Are Some Promotional Products Firms too Large?

How Big Can a Promotional Products Company Get?

Apr 26, 2009 Paul Larson

Is there a potential super competitor out there getting positioned to grow to an Intel like supplier or distributor company or does this industry defy that type of play?

What do companies like Gateway, Tower Energy, Ask.com, and Ben Q have in common? The answer is they have approximately the same market share in their industries as the largest supplier and distributor companies have in the promotional products industry. Compared to Dell Computer, Exxon/Mobile, Google, and Nokia, these players are in danger of being brushed off by their much larger competitors.

Are There any Lessons Here for the Promotional Products Business?

Perhaps, depending on assumptions about where the industry is headed. First let’s look at some of the arguments against a super competitor. The first assumption here relates to whether a large supplier or distributor is a desirable entity. This is not a new industry so, looking at the dog that is not barking, the question of why a consolidation has not happened yet begs the next question: “will it ever happen?”

Some Relevant Statistics Pertaining to a Large Firm

There are arguments against this type of company in the area of operations and logistics. To achieve the presence referred to here, the annual revenues of a supplier or distributor company would have to be at least nine billion dollars. In a cursory survey of the business these hurdles emerge as formidable obstacles to this being achieved in the near future. Here are some relevant statistics surrounding a hypothetical company of this size:

• The number of sales people on the distributor side would exceed 65,000.
• A supplier company would have to be able to handle 400,000 phone calls per day.
• There would be about 10,000 new credit approvals per day.\Including multi-color work a supplier would have about 120,000 set ups per day.
• At six inventory turns a year a supplier would have a raw materials inventory of $1.2 billion.
• Consolidate the ten largest suppliers or distributors and you don’t even come close to these figures.
• At present, there are no Wal-Mart (supply chain), Dell (direct sales), or Intel (technology) competitive advantages to capitalize on.

Some Arguments for this Possibility

Now lets look at the other side of this consideration. If a major consolidation play is not in the cards then does this mean this business will be like other service and transaction intense businesses like hair salons, lawn service, home remodeling, and embroidery operations? Here are some arguments for the possibility of this type of consolidation:

• Experienced large company management is out there ready for an opportunity such as this.
• The networked structure with geographic dispersion is growing as an organizational structure choice in terms of popularity.
• Communication and information technology is developing so quickly that the obstacles shown above may not be so difficult to overcome in a few years.
• The newspaper business provides a model of successful consolidations despite similar challenges.
• Wal-Mart could surface as a viable supplier.

One more thing to consider here is the continuing success of the smaller players in this business. Let’s face it, customers like a personal touch when they do business and that comes from answering the phone personally and building long term personal relationships with those they are doing business with. Smaller players will always be there because of:

• The ease of entry for small competitors on both the supplier and distributor side.
• The personal touch that only small competitors can offer.
• The Internet sourcing capability that had become recently available to small competitors.

So what will it be? Will a very larger supplier or distributor emerge in this business or is that not going to happen? Either answer will have a significant bearing on how the remaining companies in the industry will be able to value their businesses, particularly those that have grown to a relatively large size already. Where do they go from there?

The copyright of the article Are Some Promotional Products Firms too Large? in Business Management is owned by Paul Larson. Permission to republish Are Some Promotional Products Firms too Large? in print or online must be granted by the author in writing.

Can a promotional products company be too big?