The 2019 State of the Industry Report
Macroeconomic indicators of late, and over the past year, suggest the US economy continues to perform strongly. Among the positive signs are an unemployment rate still under 4% (per Bureau of Labor statistics), nearly the lowest in 50 years. According to CNBC, “The total employment level in the household [employment] survey reached another record high [in October], swelling by 241,000 to 158.5 million.” But the stock market has cooled off a touch, rising just over 5% during the current presidential administration, and tariffs on imported materials such as steel and aluminum have put pressure on the equipment and materials from which they are manufactured: from bucket trucks and router tables to channel letters, sign cabinets and more. As always, measures of the economy are better considered as a higher perspective, especially as closer looks can reveal segments and pockets struggling beneath the mean.
So it seems to be with the sign industry. Our recent survey – which garnered more than double the responses of a year ago – generally found far more positives than negatives in the areas of employment, sales and profits. Companies expecting their sales volume to increase this year surpass those expecting a decrease by more than 10-to-1. And on average, companies anticipate their profit margins will improve incrementally not only this year, but next year as well. But perhaps the low unemployment rate plays a part in the perceived “threat to the industry” that jumped the most compared to last year, “recruiting and retaining staff,” which has increased its share among the other “threats” on choice from 14.1% in 2017 and 15.8% last year to 21.8% this year – up more than a third in two years. So, when parts of the survey are examined up close, some of the silver linings cited below retain a few clouds in their forecasts.
RESPONDENTS AND EMPLOYEES
Among 687 responses received this year, nearly 72% identified as independently owned sign companies, just over 7% as franchise sign companies and approximately 6% as national sign companies (Table 1). The number of franchise respondents is more in line with our 2017 findings (nearly 8%) versus 4% last year, which was considered an under-representation. All other survey takers who did not choose one of these three identifiers – just under 15% – had their survey end there.
We received 371 responses regarding each company’s number of full-time-equivalent employees (Table 2 -- see below for all tables). The average number (31.8) varies widely from last year’s 20.1. This is due to more large companies taking the survey (23 reported 100 or more employees, and one of them, 3,000). So, as in previous surveys, the averages are inflated by a small number of very large companies, as 277 of the 371 responses claim 30 or fewer employees. This analysis concludes that 31.8 far more represents the mean than the median.
SALES AND PROFITS
Good times continue to roll, with our survey finding about 67% of the 371 respondents reporting an increase in sales volume compared to the previous year, just under 9% stating a decrease, and a touch over 24% remaining the same (Table 3) – these figures not quite as good or bad as last year (70% increase, 13% decrease, 17% the same). And more growth is expected in sales volume this year over last (Table 4), with companies expecting their sales volume to increase (73%) far outstripping those anticipating a decrease (7%) or no change (19%). Our past three surveys have found companies expecting an increase in this area outnumbering those anticipating a decrease by 9-to-1 (2017), 11-to-1 (2018) and now 10-to-1 (2019) – a pretty steady trend of anticipated sales growth.
As for the profit margin on those sales from the previous year (Table 5), 309 responses netted an average of 26.8%, up from last year’s 23.9%. While that represents a decent margin and a better trend, we have also been tracking companies reporting profit margins of 10% or less. This year, 21% cited margins at or under 10%, better than last year’s 28% and closer to 2017’s finding, 19%. When we asked about expected profit margin for 2019 (Table 6), 308 companies responded, with 28.3% hoped for. While this tops 2018’s expectations of 26.4%, nearly 19% of companies foresee their profit margin this year to be 10% or lower.
EQUIPMENT AND INVESTMENT
Of the 371 companies answering our question on the type(s) of equipment purchased in the previous year, 2018 (Table 7), software (40.4%) was first again, topping digital printers (33.7%), vinyl-cutting plotters (19.1%), routers (15.9%) and laminators (15.1%) – the last two of which moved up over 2018’s findings – followed by crane/bucket trucks (11.9%) – slipping two places versus last year – and metal-forming equipment (7.3%). Some 11.9% reported investing in “other,” but once again, slightly more than 28% reported no purchases at all, just ahead of but consistent with last year’s 27%. Clearly, more than a quarter of shops tend to make do with what they have for at least a year at a time.
These 371 companies reported investing an average of $71,315 on equipment in 2019 (Table 8), down somewhat from last year’s survey of 2018’s $86,948, though still much more than 2017’s survey finding, $41,071. The new federal tax law affecting equipment purchases is still in effect, though perhaps the rush to purchase has tapered. And as with the number of employees, some larger companies are likely skewing this category too, as nearly half, 166 companies (45%), invested $10,000 or less, with 97 companies (26%) citing plans to spend nothing on equipment in 2019. As with the findings for the previous year’s purchases, just over 1 in 4 sign companies is standing pat.
THREATS TO THE INDUSTRY
For the past three years, we have been asking “What do you see as the one, greatest threat to the signage and graphics industry?” (Table 9). This year, “The increasing number of non-sign companies (e.g. print shops) offering signage services” (28.3%) edged ahead of the previous two surveys’ leader, “Price competition or diminishing profit margins” (27.5%). “Recruiting and retaining staff” was third again, though up to 21.8% – obviously a rising concern compared to 2018’s (15.8%) and 2017’s (14.1%). “The increasing number of sign companies in the market” (7%) was down 1% from last year, as was “Not sufficiently diversifying products/services or keeping up with the changing signage demands” (5.9%). Just over 9% selected “Other,” with most citing internet sales, and a few others naming regulations or the economy.
SELLING ELECTRIC SIGNS
Companies that answered this question and stated they do sell electric signs (including by wholesale) slipped a bit this year (65.7%) from last year (67.1%) (Table 10) and also from 2017’s survey (68.5%). But last year, 136 respondents skipped the series of questions on electric signs while 152 answered. When added to those who did respond, but answered “no,” those 186 companies were 65% of the 288 total shown the question, meaning that about two in three sign companies may not be selling electric signs. This year, 316 companies bypassed the question, making 443, or again, approximately 65% of the 687 total not selling electric signs. Whichever is the case, the percentage selling electric signs remains steady.
Some 216 companies provided the percentage of their total sales derived from electric signs (Table 11), and that average (35.3%) was down just a tick from last year’s 36.4%. Also, similar to last year and the year before, this average is inflated by the number of companies whose percentage is higher than the average (85) when compared to those lower (131), so it’s fair to say that more companies that do sell electric signs, average less than a third of their total sales from the electric market.
ELECTRIC SIGN TYPES AND ILLUMINATION
Channel letters (90.8%) held this category’s top spot again, followed closely by cabinet signs for a second year in a row (89.1%) as the types of electric signs sold by the 238 companies completing this part of the survey (Table 12). Electronic message centers ran third once more (62.2%), again edging freestanding main ID signs (59.7%), both down slightly from last year. Outline lighting (42%), backlit awnings (41.2%), and dynamic digital signage (34.5%) rounded out the field, all up a bit from 2018’s survey. Twelve companies (5%) offered “other” electric sign types with “actual” neon and other backlit signs mentioned.
Shining brightly again as the top illumination source of choice (Table 13) among the 225 respondents, LEDs took 85%, up from 82% last year and 75% in 2017. Growth, greater acceptance and use for LED-illuminated signs is evident here. Fluorescent occupies the distant second place again, at 16%, down from 19% in 2018 and 21% the year before. Neon is hanging in there at 9%, down from 10% last year, but the same as 2017. Another 9% chose “other” as their illumination source, down from 12% last year.
CAS/COMMERCIAL SIGN TYPES/MATERIALS
As in previous surveys, it seems that if a shop sells CAS/commercial (non-internally illuminated) signs (Table 14), they likely sell a wide range of signs and materials. In the top four categories, banners (89.7%) overtook window graphics (86.5%) this year, followed by vehicle graphics (73%) and magnetic signage (72.7%). Next came dimensional – routed/carved/sandblasted – signage (69.3%), architectural/ADA signage (63.5%) and floor graphics (59.2%). All are within a few points of last year’s survey, with banners and magnetic signage gaining slightly, offset by the other categories dropping a tad. Sixteen companies (4.6%) chose “other,” about the same as last year (4.3%), with hand lettering cited most often.
The last question sought the percentage of CAS/commercial signs involving various materials or methods (Table 15). Vinyl (48%) gained four points versus last year, opening a double-digit lead over in-house digital imaging (38%), down a point from 2018. Wholesale digital imaging (17%) receded 2% from last year, followed by hand-painting (9%), which remained flat, and screenprinting (7%), enjoying a 2% comeback over 2018. Only 20% opted for “other materials” this year (down from 28% last year). These likely comprise HDU, aluminum, wood and other materials intended for carving, routing, sandblasting or engraving.
While the state of the industry for the vast majority of sign companies remains quite strong, approximately 1 in 5 appears to be just hanging on. Whether it’s a current or expected profit margin at or under 10%, or making no purchases of software or equipment last year or this, a 20-25% minority of shops is not sharing in the financial success and investment levels of the majority. Perhaps the two greatest “threats to the industry” reported – the double whammy of “price competition from other sign companies” (27.5%) in combination with “increasing non-sign-company competition” (28.3%) – are putting the squeeze on this segment of shops, dragging down their profitability and leaving them incapable of equipment or software investment.
But nothing or no industry is perfect. Every average derives from numbers both higher and lower. Given this year’s findings, and the trends compared to last year, there can be no mistaking the state of the sign industry as anything but healthy with an expectation (for the most part) of becoming stronger still. With figures showing employment, sales and profitability on the rise in combination with steady equipment purchases and types of signs offered, companies can focus on recruiting and retaining staff to enable them to keep their fiscal vision 20/20 in 2020 and beyond. Year end is always a time for reflection and self-evaluation. How did your sign company do since last year, and what do you expect for the next 12 months?