How Promo Is Changing: Client Expectations, External Challenges and Shifting Distributor Dynamics
When I started in this industry 20 years ago, I was simply known as “the T-shirt guy.” People on campus didn’t know my name, but they knew what I did. I brought American Apparel T-shirts to the University of Washington sororities and fraternities where everyone wore just basic Hanes. At the start, we weren’t even proofing artwork digitally. This concept isn’t fathomable for promo distributors and suppliers today.
We didn’t know the ad specialty industry existed, but we knew the world of college shirts well. To make our buyers’ lives easier, we built software allowing them to manage their orders online and facilitate group signups online via our iBuy system. Very little in this industry was online prior to this.
We graduated college, rebranded the business as Kotis Design and made our first sale into the corporate world—vests for Boeing for its holiday gift, using our iBuy technology. They were blown away. Prior to this, it was always a single-sized item like a blanket, as collecting sizes was impossible. Everything in this industry has changed since then.
Our industry used to be simple. Customers such as Boeing needed an order of products, distributors would present ideas, and the supplier would bulk ship to the end-buyer. It took creativity and the distributor being in front of the client, but the rest was easier. The internet was in its infancy, on-demand wasn’t a thing and Amazon wasn’t shipping you anything you could possibly want by tomorrow. Today, it’s not as simple as just placing an order, having it drop-shipped and clients paying. End-buyer expectations have changed.
Clients have every piece of information at the fingertips. There are hundreds, if not thousands, of companies selling promotional products online. Every one of them offers immediate price quotes and 24-hour turnaround on an endless number of items. Why would clients waste their time talking with a salesperson when they can place an order on their time, with no pressure and knowing the exact price? With every passing day, online ordering gets easier, safer and more the norm.
Beyond the price, faster answers, better answers, newer products, etc., buyers require improved technology. From stocked stores, to vendor-owned programs, to virtual and print-on-demand stores, online programs once available only to those who spent millions of dollars are now available to everyone. It’s no longer just about, “Oh, you can store my goods?”—it’s about “What else can you do? What else is new? What else is different?” Our buyers are getting younger, savvier and more online. With all this comes increased expectations on a daily basis.
I love when I spend an entire day working with clients on projects. It’s the best part of our job. I just wish more days were like that. Not only are the pressures increasing from clients, but so are the external responsibilities, such as:
• Sales Tax: With the recent ruling of South Dakota vs. Wayfair, states can now charge sales tax to out-of-state retailers. Promo distributors sell to where the customers are, not where they are. I expect in upcoming legislative sessions, many states will pass laws requiring sales tax to be paid. How are distributors, who probably have nexus in just one state, supposed to collect sales tax in every state?
• Prop 65: Not only are the state of California’s rules stronger, but now other states, such as New York, are coming out with similar laws. How are distributors supposed to be in front of their client while also knowing the legal issues of every state? Prop 65 is no longer just the responsibility of the supplier making the product, but everyone involved in the process.
• GDPR: How much do you know about the General Data Protection Regulation? Do you have Europeans’ data? GDPR has changed the privacy for all individuals within the European Union. Marketing, shipping, online platforms, etc. are all impacted.
These are merely a few examples of pressures that did not exist in the past.
The Rise of the Top Distributor
Between 2011 and 2018, the top 10 promo distributors grew from $204 to $341 million in average annual sales. Based on recent acquisitions, this number will grow. It’s not just the top 10—distributors over 10 million in annual sales are growing by double digits.
The problems smaller distributors face in terms of compliance, government regulations, competition and technology can be handled by these large distributors. They hire the staff dedicated to handle these issues, allowing their sales team to focus on what they are best at—selling and working with clients.
In February, the unemployment rate fell to 3.8 percent, down from 4 percent in January. Low employment rates and increases in minimum wages mean, as distributors, it costs us more per order to process and to have the staff necessary to successfully deliver what our clients need. To combat the rise in costs, many suppliers and distributors in our industry have, in the past, outsourced customer service and data processing to countries like India. But today the focus is on exchanging data. With new initiatives such as Promo Standards gaining traction, if you can send orders electronically, there are huge efficiency and accuracy benefits. Larger distributors are all setting this up.
What all this means is larger promo distributors are growing—and will continue to grow. And they’re better able to offer the services clients expect today and combat the changes taking place in this industry. What’s a small distributor to do?
It’s going to be tough with client expectations and external pressures to compete with larger distributors. I’m concerned about how smaller distributors will compete. But here are a few things they can do:
• Niche Clients: Smaller distributors will forever be able to win when selling to niche clients and industries. The tribal knowledge required will exceed any cost pressures, technology requirements and external pressures.
• Buying Groups/Technology Platforms: Today, there are a multitude of options for distributors regarding joining groups to be more competitive. Join a buying group to share information and get better prices, or purchase a technology service platform ensuring you can offer something competitive. There are plenty of options in both of these categories, so there should be something for all distributors, regardless of size.
• Be Insanely Creative/Unique: If you’re not selling to a niche set of clients, and buying groups or technology platforms are not for you or not doing enough, be insanely creative. What else do you have to stand on? You have the opportunity to be nimbler, work harder and show something different. Whether a company does $100 million in business or $1 million, the next great idea isn’t limited by sales totals. Make it be yours.
What does our industry look like in 10 or 20 years? Will the distributor-supplier relationship even exist? Will distributors manufacture their own product? How many suppliers will be selling direct? Will clients be printing their own products via 3D printers? Will T-shirts be produced in the U.S. via robots? Does screen-printing still exist? Are items banned due to environmental concerns? Spend enough time thinking about this, and your guess is as good as mine.
I’ll continue to ask questions and watch the trends, but the only thing I know for sure is our industry is only getting more complex. Soon, it will look a whole lot different than it does today.