reached out to existing clients, encouraging them to start looking at projects sooner.”

Another challenge for the quarter – and the year in general – has been increased costs for supplies, shipping and credit card processing fees, distributors say.

“The cost hikes have caused us to have to restructure our pricing for the first time in a while,” says Traci Kontoulas, owner/operator of Orange Beach, AL-based Paradise Promotions & Designs (asi/129643). “We also had to pass along the cost of the higher 3.5% credit card processing charges to our clients.”

“It’s a strange quarter in that sales were up fairly strongly yet the Confidence Index dropped, which signals that distributors are facing some challenges and are concerned about certain headwinds they may be feeling, even though many are continuing to grow their businesses.”Nate Kucsma, ASI Research

Some Canada-based distributors say problems tied to what became a port strike on the nation’s West Coast caused disruptions. “Shipment delays due to congestion at ports was a challenge,” relates Brett Boake, general manager at Toronto-based Score Promotions (asi/321353). “To address this issue, we were constantly looking at alternative transportation options.”

Other distributor concerns were more internally focused – things like managing growth, hiring the right staff at the right levels, and developing more-efficient processes.

For the third of distributors (32% overall) that contended with a year-over-year quarterly sales decline in Q2, there was some understandable angst, which dragged down industry-wide confidence a bit. Even so, some leaders at companies that saw sales slip remained optimistic.

Top 40 distributor Nadel (asi/279600) dealt with a sales setback in Q2, a reality likely caused by spend pullbacks by technology and financial industry clients and a comparison with 2022’s Q2 – when business was off the charts. Nonetheless, President/CEO Craig Nadel isn’t overly concerned.

“We’re very good at providing marketing tools, and there are other sectors of the economy doing well. We just need to focus on those,” says Nadel, a Power 50 member. “I will be surprised if the second part of the year is not better than the first.”

Q2 Success Stories

While there are always challenges, make no mistake: Q2 was broadly a win for distributors. And there are ample encouraging stories to share from the quarter.

Unforgettable Goods (asi/348200) was one of the mid-sized distributors that had an unforgettable Q2. The New City, NY-based distributorship increased its second-quarter sales in the range of 45% to 50% relative to the same three-month span the year prior – far outpacing the 9.2% average rise of other firms in the $250,001 to $1 million category. Several proactive initiatives helped catalyze growth.

“I emphasized my order- fulfillment capabilities and invested more in strategic marketing campaigns than ever before to promote my company,” says Owner Aimee Zeidman. “I also secured better pricing and stronger relationships with suppliers. Having strong buying power certainly gives my small company more leverage when competing with the larger firms.”

Such activities helped Unforgettable Goods score significant business with clients in the tech, education and financial sectors. One standout order for a university client involved providing orientation merchandise and fulfilment of kits for new students.

Unforgettable Goods’ campaign for the university was indicative of a broader trend: Education remained a relatively fertile market for promotional products sales overall, with 33% of distributors characterizing it as “robust” for business. The number one end-market for sales remained healthcare – with the “robust” designation being applied to it by 35% of distributors. Rounding out the top five markets were construction, nonprofit and manufacturing – all generally in line with results from the first quarter.  

Milano was another mid-sized distributor whose firm catapulted to sales growth in Q2, with CFB’s year-over-year quarterly revenue climbing 21%. Fewer stock challenges plus clients participating in more events helped propel the increase – as did Milano’s hustling to be a soup-to-nuts solutions-provider to an array of professional-services companies, including law firms, accounting outfits and travel-industry businesses. 

“They rely on our concierge-style service. We are involved in every stage of their projects,” says Milano, who is cautiously optimistic that sales will be up for the full year. “People are excited to host and attend in-person events – everyone is looking for experiences, and branded merchandise is perfect for enhancing events and as a souvenir. Our role here at CFB is to help our clients find just the right merch and have it delivered on time and within budget.”

Meanwhile, Score Promotions was among the 52% of the industry’s largest-revenue distributors – those with annual revenue of $5 million or above – that increased sales in the quarter. The Canada firm accelerated revenue 9.5% on an annual basis in the quarter, generating most sales from companies in the financial and consumer packaged goods industries.

“Fiscal spend is back in full swing and clients are looking to reward customers and employees again,” says Boake. “In addition, clients within these industries tend to be high-volume purchasers.”

“Sales conversations have allowed us to go deeper and find additional buyers within our current clientele.” John Henry III, JH Specialty

Boake notes that a self-promo centered on sending custom swag kits to 100 top clients was one of two high-profile marketing campaigns that helped stoke sales in the quarter. “We anticipate an overall sales increase of 12% to 18% in 2023,” he says.

JH Specialty (asi/232445) is another of promo’s highest-revenue-category distributorships that’s found success so far in 2023. The Indiana-based company’s promo/decorated-apparel sales for the year are up 20%, fueled by program business and orders with universities and clients in the entertainment, logistics and healthcare sectors.

“Sales conversations have allowed us to go deeper and find additional buyers within our current clientele,” says CEO John Henry III, Counselor’s 2019 Distributor Entrepreneur of the Year. “We saw above-average quantities on orders for decorated apparel and headwear. We also experienced the positive effects of clients whose fiscal year ended June 30 and who still had some budget left to spend.”

Elsewhere, A&P Master Images (asi/102019) joined the 51% of distributors in the $1 million to $4.9 million annual revenue range that generated a sales increase in Q2, with the Utica, NY-based company growing quarterly sales 20% year over year.

A&P offers extensive in-house embellishment options. Adding new processes – like direct-to-film printing and 3D laser engraving – to its internal offerings has helped the company enlarge sales. So has the fact that A&P started providing uniforms for first responders, while also expanding the number of online stores it runs for an array of customers.

“The year’s first two quarters are usually slower for us, so we’re very excited to have grown and really are expecting the second half of the year to be great,” says CEO Howard Potter.

Nearly 6-in-10 (57%) promo distributors with yearly revenue of $250,000 or below increased Q2 sales. Kontoulas’ Alabama-based company did especially well: Sales skyrocketed 61% thanks to booming business with clients in the firm’s tourism-focused locale.

“We’ve had a complete reopening of the economy where we’re located in a coastal resort community, and it’s had non-stop seasonal growth across all industries,” Kontoulas explains. “We service condos, resorts, restaurants, real estate and such, and also are blessed to be the only business in our area that can do small orders as well as large orders so we get individuals as well.”

Kontoulas admits she’s concerned that potential issues related to global currency talks, policies out of Washington, D.C. and the possible UPS strike might trigger a pause in client spending. Still, she’s upbeat on 2023.

“We are optimistic,” she says, “that we will continue to see the sales we generate improve from last year.”