There’s been quite a bit of handwringing among suppliers about cost pressures and profitability across recent years – and understandably so.
Amid the upheaval of the COVID-19 pandemic and subsequent fallout, suppliers have endured severe price pressures – heightened material costs, supply chain difficulties and rising employee wages among them. But while COVID-19 has faded further into the rearview mirror, suppliers are still confronting major profitability challenges.
In fact, one in six suppliers identified “remaining profitable under pressure to cut prices” as their biggest obstacle. (The number is even higher – one in five – for medium and large suppliers.) It was the second most prevalent supplier challenge – trailing only “increasing the size of distributor/customer base” – and contributes to languishing industry confidence. Though improved from 2020, the industry health score for suppliers remains notches below pre-pandemic levels and isn’t expected to markedly improve this year, according to State of the Industry data.
Remaining Profitable Under Pressure To Cut Prices
(Percentage Chosen By Suppliers As Their Top Business Challenge)
(2024 Breakdown)
For suppliers like Brad Bartlett, president and owner of Dallas-based OptiGraphics (asi/75155), pressures on profitability continue to affect business.
“We’re going to still beat last year’s second quarter and we will finish the first half of the year above budget, but as we go into the third quarter and then the Presidential election, we’re finding it very difficult to project sales and profits,” Bartlett told ASI in early May.
To be certain, promo supplier profitability is being tested on many fronts.
Bartlett names competition, both from domestic and overseas players, as well as raw materials creeping up 2%-5% as significant challenges.
Rob Watson, CEO of Counselor Top 40 supplier Vantage Apparel (asi/93390), cites the internal overhead to enter orders and escalating material and factory costs as two of his firm’s chief obstacles.
Meanwhile, at Counselor Top 40 supplier SnugZ USA (asi/88060), Chief Revenue Officer Brittany David identifies larger demand for inexpensive items like lip balm and sporadic price and order counts as challenges to her company’s bottom line, while Counselor Top 40 supplier Spector & Co. (asi/88631) President Rob Spector says the costs of meeting sustainability and transparency targets as well as regulatory hurdles continue to rise alongside employee wages.
“I’ve been in this industry 33 years and the first 25 years or so were quite static,” Spector says. “Now, things are changing rapidly.”
With profits being squeezed from so many diverse directions, suppliers are hustling to unlock solutions.
Rather than lamenting the unsettled state of the market, Bartlett is attacking profitability pressures by focusing on things his company can change. Specifically, he’s locked in on generating new business opportunities, including returning to the ASI Show in July after a multi-year absence and exploring other potential business-driving events, such as September’s PRINTING United show in Las Vegas.
While Watson and Vantage are investigating different countries to lower material and factory costs, he’s also among many pushing for greater connectivity between suppliers and distributors, particularly on the ordering side. He’s encouraged by the increasing number of distributors being open to automation and integration with suppliers to spur healthier, more efficient operations. He suspects a growing number of suppliers will begin offering incentives to distributors integrating with supplier systems to propel the bottom line-boosting shift.
“That will result in fewer touches and make for a more seamless process,” Watson says.
Automation is a common theme among the Counselor Top 40 suppliers. Spector says his company is looking to leverage technology and automate as much as possible. Ditto for David and SnugZ, which is putting an increased emphasis on technology and customer service as it anticipates brighter days ahead, including a more robust 2024 holiday season.
“Something can always happen tomorrow that changes things in a fundamental way,” says David, a member of Counselor’s Power 50, “but our industry always seems to stay strong and rebound.”
Hover over the bar charts to see more detailed State of the Industry statistics.
Supplier Snapshot
Price pressures and lagging industry sales are making suppliers a bit queasy.
From labor woes to sourcing disruption to rising material costs, suppliers have been feeling the pinch in recent years. Add in a difficult sales environment, and you get the first dip in supplier health since 2020. Judging by the health figures, it’s the smallest suppliers (those companies with $1 million or less in revenue) that are bearing the greatest burden, though larger suppliers are far from coasting. One interesting development is that supplier margins increased in 2023 – a sign that these companies are starting to pass along more of their added costs instead of swallowing the overages and eating away at their profitability. The good news? Increasing prices aren’t damaging the supplier-distributor relationship; three-quarters of both suppliers and distributors feel that communication with their counterparts is strong.
The percentage of distributor clients that suppliers retained in 2023. The figure is down from the previous year (72%) but higher than typical levels.
Supplier Sales Volume Changes From Prior Year
Supplier Health
2023 Supplier Health
Supplier Margins
2021
2022
2023
“With the complexity in our industry, it doesn’t get any easier over time.”Rob Spector, Spector & Co. (asi/88631)
SUPPLIERS AGREE:
“I feel that communication between my company and our distributor clients is strong”
DISTRIBUTORS AGREE:
“I feel that communication between my company and our suppliers is strong”