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The future of online promotional products shops? Bright!

22.03.2018 16:09 Uhr PSI
The future of online promotional products shops? Bright! | The future of online promotional products shops? Bright!

The future of online promotional products shops? Bright!

We’re once again hearing and reading a lot about the online retail giants. Amazon, Zalando, Otto, Alibaba: they’re all expanding, they’re virtually everywhere – and, most importantly, they’re insatiable! And isn’t Amazon, almost like spray foam, already pushing even into the niche markets? Will these guys ultimately destroy the online shop I’m running as a promotional products distributor?

That, of course, wouldn’t be particularly charming. After all, online shops generate a lovely bit of extra income each month for many promotional products distributors, money without which they would be looking at their sales and feeling a lot less happy about being independent.

With that said, it’s only natural that we’d worry less about the top of the distributor pyramid, where online pros move respectable amounts of goods and sizeable sales streams, all while posting annual growth rates to boot. And it also deserves to be mentioned here that many of them have been successfully doing this for nearly two decades.

But our main focus today is on medium-sized and smaller distributors, which have been fighting quite a respectable battle on the digital sales front. With the sales they’re generating online, they make an especially important contribution to the strong and much-noticed sales figures posted by the promotional products industry. As a familiar nugget of wisdom tells us, and as we all know, the small things can add up.

How big a threat are Amazon & Co.?

But let’s get back to Amazon & Co.: the Chinese online giant and Amazon competitor Alibaba has just pumped an additional $2 billion into the Southeast Asian online retailer Lazada. Lazada, 83 per cent of whose shares Alibaba already owned, had only been founded by the German startup Rocket Internet in 2012.

Such investment amounts, the confusing hotchpotch of competitors and Amazon’s just recently completed entry into the European B2B segment could justifiably make one ponder on where all this may end up – especially when we know that Amazon has set its sights on office supplies, among other categories. We’ve reported on this topic in this publication before.

It’s at this sensitive intersection between the well-oiled online shop business of today’s promotional products industry and its future prospects where we now have – thanks to two formats developed by the PSI Institute – the opportunity of injecting some facts and figures.

The specialist beats disruption

In his well-received presentation “Digital Marketing – Chances without Risks!” at this year’s PSI Best Practice Forum, Marc Bickelmeyer, account director of the promotional products agency mcs promotion / Prominate GmbH from Solingen, pointed out that – with all due respect to Amazon’s distribution power – one thing is particularly crucial: on the one hand, he said, the promotional products industry is particularly service-intensive and thus attuned to skilled consultants.

On the other hand, it’s for precisely those reasons that it’s of rather little interest to the Internet giants, particularly in light of the thin margins: the specialist, at least in this field, beats disruption.

The findings of the current PSI Industry Barometer Europe provide additional evidence for these Bickelmeyer statements from January 2018. It’s true that almost one in two members were satisfied with the margins they achieved in 2017, with the majority of respondents posting margins in the 11 to 40 per cent range. The numerically strongest block, with 42 per cent, had margins between 21 and 30 per cent in 2017. The average margin of all respondents was 25.7 per cent.

Four factors put pressure on margins

On the other side of the coin, however, there are the 51 per cent of the promotional products industry that expressed their dissatisfaction with the margin development in 2017. They blamed the declining profits on four main factors:

Emerging as the undisputed leaders in the top spots were aggressive pricing pressure by customers (76 per cent) and too much competition (69 per cent), followed by excessive overhead expenses (30 per cent) and a too-long value chain, which still got a noteworthy 18 per cent.

Online promotional products shops on track for growth

The bottom line: these kinds of margins are only of moderate interest for the Amazon machinery, which has thus far failed to really scare the promotional products business. Consequently, the European promotional products industry is expecting average sales increases of 5.3 per cent in 2018 (on the heels of a 5.2 per cent jump in 2017) – all systems go.

A significant share of the credit for these optimistic expectations goes to the positive signals sent by the trajectory of online sales. After all, the industry was able to observe average sales increases of 3.4 per cent in 2017. And no one would expect 2018 to lag behind: online promotional products shops are on track for growth.

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