AMERICAN MANUFACTURING 2013

   I had someone recently ask me what I see as the biggest stories in American manufacturing for 2013.  Four things sprang to mind:

   1.  OBAMACARE.  Anxiety among businesses large and small has been rampant since the Supreme Court gave the go-ahead in mid-2012.  Manufacturers have seen rapidly-rising health insurance costs as insurance providers girded their loins for this brave new world.  With health care a large and growing line item for most of us and our associates, ObamaCare has been a big story.

   2.  SHALE.  North America's oil & gas boom, driven by technological improvements, has entire industries rethinking how they operate.  Our energy assumptions are being reset - largely for the better.

   3.  AUTOMOTIVE.  This leaner sector still casts a long shadow through the supply chain.  The robust rebound to meet pent up demand has many manufacturers smiling.

   4.  RESHORING.  Though some industries will never return to N America, some at the margin are moving away from the rising labor and transportation costs in Asia and toward the shorter lead-times and greater flexibility of being closer to their markets.  The total cost of ownership (TCO) has swung more in our favor.

   In contrast to much of what has occurred over the past two decades, it's energizing to recognize that more of the big stories of this year are actually POSITIVE for N American manufacturing.

  What do YOU see as the Big Story for American manufacturing this year?   

THIS IS YOUR BRAIN ON SHOPPING

...and it's not very smart.

Most people who shop know the silliness of some pricing.  From BOGO deals to the .9 cents on every gallon of gasoline we buy, we know that pricing plays many roles: it implies value, it encourages behavior ("Buy me!"), it provides context.

The Atlantic's Derek Thompson shows us some of the ways in which we as shoppers are led - and sometimes misled - by pricing tactics.  http://www.theatlantic.com/business/archive/2012/07/the-11-ways-that-consumers-are-hopeless-at-math/259479/

GREENWICH VILLAGE RETAIL

Here's a fascinating look at a microcosm of American retail.  The author shares a touching review of "creative destruction" in this iconic place.  http://www.nytimes.com/2012/06/10/magazine/can-mom-and-pop-shops-survive-extreme-gentrification.html?pagewanted=2&_r=1&hp

The times, they are a-changin'...

“WE MAKE THINGS HERE”

That’s a phrase people in northeastern Ohio will soon see and hear more often in advertisements and promotional materials. After decades of “Rust Belt” hell, manufacturing is enjoying a renaissance here. Many old-line industrial operations have fallen by the wayside while industries like aerospace, materials sciences and health sciences are growing. Industries that apply world-class technologies and techniques are flourishing here. That’s why the state’s regional economic development group, Team NEO, has chosen that phrase as their new tagline.

The phrase reflects new economic research showing that, between 2010 and 2015, manufacturing in the region’s 18 counties is expected to far outpace manufacturing growth in the rest of the country.

This phrase aptly describes Tusco Display, too. Unlike many display producers who may design and sell but outsource all of their manufacturing, Tusco Display has consistently reinvested in our manufacturing capabilities, even during the tough years of the recent past. That’s why we can say, “We make things here” today, too.

With modern production capabilities and skilled associates, northeast Ohio manufacturers are winning business and finding growing success. At Tusco Display, we’re proud to count ourselves among them.

Shoppers Gone Wild

Ten years ago, Black Friday was a phrase used in American retailing circles but not in the common vernacular. Today, who doesn't know about it? It's become a sport of Super Bowl proportions, involving over 226 million people, 6.6% more in 2011 than in 2010.

And they spent more. On average, Black Friday shoppers spent 9.1% more than they did a year ago, according the the National Retail Federation. In total, Black Friday spending topped $52.4 billion, up 16% over 2010.

Shoppers haven't let up either. IBM reports today that Cyber Monday sales grew by a whopping 33% over 2010, this on the heals of double-digit increases on both Thanksgiving Day and Black Friday, too. What's going on here? Have shoppers gotten into the liquor cabinet?

Some pundits fret that shoppers won't maintain this pace, that they're buying early and won't have staying power. Don't bet on it. The American consumer has become somewhat inured to the received wisdom that we're in a "bad economy," feels like she can spend more now than the holiday seasons of 2008, 2009 and 2010 and is determined splurge a bit. She's pared her debt load, cutting per-capita debt to 2005 levels, according the Bureau of Economic Analysis. "Hey, times aren't great but we're doing OK. I'm buying both blouses instead of just one."

This may bode well for improved general economic performance and the jobs picture in 2012. Since consumer spending makes up roughly 70% of our economy, when shoppers become buyers, our economy grows.

OCCUPY AISLE STREET

I haven’t slept well in weeks. Colder weather and unfriendly natives have dampened my spirits. Is it really worth it? Ever since I decided to camp out in the aisle of (name your least favorite store here), I’ve teetered between feelings of accomplishment and despair. We’ve been hassled by store security but, hey, this store is open 24-hours and I know my rights! Can we make these people listen? Don’t they know who we represent?

We are the 70%! Study after study confirm that, on average, shoppers make decisions on exactly what they will buy while in the aisle and at the shelf. We are the decisions made on what deodorant to buy, what brand and size ketchup bottle we purchase, what flavors of juice boxes we pack in our children’s lunchboxes, what style and package size of toilet paper we take home.

Marketers would rather we weren’t so loud. Why can’t we go home, let TV ads and radio spots and newspaper inserts and internet pop up ads work their magic? They’d rather we were invisible because we’re hard to track, difficult to define. Many of them just don’t know what to do with us.

But some people listen. Some people know where to put their marketing dollars. It’s right here. On-shelf, near-shelf, end of aisle, in the aisle. We are aisle violators and we won’t be denied.

WHERE'S THIS ECONOMY HEADED?

In the wake of a shaky summer, the US consumer confidence index has reached its lowest point since 1980. Though mortgage rates are at a 60-year low, few houses are selling and many people are still coping with home values below their mortgage values. News reports today claim that the American family income has dropped for the third year in a row – to roughly 1996 levels (in inflation-adjusted terms).

Things are tough out there, right?

Yet, many area manufacturers continue to hire and invest in their businesses. Tusco Display recently opened a new facility in New Philadelphia. In a Tuscarawas County Chamber of Commerce survey of 43 of our larger manufacturing concerns, 26 of them plan facility or workforce expansions. And we’re on the cusp of a natural gas boom here that will bring many new businesses, people and dollars to our regional economy.

Why the disconnect? It’s two-fold. First, people are still hurting from the Great Recession of 2008-9 and feel insecure. They lack confidence to take risks, e.g., switch jobs, buy a home, start a business. They are playing things close to the vest. They’ve learned from past excesses.

Second, both federal and state governments are making many changes that make us uneasy. From ObamaCare and debt ceiling brinksmanship to SB5 and restructuring state agencies, change makes people uneasy. We like stability and predictability, things in short supply these days.

Times will improve and we will not see a repeat of 2008. Until people see it, feel it and believe it though, our lack of confidence will impair our ability to take advantage of the opportunities before us. At Tusco Display, we’re moving forward with confidence.

Extreme Couponer: Friend or Foe?

Today's Ad Age includes a special report about the rise of extreme couponing and posits that those who coupon the most - so-called Enthusiasts - are a marketer's "worst nightmare." REALLY? I don't think so.

According to the excellent statistical presentation in the report, 13% of couponers accounted for 70% of all 2010 coupon redemptions. These folks are tactical masters but far from a nightmare.

If anything, marketers are their OWN worst nightmare. Coupons can be effective tools for generating trial purchases. If the brand lives up to consumers' expectations, couponing can lead to brand switching and eventual loyalty just as surely as sampling does. Brands and retailers that continually rely on coupons to goose their numbers, however, are simply sacrificing margin for top line results as they teach shoppers to only buy "on deal."

Coupons can work when properly executed. Coupons can also work against the interests of the brand and the retailer when abused. Don't blame the crafty shopper; blame the lazy marketer.

Econ 101

The economy continues to improve with some real bright spots worth celebrating. Retail spending and industrial production are two of them.

According to Dr Ken Mayland of ClearView Economics, US retail sales reached an all-time high - surpassing the peak set in Nov 2007 - in December 2010. Annual retail sales rose 7.9% last year. This follows 2009's increase of 5.5% and the drop-like-a-rock year of 2008 when sales fell 11.1%.

Non-store retailers did even better with a year-over-year gain of 15%. On-line sales continue to chip away at the market share - well over 90% - held by brick-and-mortar retailers. Stores continue to benefit from a distribution cost advantage but they cannot rest on their laurels. Retail sales through clicks will keep growing faster than sales through bricks. Retailers must make the shopping experience worth it to shoppers who can do it from their desktops and even mobile devices.

Consumers aren't the only ones driving improved economic conditions. Industrial production ended 2010 still 5.7% below its 2007 peak but enjoyed a very respectable 5.9% rebound in output. Add the fact that many US factories dramatically improved efficiency and thereby profits, setting the stage for record-shattering profits in 2011. This will lead to some serious headway made in reducing unemployment in 2012.

Factories won't earn those profits through price increases. Capacity utilization, according to the Wall Street Journal, climbed from 75.4% in Nov to 76.0% in December, still below the mean average of 80.6% for 1972-2009. Though raw material inflation is gathering steam - steel prices have risen 25% since Nov, cotton's up 91% over the last year, petroleum prices are jumping - relative over-supply will constrain prices even as demand rises.

What's all this mean? Buyers are buying, producers are producing and the economy is on track toward restored health and vitality. We can expect solid growth for 2011-12.

How Many Pulls?

Spring has arrived in all its glory here in Ohio. Though we had a rougher-than-usual winter, we're being rewarded with a nicer-than-usual spring. With longer, warmer days come longer, warmer days of yardwork.

As I pulled the Honda mower from its winter slumber on Saturday, I wondered how many puills it might take to get the engine to start. This machine is six years old and never gives me a worry. Would it start in one pull? Too much to expect. Three? That would be terrific.

In fact, it took only five pulls until the engine was purring and the grass was flying. It prompted me to wonder about other things getting restarted this spring. Last year, many industries - custom displays and store fixtures, too - skipped the growing season altogether. The advertising industry as a whole saw a double-digit decline but is clearly headed in the right direction today. As AdAge.com put it this morning (perhaps channeling Mel Brooks), it's "Springtime for Marketing."

We see clear signs of pent up demand being loosed in the form of new projects and orders from clients new and old. We see some clients ordering a multiple of the quantities they purchased in 2009. No one wants to miss the return of the shopper, a precursor to the return of the buyer. Some new clients have turned to us in frustration because their sources of displays and fixtures did not survive the Great Recession while others remain on life-support. No brand or retailer wants to place their trust in a supplier that might fail them during this key time of renewal and growth. Some clients do not have the luxury of shopping the world because they need to upgrade their in-store THIS quarter, not next. Tusco's here to serve them nimbly and reliably.

We yanked on the starter cord a number of times last year but the engine only sputtered. We replaced some parts, changed the oil, put on new tires and sharpened our blades. Now, with gas in the tank, we're humming along singing a song. This year will prove to be one of the great rebound years in modern marketing. And, as more Americans regain their footing, 2011 will be even better.

Made in America

At Tusco Display, we're proud to design, engineer and produce world-class point-of-purchase displays and custom store fixtures. Making stuff is what we do.

And we're not alone. As the National Association of Manufacturers proclaims, the United States remains the world's largest manufacturing economy, producing 21 percent of the global manufactured goods. According to the US Census population clock, there are approximately 309 million Americans among a world population of 6.812 billion people. In other words, we're 4.5% of the population producing 21% of everything. Even after the battering recession, nearly 12 million Americans work directly in manufacturing - about ten percent of the overall workforce.

Making stuff in China or Mexico or Vietnam has its place, too. But when it comes to nimble production of high-value products, minimizing transportation costs (time, money and carbon) and keeping inventory costs low, its tough to beat manufacturers in your backyard.

We're going to keep efficiently, reliably and intelligently manufacturing here in bucolic Gnadenhutten. Making stuff is what we do - well.

Have Shoppers Changed?

In the wake of the Great Recession, there's speculation and some research that plumbs the evolving buying habits of consumers. Are shoppers now different than they were, say, two years ago? Are they chastened, more frugal, less spend-y than they were? And, if so, is this a lasting change or a passing thing?

Some answers are emerging. In a recent study of 8000 shoppers by Alix Partners, researchers perceive a shift away from convenience and toward value (price + product). "Today, for value, shoppers are willing to cede time, service and experience," says Matthew Katz who heads their retail practice. "They are willing to wait in line a little longer or drive that extra two miles."

Consultancy Shoppercentric found behavioral changes among British shoppers. In fact, 87% of those surveyed reported that they had changed how and/or where they shop due to the recession. Nearly half (48%) of those surveyed can be categorized as Soft Reacters: people who are slowly but perceptively changing their shopping and spending habits. Another 24% are Strong Reacters who have been forced to make more drastic changes.

What no one can yet predict with confidence is whether any of these changes will remain as the economy continues to improve. One thing we all know for sure: shoppers continue to visit stores and, as retailers continue to report, they are spending more when they are there. And getting it right at that point of purchase - where the product, people and purchase intent inhabit the same space - remains a critically important intersection for shoppers everywhere.

Have shoppers changed? Yes - somewhat. Will they remain as they are now? No, they'll continue to change as circumstances and experience lead them. Studying these habits will still challenge brand marketers and retailers and feed researchers and pundits the world over.

The Last Three Feet

Have you seen one of the latest Allstate TV commercials? The spokesman asks how the viewer will look back on the Great Recovery. I like it because it recognizes that a recovery is underway and encourages us to think about putting the Great Recession behind us. Who's ready to see better times? Say "Aye."

Ad Age magazine talks about this and other ads (http://adage.com/article?article_id=141846#comments) today. It led me to ask a slightly different question: How will MARKETERS look back on the Great Recovery? Did they ramp up their promotion of their brands in time to speak effectively to customers when they started feeling better about their lives? Were they ready to go when the shopper returned to the store?

Many marketers and CPG companies are scrambling today to redefine their value propositions. As they do so across a range of marketing platforms, e.g., TV, print, mobile, out-of-home, they must execute superbly at-retail. If your product isn't found interesting - or found at all - when and where the shopper visits the store, you're out of the game. With 95% of all purchases made in a store, getting the last three feet of the marketing plan right remains essential.

More Stores = More Sales

From what I see and hear, retail store openings will doubtless grow in 2010. Does anyone doubt this? It's a good time for retailers for several reasons:

(1) Retailer balance sheets are improved from a year ago.
(2) Landlords remain in weakened states due to
(a) lots of empty inventory,
(b) heavy debt loads, and
(c) dwindling property values.
(3) Retailers can drive better bargains with landlords for more or better space.
(4) Retail sales (US) grew an estimated 1.8% over the holidays.

This bodes well for brands seeking to grow - or at least maintain - share of market. And as stores expand or upgrade, store fixtures need expanding and upgrading, too. That's good news for at-retail experts like Tusco Display and the point-of-purchase industry as a whole.

Granted, this year will look terrific compared to 2009 but will surely pale in comparison with 2011 as job growth accelerates, consumer confidence grows and the economy finally rebounds. We're moving from days of the Vicious Cycle (declining home values = less consumer confidence = belt-tightening by consumers = belt-tightening by companies = job losses = less consumer confidence) to a Virtuous Cycle (improved profitability = business expansion = more hiring = more consumer confidence = retail sales growth). I like this new cycle a lot more than the last one. How about you?

Building Blocks

Remember those faux building blocks we had as kids? Though creating a fortress was fun, it was more fun knocking the walls down, wasn't it?

The year just past knocked down a lot of walls: sales plans constructed, parapets of anticipated profits, moats dug and filled to keep bad things from reaching us. Many of these things tumbled to the ground in 2009. And none of it was any fun.

A New Year has dawned with opportunities to rebuild. I see us stacking corrugated bricks again. Except we won't build the same way we did last time. We'll more carefully consider our footers, the materials we choose, and the methods we employ. Better bricks and more muscular mortar will make us stronger, better able to withstand challenges to the fortresses that we want to believe our businesses are.

Mike Lauber
www.linkedin.com/mikelauber
www.tuscodisplay.com
mrlauber@tuscodisplay.com

Manufacturers on 2010: "It's got to be better."

This has been a common response to questions I ask other manufacturers of various products from custom store fixtures to automotive parts to widgets of every stripe. The year we soon leave has been "atrocious," horrendous" or "dismal." As I have heard repeatedly, many of them look forward to 2010 because, "It's got to be better."

But it doesn't.

What they're really saying is one of two things: "I'm hopeful that we see improved business" or "We cannot survive another year like 2009." Though general economic activity has improved over the course of the year, there's no guarantee that every company will find better times ahead. I believe that we'll see more failures among manufacturers, banks, real estate developers, etc as those hanging by a thread finally run out of stamina, patience or cash. Especially cash.

The Great Recession has been epic in depth, length and severity. Those of us who survived it will tell tales of these harrowing days in hushed tones and knowing looks. "You think THIS is tough? Why, back in Aught-Nine, it was ten times worse than this!" we'll preach. These days will change how we approach our businesses henceforth.

If 2010 does indeed prove to be better than 2009 - and I fervently believe that it will - then we'll have great year-over-year comparisons to make from our nadir and lessons to apply to make ourselves better in 2011 and beyond. Those left standing will find better days ahead.


Mike Lauber
mrlauber@tuscodisplay.com
www.linkedin.com/mikelauber