State of the Industry

Healthy. Competitive. Steady.

When Counselor asked distributors for one word to describe the sales environment in 2018, these were the most popular answers. There’s no secret why.

Throughout the year, as the U.S. economy gained steam amid low unemployment, increasing wages and reduced corporate taxes, the promo market benefitted. Following a two-year stretch in which average distributor sales growth hovered around 3%, the ceiling was shattered in the second quarter. Revenue in Q2 jumped by 5.3%, signaling the market was serious about taking a leap forward. Meanwhile, the Counselor Confidence Index, which gauges distributor sentiment, reached an all-time high reading of 117 in Q3. By comparison, when the U.S. was in the throes of a recession in 2009, the reading was 79.

Marketing spend was up. GDP was expanding. All was well. But by the fall of 2018, things began to change. Opening summer salvos of a trade war between the U.S. and China morphed into a tariff-slinging showdown by September. With costs of imported products from China on the rise, suppliers had to decide whether to pass higher prices onto distributors or eat margin. At the same time, distributors had to hold tough conversations with their customers, warning that tariffs could affect their planned orders.

So it came as no surprise that a few months into 2019, when Counselor again asked distributors to characterize the sales climate, that the responses were different. The most common answer – by a significant margin – was “slow.” Looking to the year ahead, distributors were feeling uneasy about the industry, forecasting a market health score of 3.86. Tracked on a scale of one to five, that figure was the second lowest since 2015. Distributors in only one region – the Southwest U.S. – predicted the industry’s health would improve in 2019.

This all leaves the promo sector in an important moment. Overall, the U.S. economy remains a positive. There’s still market share to be won against other ad media. And there’s plenty of room for both e-commerce and relationship-based sellers to thrive, even in the face of stirred up global headwinds.

What’s your greatest advantage in an unsettled market? Information. And that’s exactly what you’ll find in our in-depth SOI report. As you work toward your goals, let the insights and advice on the following pages be your guide – so at the close of 2019, your one-word memory of this year will simply be: success.

Soaring Sales

While average distributor revenues grew faster in 2017 than U.S. GDP expanded, it was just an average year for promo products sales. Yet, 2018 ushered in a breakthrough stretch. The promo market roared in the last nine months of the year, leading to a new annual record for industry revenue.

Despite increasing trade headaches and pressures from online competitors, distributors pocketed more money from orders in 2018. The average distributor profit margin hit a 10-year high, pushing ever closer to 40%. It hasn’t been lower than 32% since before the Great Recession.

When Counselor asked distributors to report their 2018 promo revenue, nearly 50% said their sales improved compared to 2017. Among distributors that generated more than $1 million in 2018 sales, 70% of them reported growth.

Original article published in, written by Jennifer Billock, John Corrigan, Jean Erickson, Kyle Richardson, Christopher Ruvo, Dave Vagnoni & Andraya Vantrease – Research by Nate Kucsma

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SOI 2019: Top Products in the Promo Industry

Largest Overall

In 2018, for the fifth straight year, T-shirts reigned as the number-one promotional product category. Logoed tees made up 15.1% of distributor sales last year, a slight increase from 2017. The continued success of the product, distributors say, is partially because it’s just so easy to sell.

“T-shirts make a great giveaway. They’re both a memory and a walking billboard of what you’re doing at the time you’re doing it,” says Jacque Lee, CEO of Silva Screenprinting & Distribution (asi/326062), which mostly sells tees for the corporate recognition and direct-to-retail segments. “They’re also an easy way to document what’s going on in your life cycle, like college or a new job.”

More SOI 2019: Back to Main Page

Other distributors find they’re selling tees mostly to professional groups, schools, small businesses and youth organizations like camps. Across the board, clients are sticking with moisture-wicking tri-blends, says Jeffrey Conger, owner of Infini-Tee Designs (asi/231079), because “cotton shrinks more.”

As for color trends, Jo Girard, owner of Hot Shots Apparel (asi/227751), has seen an uptick in plain white tees with kitschy quotes from movies or sitcoms on them. Conger says the basic core shades are still winners, and safety colors – like neons – are always popular. Coral, Pantone’s Color of the Year, has been gaining traction as well.

One Size Doesn’t Fit All: Here’s a look at the best-selling product categories for three different distributor revenue classes in 2018, with numbers showing the percentage of promo revenues.

Fashionable decoration styles continue to range from a bit retro – think fringe and tie-dye – to tech-enhanced and modern looks involving printing direct-to-garment. And while V-necks remain trendy, Lee says people are gravitating more toward gender-specific fits and designs and away from generic unisex styles. “People associate unisex T-shirts with trade show giveaways,” she adds.

Of course, while trade show T-shirts may not be über-personalized, they can still be valuable for newer brands. “They last a long time, they’re a crowd pleaser, and they make one’s business feel legitimate once it’s imprinted on a T-shirt,” says John Fallon, general manager and partner at Speedy Bee Tees (asi/332198).

On the Rise 
The second-largest category for 2018 promo sales, drinkware has vaulted higher in popularity. Why? A few reasons: Increasingly, drinkware has become a fashion accessory; more buyers are moving away from single-use water bottles; and retail brands like YETI are now trendy in promo.

“These products have really increased sales for a lot of people,” says Henya Betras, owner at Henya Direct (asi/224464). Back in the ’90s, Benya thinks higher-end drinkware pieces were too expensive, “but all of a sudden, there’s been incredible awareness” in terms of value and functionality.

As ROI has improved, customers have been willing to pay more for durability and distributors see that continuing. “Stainless steel isn’t going anywhere any time soon,” says Palma Frable, operations director at Palm Trends Marketing (asi/348373).

An emphasis on health and sustainability has also given the drinkware category a boost. “So many people are into recycling and reusing,” says Brandy Meeks, owner at Element One Promotions (asi/161686).

Frable agrees, noting “people are so much more focused on taking in enough water every day. A lot of businesses are seeing that, and pretty much any company can put their logo on it.”

Will sales of this market slow down? Betras doesn’t see it, believing drinkware could well surpass other products in popularity in the near future. “Pens are great, and so are T-shirts and caps,” she says. “But a two-year-old isn’t going to use a pen. A two-year-old to a 90-year-old, though, is going to use a drinkware product every day, all day.”

Trending Down 
Writing Instruments 
In 2013, logoed writing instruments accounted for 10.4% of distributor sales. After several years of market share declines, the category contributed just 5.7% to distributor revenues in 2018. The reason for the shift, according to distributors, is simple.

“More people are going toward electronic data,” says Sally Back, owner of Backhome Creations. “It may be that they’re using their tablets instead of using paper and pen. I do sell more pens with styluses now.”

Indeed, while styluses are in, oversized and single-function pens are not on-trend, according to George Taggart, president of Medical Print Group (asi/267106). He further suggests distributors push fancy rubber grips, full-color imprinting and hybrid inks, as these features have been gaining popularity in the market.

“The key is getting the pen to someone,” says Dale Hannasch, owner at LA Advertising (asi/255484). “Put it in their hand and give them the feeling of getting a free pen. If they give their own pens out, their customers will probably feel that way too.”

Forecasting Growth 
Health & Safety 
If you’re looking for a category to watch for gains, health and safety products certainly has a number of advantages. First, the segment increased market share to 2.9% in 2018, up from 2% the year prior. Also, the category benefits from practicality – items like hand sanitizers and lip balms are universally appreciated. Finally, the segment is ripe for new product entrants, especially as more Americans crave wellness ideas.

“When a new product is introduced in some product categories, there might be a long adoption time,” says Nate Kucsma, ASI’s executive director of research. “But in this particular market, there’s a quick adoption time. Be alert for new products and innovations coming out.”

And with new innovations come a chance to profit, and the health and safety market is one of the more lucrative places to find it, according to Timothy Lang, owner and founder of Team Lang Promotions (asi/466861) and a former healthcare director.

“There’s usually a good budget, and if you provide a consistent and high level of service, you can generally keep clients longer than some other industries,” Lang says.

Perception vs. Reality: With the rise of logoed T-shirt sales, some might think apparel is taking market share away from hard goods. However, the segment split has actually been relatively stable over the last five years.

The market dynamic is changing as well, Lang notes, giving distributors an edge. “Historically, there was split within the medical industry of B2B and B2C,” he says. “Most primary care providers, urgent care centers and chiropractors would market direct to consumers, and large specialty groups would market B2B to other providers to get referrals.”

With consumers more educated today “they’ll often change providers if they’re not satisfied,” says Lang. “This is causing specialty groups, which is a very large segment, to start focusing more on B2C for engagement and retention.”

The World of Promo Products: A breakdown of the most popular items, shown here as the percentage of distributor sales they represented in 2018. Click here for a larger image of the graphic above.

Original article published in, written by Jennifer Billock.

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Patagonia’s Corporate Sales Strategy Shifts Toward Ecology-Minded Clients

Logoed Patagonia vests are set to become a rarer site in some corporate circles, as the Venture, California-based apparel company is limiting who it will provide products for in its corporate sales program. The company is shifting toward more ecologically-minded companies for its corporate sales, aligned with the declaration, “We’re in business to save our home planet,” in its mission statement.

Patagonia’s corporate sales catalog notes, “For each order, we require disclosure as to the type of company whose name will appear on the Patagonia product and how the product will be used.”

How this provision is playing out in certain industries received fresh attention this week when Binna Kim, president of communications agency Vested, shared an email they received when trying to order Patagonia products for a financial services client.

The email read, in part, “Patagonia has nothing against your client or the financial industry, it’s just not an area they are currently marketing through our co-brand division. While they have co-branded here in the past, the brand is really focused right now on only co-branding with a small collection of like-minded and brand-aligned areas…This is a relatively new direction for the brand and this division, all coming through the lens of their new mission statement, ‘We’re in business to save our home planet.’”

Patagonia’s fleece and puffer vests have earned a reputation as part of the de rigueur uniform for professionals in the financial services and technology industries. In Silicon Valley, they’ve become known as the “power vest.” Patagonia has said that it wants to work with more B Corporations, which are businesses that have met high standards of verified social and environmental performance, public transparency and legal accountability. Patagonia is a B Corporation itself.

Patagonia’s products are sold direct to corporate markets and in the promotional products industry through supplier Driving Impressions. Danny Rosin, CAS, co-president of distributor Brand Fuel, says, “Seth Godin tells us to be a ‘mindful-specific versus a wandering generality’ and Patagonia, a leading B Corporation, exemplifies this as they prioritize the environment. I am impressed that Patagonia is willing to risk market share by standing for ideals aligned with their corporate values. This decision is a powerful reminder to all companies to remain focused on their moral compass.”

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Five Merch Trends From the Masters

For golf lovers, The Masters can feel a bit like Christmas in April. The excitement, the anticipation, the tradition, the pageantry – it all makes golf’s first major tournament of the year a thrilling event.

If you’re fortunate enough to attend the famous Augusta, GA, golf club where the competition is annually held, then there’s another parallel with Christmas you’re likely to experience: A lengthy credit card receipt detailing all the Masters-branded merchandise you’ve purchased. Official new Masters merch can only be bought onsite at Augusta National Golf Club – an exclusivity that drives ravenous demand.

From a promotional products perspective, the Masters merchandise collections are interesting because they can spotlight trends we might see in the ad specialty sector in categories that range from drinkware to apparel. (After all, golf wear and golf-inspired looks are the stuff and/or inspiration for much of branded corporate wear.)

While we weren’t lucky enough to score tickets to the tournament and were thus unable to peruse the pro shop for logoed merchandise trends (alas…), Golfweek senior writer Geoff Shackelford was on location to engage in extensive swag-spotting. He created an interesting piece on the 2019 Masters merch, from which we culled five interesting trends with relevance for the promo industry.

Drinkware Decoration Is Getting Busier, More Elaborate

Photo by Geoff Shackelford/Golfweek. View the original here.

Shackelford noted that the most popular item at the shop over the opening weekend was a tumbler embellished with cartoon-like graphics depicting landmarks at Augusta. There were some similarly busy designs – including a floral pattern – on mugs that Shackelford smartphone-snapped. Notably, Starbucks released an autumn collection of drinkware last fall that featured abundant floral graphics. Taken together, a conclusion is that end-users’ tastes might be shifting from the sleek, polished sharp-logo look against a wall of stainless steel to a softer, more colorful drinkware design that incorporates more graphic elements.

Frill Collars on Feminine-Cut Wovens

Photo by Geoff Shackelford/Golfweek. See the original here.

The availability of high-quality apparel designed and cut specifically for women has grown exponentially in the promotional products industry and in the traditionally male retail sportswear market, including golf. In the promo industry, perhaps further expansion will see feminine-cut woven button-downs with a turtleneck or mock turtle neck accented with frills, as seen here, come to the branded apparel space.

Pastels for Tees

Photo by Geoff Shackelford/Golfweek. See the original here.

The “lobster” color T-shirt shown here points to a broader trend of which promo pros should be aware. End-buyers that range from breweries and colleges/fraternities/sororities, to resorts and golf courses, are increasingly seeking out T-shirts in soft pastels, sometimes with a slightly faded/vintage look. The pastel palette projects a relaxed, summery vibe that evokes lifestyle brands like Southern Tide and Vineyard Vines that’s “in” with a variety of end-users.

Everyone Wants Trucker Hats (With A Patch)

Photo by Geoff Shackelford/Golfweek.

Hardworking, blue collar “trucker” hats at Augusta – a golf course synonymous with America’s version of aristocracy? Yes, as it turns out. Perhaps there’s no greater confirmation of how ubiquitous a style has become than when it enters end-user markets that you might never have imagined. Such is the case here. What’s also notable is that the hat features a logoed patch – a style element that has grown increasingly popular on headwear over the last couple years and that is proving especially sought after with trucker caps.

Simple Text Decoration For Caps

Photo by Geoff Shackelford/Golfweek. See the original here.

While the cap shown here was made for women, Shackelford notes that men “desperately” wanted them as well because of the elegantly simple “Masters” embellishment. Other caps in the collection featured a similarly subtle script styling. So, while some markets might favor the heavier graphics that come with patches and multi-location decoration on headwear, others could be experiencing graphic overload and looking for a touch of understated text-driven simplicity. We could see the subtle font/scripted look playing well on unstructured, curved bill, strap-back “dad hats” at campus bookstores around the country.

Original article published in, written by Christopher Ruvo. 

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U.S & China G-20 Agreement Postpones

The pace of escalating trade tensions between the U.S. and China have slowed following a bilateral meeting last week at the G-20 Summit in Buenos Aires, Argentina, between President Trump and President Xi Jinping. The U.S. will push back plans by 90 days to raise tariffs from 10 percent to 25 percent on approximately $250 billion in Chinese imports, while the Chinese government agreed to buy a substantial amount of U.S. agricultural, energy and industrial products. The 25 percent tariff was expected to go into effect on January 1 on a large number of products. See the detailed list, organized by HTS (Harmonized Tariff Schedule) code, here.

The agreement gives the U.S. and China a window to come to an agreement over disputes regarding the trade imbalance between the two countries and the U.S. Trade Representative’s Section 301 into Beijing’s intellectual property practices and theft of trade of secrets. If no agreement is reached during the 90-day pause, the U.S.’ proposed 25-percent tariff on Chinese goods will go into effect.

Charles Boustany, former congressman and spokesman for Tariffs Hurt The Heartland—a nationwide campaign against tariffs supported by the coalitions Farmers For Free Trade and Americans For Free Trade, of which PPAI is a member—says, “Agreeing not to raise tariffs on American businesses, farmers and consumers is an encouraging first step. These tariffs are taxes that Americans pay, and avoiding a massive tax increase on January 1 is welcome news that must be followed up by rolling back the tariffs currently in place. Tonight’s announcement makes clear that the Administration has heard the stories of economic hardship from Americans who have been hurt by tariffs. Our campaign will continue to tell their stories as the Administration enters into this important negotiation period.”

Industry companies, still reeling over the impact the tariffs will cause on their businesses, are now rethinking how to best manage the delay. Read more from them in Thursday’s PPB Newslink.

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Pantone Names Living Coral ‘Color Of The Year’

Pantone announced today that PANTONE 16-1546 Living Coral is the Pantone Color of the Year for 2019. The company describes Living Coral as an animating and life-affirming shade of orange with a golden undertone.

“Color enhances and influences the way we experience life,” says Laurie Pressman, vice president of the Pantone Color Institute. “As a shade that affirms life through a dual role of energizing and nourishing, PANTONE 16-1546 Living Coral reinforces how colors can embody our collective experience and reflect what is taking place in our global culture at a moment in time.”

Leatrice Eiseman, executive director of the Pantone Color Institute, adds, “Color is an equalizing lens through which we experience our natural and digital realities, and this particularly true for Living Coral. With consumers craving human interaction and social connection, the humanizing and heartening qualities displayed by the convivial PANTONE Living Coral hit a responsive crowd.”

Pantone has announced a Color Of The Year for the past 20 years. The selection goes on to influence product development and purchasing decisions in multiple industries, including fashion, home furnishings, industrial design and promotional products, as well as product, packaging and graphic design.

To arrive at the Color of the Year selection each year, Pantone’s color experts at the Pantone Color Institute comb the world looking for new color influences. This can include the entertainment industry and films in production, traveling art collections and new artists, fashion, all areas of design, popular travel destinations, as well as new lifestyles, playstyles and socio-economic conditions. Influences may also stem from new technologies, materials, textures and effects that impact color, relevant social media platforms and even upcoming sporting events that capture worldwide attention.

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Tariffs: Impact & Advice for the Promo Industry

President Donald Trump’s tariffs on billions of dollars of imported Chinese products and components are shaping up to be the defining issue for the promotional products industry in 2019. That’s not a political statement: It’s a business reality forecast by a wide range of distributor and supplier executives. They say the tariffs will trigger everything from far-reaching product price increases and supply chain disruption, to destabilized annual pricing and catalog confusion, to thinner margins, possible diminished sales, and a potential shift in some end-client spend toward so-called “budget items” and products manufactured outside China.

“This is something that goes far beyond the control of our industry,” says Jonathan Isaacson, president of Top 40 supplier Gemline (asi/56070). “It’s going to affect everyone.”

In this report, Counselor details the anticipated impact from tariffs and offers advice on how to prosper amid the tumult.

Tariffs 101
As of early November, the Trump administration had imposed tariffs on about $250 billion worth of imported Chinese goods. Levies affect approximately 6,000 items. Troublingly, promo executives said, the current 10% tariff imposed this fall on $200 billion worth of goods is set to increase to 25% by 2019. As worrying, Trump has said he could impose penalties on an additional $267 billion of Chinese products, effectively taxing everything the U.S. buys from China.

Economists and financial analysts take the president’s threat seriously. “We now assume U.S.-China trade war enters Phase III in 2019, resulting in tariffs on all +$500 billion of imports from China,” J.P. Morgan analysts wrote in a recent report. “There is no clear sign of mitigating confrontation between China and the U.S. in the near term.”

Trump aims for the tariffs to reduce the U.S. trade deficit with China – a deficit that was $375.2 billion in 2017. The president’s administration is also utilizing the levies to compel Chinese authorities to open markets in the nation of nearly 1.4 billion people more fully. Trump wants China to start “playing fair” – to strengthen copyright protections and to stop strong-arming American companies into divulging technological secrets in exchange for doing business in the country. So far, Beijing isn’t budging. Authorities there have met Trump’s penalties with retaliatory tariffs on tens of billions of dollars of U.S. exports. The economic upshot for both countries, at least in the short term, is potentially negative, many economists believe. Tariffs will drive up prices on goods in the U.S. and hurt certain industries here, while dragging on China’s economy.

“Total impact on China’s GDP growth is 1%, if China does not take countermeasures,” J.P. Morgan analysts say.

Promo Prices Are Going Up
As the trade war intensifies, the promotional products sector is caught in the maelstrom. That shouldn’t come as a surprise – the promo industry’s main supply chain model has long been rooted in Chinese factories producing a majority of the products suppliers and distributors imprint and sell in the U.S. The model has been successful, enabling the American promo market to benefit from reliable production while keeping product costs down.

But now, the Trump tariffs are disrupting the status quo – and in no more profound a way than being the primary catalyst for sweeping price increases soon to take effect on promotional products imported from China that are subject to import penalties. “Suppliers simply have no choice but to increase prices on impacted products,” says Eddie Blau, CEO of Top 40 supplier Innovation Line (asi/62660).

“This is one of the biggest challenges our industry has faced from an outside pressure. It’s hard, but it’s not insurmountable.”Jonathan Isaacson, Gemline

The majority of suppliers told Counselor they’re holding pricing for 2018. But come 2019, prices on some products are going up – potentially a lot. A definitive industry-wide increase for each affected product category was difficult to pin down. Why? Various unknowns remain, and suppliers could increase prices differently based on what their businesses can bear. Still, with that caveat in mind, industry firms communicated a collective range that put increases as low as 1%, depending on the particular product and supplier, to as much as 25%, should Trump’s import levies accelerate as currently scheduled.

At the ASI Power Summit in October, a majority of surveyed industry leaders forecast the anticipated price jumps to be along the scale of 11% to 20%. “In general, we’ll see more price increases for next year than what we have experienced in the last 10 years,” says Paul Lage, president of Top 40 supplier IMAGEN Brands.

Products in the Crosshairs
Suppliers say they don’t want to increase pricing, but lamented that their hands are tied. Not only are suppliers and their overseas manufacturing partners contending with tariffs, they’re dealing with the macroeconomic uncertainties of the trade war, facing rising costs for labor, raw materials and more, and shouldering growing expenses for ensuring compliance with product safety regulations and socially responsible production.

“We’re working with our factories and looking at all aspects of our operation to help offset some amount of the tariff impact,” says David Nicholson, president of Top 40 supplier Polyconcept North America, in a comment representative of the efforts of many leading suppliers. “We’re committed to minimizing the extent of the increases, but unfortunately, some level of increases will be inevitable.”

So far, headwear, bags, keychains, technology products and accessories, certain drinkware (including stainless-steel items), stationery, coolers, cases and some outerwear are among the items suppliers and distributors anticipate will be affected by tariff-driven price increases. But, as executives noted, the rises will probably not be limited to those categories.

Gregg Emmer, VP/CMO at Top 40 distributor Kaeser & Blair (asi/238600), performed a detailed analysis that shows 32 categories of goods on the tariff list that are tied to items the distributorship sells. Emmer’s unofficial list includes wool, cotton and denim apparel; leather items; rubber items; plastic rainwear; awards – quartz, marble, granite; paper products; dog accessories like leashes; bamboo and wood items; cork products; parts for flashlights; magnifiers; bicycle and motor vehicle accessories; sound amplification products/speakers; golf bags; and more, including some previously mentioned products.

“This is going to be very substantial and very impactful,” says Memo Kahan, president of Top 40 distributor PromoShop (asi/300446).

Without calling out specific companies, promo executives worry some suppliers might try to hold 2018 pricing on tariffed products to capture market share. That, however, is unlikely to be a sustainable strategy, critics note. “You could have companies working on paper-thin margins, but then they go belly up because they just can’t operate that way for long. That creates instability for the industry,” says John Bruellman, president/CEO of Showdown Displays (asi/87188).

Annual Pricing Stability Is Under Threat
With the tariffs and related geopolitical uncertainties, promo pricing could change throughout 2019. Such fluctuation is uncharacteristic of the industry, executives say. Traditionally, promo suppliers have established annual prices and held them. But with tariffs in play, some suppliers aren’t confident they can commit to set prices for the whole of 2019. Prices could go up if more or steeper tariffs are levied, or could go down should the tariffs be rescinded or modified.

The tariffs “could start to reshape how we approach annual prices and program business,” says Melissa Ralston, chief marketing officer of Top 40 supplier BIC Graphic (asi/40480).

Inside the Deficit: One reason why the U.S., under President Trump’s direction, has imposed tariffs on China is because of the massive $375.2 billion trade deficit between the two countries in 2017. Here’s a look at categories where China holds a major surplus.

The potential for price wobbles is causing repercussions on catalog production. Some suppliers, for example, are publishing catalogs without pricing, or warning that 2019 catalog pricing might not be accurate through the year, and encouraging distributors to check supplier websites or to directly consult with the supplier before quoting. Others are nixing printed catalogs for 2019 and focusing on digital, leveraging the more nimble communication medium that can accommodate price alterations over a year.

“Given the current uncertainty, we’ve made the decision to forgo printing a full-line 2019 catalog,” PCNA wrote in a communication to distributors. “This will enable us to have as much flexibility as possible in reacting to year-end tariff changes.”

Price unknowns and potential fluctuations are causing headaches for distributors trying to produce 2019 catalogs, too. Kaeser & Blair has been burning the midnight oil to devise a plan that would prevent catalogs with inaccurate pricing making it into circulation. “Having 100,000 printed catalogs with inflated pricing would certainly be an impact for us,” says Emmer. “I can see that duplicated many times over in the industry.”

While there isn’t universal consensus, some promo executives think the disruption is hastening in a “new normal” related to printed catalogs and price fluctuation throughout a year. “Even if the tariffs are rescinded, we see a potential shift away from published printed prices and to more digital platforms that can handle constant change,” says Ralston.

Adds Lage: “This event will probably disrupt the industry in the sense of being dependent on catalogs and annual pricing deals. The commerce world is changing much faster than our industry standards. We’ve seen several suppliers not produce a catalog this year. We think you will see several more in the next couple of years not printing catalogs. Eventually, there will be a new standard for our industry.”

Impact on Distributors & End-Clients
Of course, absorbing the whole of tariff-related product price increases isn’t smart or feasible for distributors. That’s why many are planning to move some of the increase to end-clients. “Most of the tariffs are too large for us to absorb, so we’ll have to pass on the cost increases to our customers,” says Bob Herzog, CEO of Top 40 distributor Corporate Imaging Concepts (asi/168962). Even so, distributors say they aren’t just unloading the burden on customers. Many also expect to eat margin in order to stay relevant and competitive. “I see profits going down next year,” said Kelly Moore, owner of distributor Moore Promotions (asi/601617).

Diminished profits aren’t the only potential consequence for distributors. Kathy Finnerty Thomas, president at Stowebridge Promotion Group (asi/337500), anticipates program business her Arizona-based distributorship conducts will have to be renegotiated in light of new cost realities. “We’ll see a huge impact in 2019,” she says.

Meanwhile, some fear clients could draw back on promotional products spending and devote available cash to other marketing media. “We’re competing for hard-fought advertising dollars in a marketplace that has an abundance of alternative options,” says Joshua White, general counsel and SVP of strategic partnerships at Top 40 distributor BAMKO (asi/131431). “As tariffs drive up the cost of brand impressions, promo becomes less cost competitive.”

Others, like Emmer, worry smaller clients will lack the budgets to buy promo products if price increases are too large. “During the last recession, we saw the economic hit on the small customers cause them to simply stop using specialty advertising,” Emmer says. “If we have to increase costs by 25%, it’ll likely have a similar effect.”

“We’re committed to minimizing the extent of the increases, but unfortunately, some level of increases will be inevitable.”David Nicholson, PCNA

Along related lines, certain industry leaders are anxious that the most significant harm from tariffs will be the negative reverberations they could send rippling through the U.S. economy. One concern is that clients, trying to mitigate increased costs of their own, might pull back on ad spending, including promo.

“Our challenge will be to convince them to keep their spend at a high level by being nimble with our product offerings,” Herzog says.

Another concern is that U.S.-based exporters impacted by China’s retaliatory tariffs could also eliminate or reduce their investment in branded merchandise as their businesses/industries suffer. Despite GDP growth in 2018, the Trump administration approved paying up to $12 billion in government assistance to U.S. farmers to make up for shortfalls caused by the trade war. “While tariffs certainly damage our industry, the greater destruction of the economy is our greatest threat,” says Finnerty Thomas.

Given the potential for those dark clouds to gather, some industry leaders say it wouldn’t be hard to imagine 2019 registering the first year-over-year sales decline in the $23.6 billion promotional products industry since the Great Recession. “There’s a possibility that overall industry volume slows or declines as the value and ROI for promotional products becomes less compelling,” says Nicholson.

Nonetheless, Nicholson and others caution that it’s too soon to etch a pessimistic outlook in stone. Both distributors and suppliers Counselor spoke with believe savvy consultative distributors will be able to keep revenue streams up, in part by properly preparing/educating clients for the price increases and guiding customers to products that fit their spending plans. Those can include comparatively lower-priced items and products unaffected by tariffs, including goods produced in nations other than China.

“We anticipate some movement from tariff-bearing products to non-tariff bearing products, and changes of countries of origin,” says Jay Deutsch, CEO of Top 40 distributor BDA (asi/137616).

Lage expresses a similar view. “I don’t think end-users are going to change their budgets for promotional products,” he says. “I do think they’ll change the products that they buy within the industry to meet their needs with the money they have to spend.”

Migrating Production Away From China
In light of the tariffs, China’s manufacturing sector stands to potentially suffer, as American importers across industries seek out alternative countries in which to build at least certain items. While an effort to diversify supply chains into countries beyond China has been underway to varying degrees among some promo suppliers, the tariffs are starting to compel a broader, concerted effort to move more production into different countries.

At this year’s ASI Power Summit, industry leaders were asked to describe the impact of tariffs in one or two words. This wordcloud shows their answers. The larger the word, the more people gave that answer.

“We’ve already looked at ways to source outside China and increase our USA demand,” says Brandon Mackay, CEO/president of Top 40 supplier SnugZ/USA (asi/88060). “We’re seeing some success there and we’re just getting started, but our sourcing team feels up to the task.”

Showdown Displays, which produces items that include signs, banners and tabletop displays, is also exploring sourcing options in countries beyond China. Nations range from Turkey, India and Taiwan to Korea and Mexico. “We’re trawling the globe,” says Bruellman.

“Most of the tariffs are too large for us to absorb, so we’ll have to pass on the cost increases to our customers.”Bob Herzog, Corporate Imaging Concepts

Showdown Displays isn’t the only company casting a worldwide net. “The greater shift will see production moving out of China into other regions, including Malaysia, Mexico and Africa,” says Kahan, adding that the U.S. is unlikely to see much production return.

Still, supply chains don’t simply move overnight, and China will remain the industry’s manufacturing hub for at least the short term, even as some production migrates. “These supply chains are complicated and built over years,” says Isaacson. “If you’re talking about reforming them somewhere else, that takes considerable time and money. You have to establish the infrastructure, and make sure everything is right to meet regulations and properly address social responsibility.”

Certain suppliers are reluctant to begin shifting production, but are coming to view such a move as inevitable. “We certainly don’t want to move away from China for our supply chain,” says Blau. “The country’s infrastructure was built to support a robust export industry and it works very well. Our suppliers have become more sophisticated over time, learning to improve their manufacturing quality, communications and overall understanding of the promotional products industry in the U.S. Having said that, we’re certainly considering moving some product categories elsewhere, and we’ll be spending more energy on that effort in the coming year.”

Notably, American importers in promo and other industries steering production away from China could potentially ricochet disruption back to the North American promo market. Partner factories suppliers rely on in China could close, shift into different types of production or face backlogs as a result of being overwhelmed with work gained from factories that have closed up shop. “If suppliers don’t have enough time to move their supply chains, it could result in a shortage of factory capacity to produce some of the products we sell here,” says Isaacson.

Despite the challenges tariffs present, promo execs believe the industry will ultimately adapt, grow and thrive, as it always has. “This is one of the biggest challenges our industry has faced from an outside pressure,” says Isaacson. “It’s hard, but it’s not insurmountable.”

Adds Finnerty Thomas: “As entrepreneurs, it’s our job to navigate the ever-changing landscape, try to foresee the problems on the horizon and put solutions in place. It’s not our job to sit and worry about what’s beyond our control, but to do the best with what we have.”

Tariff Timeline

April 2017
The U.S. Trade Representative investigates whether steel/aluminum imports pose a threat to national security.

August 2017
The U.S. begins a formal investigation into certain policies and practices of the Chinese government tied to technology transfer and intellectual property.

January 2018
President Trump issues a 30% tariff on solar imports after U.S. manufacturers petition for relief.

March 2018
U.S. imposes tariffs on imported steel and aluminum from all nations, including China. In response to U.S. action on steel and aluminum, China places tariffs on $3 billion of U.S. goods.

May 2018
Joint talks in Washington lead to the U.S. agreeing to hold off on tariffs, as China says it will significantly increase purchases on goods made in the U.S.

June 2018
After disagreements about previous deals, the U.S. announces tariffs on $50 billion in imports from China. Trump threatens more tariffs if China retaliates. China does. Trump announces the U.S. will put tariffs on another $200 billion of Chinese exports.

August 2018
Trump threatens to increase the proposed tariff on $200 billion of Chinese imports to 25%, up from 10%. China unveils a list of $60 billion worth of U.S. imports it plans to apply tariffs on if U.S. follows through on threats.

September 2018
Effective September 24, U.S. announced a 10% tariff on $200 billion of Chinese exports until the end of 2018. Tariffs will rise to 25% afterward.

sixtwentysixTariffs: Impact & Advice for the Promo Industry
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