Episode 134: The Decade Ahead with Tim Andrews (ASI) and Paul Bellantone (PPAI)

Welcome to Skucast, the podcast for entrepreneurs in the promotional products industry. Skucast shines a light on our industry's best work, features maverick personalities, and discusses what's really involved in running a modern promotional products business. Skucast is the official podcast of Common Skew.

I think there'll be more consolidation, I think, on the supplier side. However, I think successful negotiation— consolidation is tougher. If you look back in the last 10 years, there have been very few really truly successful consolidations of suppliers.

How would you define that success? What do you mean?

I think successful because they grew faster, they had better service levels, they innovated more quickly, you know, and I don't know that we really have seen seen that in the last 10 years in the industry.

Hi friends, I'm Bobby LeHew, the Chief Content Officer at Commsky. We have a few very special episodes ahead of us, a look back and a look ahead. Mark Graham, Commsky's President and Chief Branding Officer, and I are chatting with some of the most respected leaders of the largest organizations in our industry as we reflect on the changes that have accelerated our success over the past decade and what opportunities and challenges lay before us in the decade ahead. Our first two guests are the leaders of the industry's two largest trade organizations. The voice you heard was that of Tim Andrews, President and Chief Executive Officer of ASI, the Advertising Specialty Institute, which has over 450 employees and serves a network of over 23,000 suppliers, distributors, and decorators in the $25 billion promotional products industry. Our other special guest in this episode is Paul Bellantone, President and Chief Executive Officer of PPAI.

I looked out on the show floor and I saw so many products that are actually built to reflect experiences.

The Promotional Products Association International is the not-for-profit association for more than 15,000 member companies in the industry. Both Tim and Paul are known and loved by many, and I have to say that each time Mark and I sit down to chat with them together, it's always a rich conversation as they have a very unique perspective. They offer intelligent insight, and honestly, they're just both superb humans. It's always fun to chat with them. One quick note: registration will open soon for SKU Camp, the industry's one-of-a-kind business boot camp experience. I'm mentioning it now because because you might want to get the dates of September 13th through September 16th on your calendar. SKU Camp is led by entrepreneurial eccentrics, industry independents, as well as outside experts featuring high-impact lessons from the trenches. SKU Camp is being held in a very special city this year, soon to be announced, and we have an astounding lineup of speakers and some unique changes to the schedule this year. This is not the one to miss. I am more excited than ever about SKU Camp. Registration will be open at skucamp.com. This episode is brought to you by Commonsku, the platform that powers your connected workflow, enabling you to process more orders and dramatically grow your sales. To learn more or to start your free trial now, visit commonsku.com. Now here's our chat with Tim and Paul.

So as we look at the last 10 years of the promotional products industry, I'm wondering if each of you can talk about the single biggest impact on the industry? And why don't we start with you, Tim?

Yeah, I think it really has been the entry into the industry of private equity money. It really fundamentally has changed some of the structure of the supplier and the distributor sides of the businesses. And I think that that money has done some really good things, and it's done some of the things that we aren't really sure whether they're good or not. But I think that in the last 10 years is probably the key point for me.

I think the adoption of retail trends has really influenced our industry and has continued to help us drive it forward. There's less of a gap between what somebody might see in the retail marketplace, kind of B2C, than they see in our marketplace. And in some cases, I think we're actually leading whether it be what we have in apparel, some of the apparel trends and the high-tech apparel and the drinkware. And so I would say it's our ability to narrow the gap between retail and promotional products, in some cases be right there on trend.

What do you guys see as possibly the biggest disruption for our industry? I know it's a big broad question, but maybe there are disruptions plural, Tim?

I think disruptions could be the next economic downturn. I think that could disrupt lots of the economy though. I think the entry maybe directly into the United States of suppliers or manufacturers from outside the US could have a really big impact in the next few years.

For me, it's been technology. I look at the association, we've been around for 120 years. For the first 100 years, we really weren't impacted with technology the way we are right now. In fact, if you look back, everything about our industry for the first 100 years was about keeping it a secret. We had secret line names and secret numbers and secret coding and secret pricing. And once we had the ABCD, they figured that out, we went to PQRS. And now all of a sudden— so the only value that someone needed to bring to the table was the ability to procure product. Now that anybody can procure product from their living room or from their office, our industry has been challenged with showing that value of what can we bring that justifies the margins and now go-to-markets.

And as we look ahead in the next 10 years, what about some of the biggest opportunities? Tim, how about you?

I think really leveraging technology to make the industry incredibly more efficient than it is today. We are broken in so many ways. The experience that consumers have and buyers have today using Amazon or any other host of, you know, more modern digital platforms is missing in this industry because of the communication gaps between suppliers and distributors and their customers. And I think that is a huge opportunity for us to, one, take cost out of the system, but also to make our buyers much happier.

Isn't it amazing when one of the biggest threats to the industry is technology, but also one of the biggest opportunities is the same thing?

It's usually the case.

Yeah.

Scary, but exciting. How about you, Paul?

I would agree with technology. I was having a conversation with somebody recently, and they were asking why there is this disruption, why people are going online instead of working with the traditional channel, as we would call it. And I would say that buyers have grown intolerant of our industry's idiosyncrasies, like the little things that make it difficult that we used to call value. We used to call them value propositions. Hey, we were able to fix your artwork, and we were able to do these things. Now that could be done with technology, and we're actually slower than the way that they can buy it in a lot of ways, or at least what they're able to do in their outside lives, outside our industry. Each one of those challenges becomes an opportunity for us, I think, once we can kind of clear that path a little bit.

So that's really about simplification. I mean, there's so much more simplification that can happen in the industry. I mean, think about how our pricing works in the industry with run charges and setup fees and all these things that are very complicated and make it very difficult for a consumer to buy on a distributors website, for instance.

Let's talk recession since you brought it up, Tim. Do you see a recession looming closely and any predictions on how that will impact the industry? And maybe a way to ask this is, how do you see it possibly impacting the industry in a different way than the previous recession that we all experienced?

Yeah, the recession 10 years ago was a completely structural recession that I hope won't be repeated. You know, we may be in the beginnings of recession right now. I'm not an economist, but if you look at the Fortune 500, the Fortune 500 Operating income is actually lower and declining. It's not rising. The published income of Fortune 500s are up simply because of the tax cuts from a year ago. So if you take the tax cut issue out, the Fortune 500, the operating income is actually declining. So that's not a good sign for the overall economy. So I think we're coming into, obviously, a very busy electoral year. I think that the politicians will do everything they can think of to keep us out of a recession for the next 12 months, but it may get a little messy after that.

Again, not an economist, but I've been asked this question in one form or fashion for the last 3 years around this time and keep saying, "Well, I hope it's not this year and then I'm not projecting it to be this year. Hopefully it's not. Who knows?" I talked to 2 people and everybody has their own opinion and everybody I speak to. Has their own opinion on it. I think the question about how will it affect our industry and will it affect our industry differently, I'm interested to see how it affects the private equity money in our industry and what demands that may put on those companies that are driving a lot of the growth of our industry. Private equities, there's been so much investment, which I think is good, by the way, because they're investing in technology, they're investing in compliance, But once that pressure from a recession hits those companies, then we'll see how it really affects the industry, and that's an unknown.

And I think really all parties have done a good job within the last, say, 5 or 6 years of explaining to their customers the value of promotional products and the return on investment. And I think that that has really put some good, you know, grounding in the fact that in the next recession, we may have a bit more firmer ground to be in. I think both PPA and ASI have done really good jobs for the industry.

I was agreeing with that. We're so measurable. We're not automatically the first cut.

Let's talk sustainability. How do you see the movement towards more sustainability in the world impacting our industry either positively or negatively? Tim, what's your view from ASI?

So I was just at the PSI show in Düsseldorf last week, and Paul was as well. Sustainability is really everywhere in Europe. And they are really leading, I think, from an industry perspective worldwide in this area. And it's starting to poke around in North America, you start seeing it. It's going to become very big. It's not nearly as big as it needs to be. And it needs to be also not greenwashing. You know, I'm sort of disturbed a little bit by some of the things that I see among some suppliers, frankly, about products that they're claiming are better for various reasons that really aren't better. And so I think there's going to be a bit of a fallout from that for some suppliers. But I think we need to get much better about sustainability, and single-use products and products that really don't matter to people really need to get out of the system.

I would agree. It was on— there was something about sustainability or eco-friendly on almost every one of the major booths at the PSI show. I think the difference is that theirs is driven by legislation and mandates. So there's a clear definition of what sustainability means. And then there's that benchmark that a company can claim that. The confusion in our industry is my definition of sustainability may be different than Tim's, may be different than yours. For me, it's that whole— even things like corporate social responsibility here in our country, it means something different to every company and how they want to approach it. I think until it becomes mandated in some way, it's going to be consumer-driven obviously, but mandated in some way, then I think we'll really start to see some movement. Unfortunately, and I'll kind of add on to that, the uncertainty that we're seeing at the federal level in just getting anything done has allowed the states to really lead their own charges, and that makes it difficult for our industry because you can have straws in some states and you can't have plastic bags in other states. So I'm actually in favor of legislation that would raise the bar on, first, let's define sustainability and then demanding it.

I think one thing that is potentially worrying for our industry is when an end client starts to define sustainability as buying no products versus just buying a recycled t-shirt. Is that something that— is that a legitimate worry?

Tim? I think it's a legitimate worry. I think that we can overcome that. I think that distributors are really well armed with information to refute those kinds of claims. I think we have to be careful though that we don't overpromise and underdeliver and then get found out to be spreading false information. I think also distributors and suppliers together and all the organizations and institutions need to be thinking about the products that really are one-time use, not things that are appreciated. How do we transition from those kinds of products and those categories to things that are going to be, you know, kept for a long time, reused, passed along, and, and aren't in the waste system?

Similarly, there's a growing concern that many young buyers would prefer to invest their marketing dollars— younger buyers would prefer to invest their marketing dollars in experiences, thereby reducing their spend on promotional marketing. Do you think this is going to impact our industry? And how do you see— do you see this as an opportunity? Some distributors see this as an opportunity. What do you think? Let's start with you, Paul. You're shaking shaking your head vigorously.

I'm excited about it. I looked out on the show floor and I saw so many products that are actually built to reflect experiences. Walk over to the brand section and see what Coleman has. And I mean, if you want to just talk about outdoor experiences, you have Coleman and there was a couple other companies there that I just saw that they're showing experiences. They have a raft in their booth and barbecue grills. And so I think that we're poised to really support that through promotional products as being part of the experience and lifestyle products.

And those products being kept. One of the greatest things about products distributed in an experience situation is those are products that are kept for a very long time because they really have a special meaning to the person that was experiencing that. And it's a reminder every day of what is— we all have t-shirts in our drawers that are from 20 years ago or 30 years ago, a special concert we attended or something. And so I think those products in that way used are really special.

Yeah, actually, I believe that promotional products marketing is the OG of experiential marketing. I really think it was— it's the original experiential marketing. And I— with 3 of us here that spend a lot of time, and organizations spend a lot of time educating the industry, educating distributors particularly, how to go to market, this is going to be a nuance in our language and a shift in how we communicate to customers. And I think with you, I'm actually very optimistic about it. I think we can actually grow exponentially if we learn to go to market the right way.

For some. Our entire industry won't follow that lead. We'll still have some people who are selling products and somebody asked for a product, but I think those that can make that connection with their clients are the ones who will benefit.

Tim, I know that you have spoken a lot about diversity in the industry and how it's been a struggle. We are at the PPAI Expo right now. We walk around and we see a lot of white faces. It's exciting to see diversity from an age perspective. I think that the industry has really done a good job of attracting younger talent, but I don't think that we've done as good a job at attracting those from diverse backgrounds. Over the next 10 years, what initiatives will ASI and PPAI put in place to try to drive more diversity in the promotional products industry?

Yeah, I think racial diversity has to start with the distributors and suppliers who are, you know, in a concerted effort going after people that do not look like most of the people that are walking any of the trade shows. And that's really a difficult lift. I think people, especially in our business, we have a lot of companies that are 1 and 2 people, and they have a much tougher time looking at and saying, how can I really help the diversification of the racial diversification? So that needs to really be something that distributors and suppliers, I think, really drive pretty carefully. I think that from an age perspective, we're all doing really good work there. And I agree with you, the, The trade show floors look to be younger to me than they did 10 years ago. We've, you know, we in our program for interns, for summer interns, have trained over 1,100 summer interns over the last 3 years. And so I think that's a feeder system. We've already had some distributors who have said, we've hired interns back as full-time people that came through that program. So that's just in 3 years. So that's really promising to me.

I'm going to throw a twist at this one because I don't know that that's as true as it sounds, that soundbite. I don't know that we can just look at the expo and say that this is reflective of the the entire industry. Because when I go to distributor's office, I'm actually seeing more racial diversity than I've ever seen. They're just not in the traditional forward-facing sales position. Look at the marketing folks, the technology departments that are supporting our industry now that didn't exist 10 years ago. So I would say that the traditional distributor salesperson looks a lot like it did 10 years ago, but I don't think that traditional— the support of the traditional distributor company looks exactly the same. And that could be inside sales, marketing, social media positions. So I'm actually encouraged. Ultimately, there's only so much that I think PPAI and ASI can do. It comes down to how are you as an employer? Are you an employer of choice for, for people that are different?

But I think we've got to have people on the front line who reflect the buyers and the people that are in the marketplace. And so I agree with you that if you go into a supplier or distributor, you may see people in different roles. But that front line, the people that are in the trade shows, you know, if we don't have people that look like the buyers and don't know how to communicate with the buyers and think about what those buyers are thinking about, I think we'll be in a tough spot.

Paul, earlier on today I ran into Jennifer Crowfoot who was talking to me about a diversity playbook that PPAI has just created. Do you want to talk a little bit about that?

Well, we created a diversity position on staff, I think it was 3 years ago, and the role was twofold. It was to be able to get into the marketplace and talk about best practices in creating diverse workforces. It was also an internal position that said at PPI, are we doing everything we can in every one of our departments to really encourage that, whether it's in the language we're using, in the And the graphics we're using in our promotional materials all the way through, are we walking the walk and talking the talk? It's ultimately come to her. Julie Kwan is the person on staff who wrote it. She wrote a diversity playbook that's just best practices on how to hire a diverse workforce, how to— the tenets of a good diverse workforce. So that'll actually roll out this year. It's actually rolling out. Here at Expo.

Can I get a copy for ASI?

Absolutely. I think you actually do a good job with it.

We do. Yeah, I'm very proud of our— but we can always be better.

Absolutely.

Well, and I, I think we should be clear about what we're— the why on this topic. And I love what Catherine Graham says, so I'm gonna give a shout out to Catherine here about the reason why. And this is why distributors and business owners should do this. It's about a diversity of thought. We need the broad experience of folks that will reflect our market, but will make our businesses better, bolder, smarter. Diversity of thought is what we're actually aiming for above all. Let's talk consolidation. What about the distributor and supplier makeup? Do we see supplier consolidation happening to the fact that there are eventually in this next decade, remember, we're looking 10 years forward, a handful of very large suppliers? And do we see a similar shakeup with distributors? Are distributors going to experience the same type of consolidation that suppliers have? So the first question is really, how big is the supplier diversification— supplier consolidation going to go? Paul, do you want to start with this?

Well, I don't know how far it's going to go, but I do know that when I'm seeing now, and I would imagine this trend is going to continue, when somebody comes in and buys a supplier company, it doesn't affect the supplier company so much. They may change some business practices, they may invest, But generally, that investment is coming with the mandate to now go out and buy some more, cobble together a series of companies that may be aligned or in vertical spaces. So I think it's going to continue to accelerate. For every one of the new private equity entries we've had, you have to expect another handful to follow pretty quickly. I talk to people whose companies have just been purchased, And the first thing that they tell us, I know they tell us both, my phone's ringing off the hook for people who are wanting to get purchased by us now that there's that opportunity. On the distributor side, I don't see it as the same challenge. By the way, consolidation, again, like private equity money, I think is actually good for our industry. I think it makes us more seamless, it makes us more efficient. It's not good if you're running a trade show, by the way. But on the distributor side, so 20 years ago I came into the industry, there were 22,000 we had 10,000 distributor companies. This year we're reporting 22,000 distributor companies. I don't know that it has the same effect. There's certainly a larger distributor companies are growing faster than smaller distributor companies. We have haves and have-nots more than we ever have before, but it's just a different dynamic.

I think there'll be more consolidation, I think, on the supplier side. However, I think successful negotiation— consolidation is tougher. If you look back in the last 10 years, there have been very few really truly successful consolidations of suppliers.

How would you define that success? What do you mean?

I think successful because they grew faster, they had better service levels, they innovated more quickly, you know. And I don't know that we really have seen that in the last 10 years in the industry. We've seen some roll-ups and we've seen some consolidations. I don't know we've had really what I would consider to be successful ones. So it certainly has aggregated some of the spend. So 10 years ago, in the Council of Top 40, about 23% of the spend in the industry was with the top 40. It's about 28-29% now. So that certainly is a shift. In the next 10 years, I think there'll be more consolidation. I completely agree with Paul. I think the challenge for suppliers, especially when they have private equity money demanding a return, is what's that return look like, and how do you measure that return, and is it gonna be more successful? On the distributor side, I think there's very few examples of real consolidation that really makes sense for some of those distributors. And most of them remain independent and sort of in a constellation with others. So I think you're seeing the rise of buying groups, you're seeing the rise of sort of different models of distributor consolidation, but it isn't truly buying a distributor or two distributors merging. You'll certainly have some of that, but I don't think it's as large a play as it is on this, on the supplier side.

Yeah, at SKUCON, um, I co-hosted a panel on supplier-distributor relationships, and one of the growing concerns with distributors is because of consolidation, like you had mentioned, the lack of innovation and, and the service levels that can, they can sort of, um, just mellow out and if not dissipate altogether.

Marcus, within the industry we've reported 4 or 5% industry growth for the last several years. As we look out in the next 10 years, so let's say we have a $25 billion industry in 2020, what are some of your predictions as to how large the promotional products industry will be in 2030? Tim?

23. So we think we're $26 billion this year. I'm going to say we'll be $35 billion in 10 years.

I think we will continue to have low to mid single-digit growth. So do the math on that for me, Mark. I don't have my calculator in front of me. I'm assuming maybe Tim did it in his head. I didn't do that. Here's the concern for me though, is that the marketplace is growing faster than the industry. And I define marketplace as products being sold outside of our channel. So by estimate, in 1998 when I started, the industry I think was $12 billion, but the estimate on the marketplace may have been like $13 billion. So there was 8% being done outside of our channel. By some estimates, the marketplace may be $40 or $50 billion right now, which means that the marketplace is growing faster than the industry. The challenge in that is that we're not catching up. The opportunity is that we know people love promotional products. If we can get our acts together, we actually have the opportunity to capture some of that marketplace and bring it back into our channel.

Well, I'm delighted to know that your answers are a greater number than we have right now, because there certainly are some threats that we're going to face in the next 10 years. I'll ask one fun question for you as we close. Any thoughts as to what each of you personally will be doing in 10 years as it relates to the promotional products industry?

I will be a user of promotional products in 10 years. I will be a recipient.

You'll be an addict to promotional products.

But I'll be a loyal one. So wherever I see promotional products, I'll take them and I'll feel like I'm doing my part.

That's a great answer. How about you, Tim?

I think I'll be a user, but maybe I'll still be in the industry. This is an industry where people leave, but they never really leave. They always come back. So I suspect we'll be still here looking for consulting jobs or something.

All right, we'll get the next podcast in the books for 10 years from now.

But, you know, and somehow that's going to turn into Bellantone's leaving, but Tim Andrews is sticking around.

I'm staying. I'm staying.

That one you had to outlive.

I'm going to outlive you.

That was the second one, right? I had to go first on that. Terrific.

Well, happy 2020 to each of you.

Thank you very much.

Thanks, gentlemen.

Thanks so much for tuning into this episode of SkewCast. Be sure to keep up with our latest content by subscribing to SKU Cast on iTunes or to our blog at community.commsku.com. Until next time, friends, thanks so much for listening.