Are PSPs in the large-format sector likely to flourish in 2018? That very question is being asked in our annual Widthwise poll, but being impatient to provide you with a grassroots point of view going into the new year I asked Signbox MD Mark Bartlett for his take on the situation.
By Lesley Simpson
As a key player in the architectural signage market what predictions would you make about the likely key findings of our 2018 poll of large-format PSPs?
I think we’ll find more of the same to be honest. We’ve experienced three years of growth and I don’t see any reason why that won’t continue - there is still lots of building activity in the south east, and all of our blue chip clients too are still investing and adding to their facilities.
Yes, there are the doubts about Brexit on the horizon, and we’ve seen things become slightly more competitive in 2016 - we’ve certainly had to sharpen our pencil to win work, more so than we have over the last three years.
Is that because there’s less spend or more competition?
More competition I think - and it’s coming from a lot more areas. We are seeing one and two-man bands operating out of tiny premises with perhaps little kit who talk a very good talk, have the fancy website etc., and are starting to win over contractors who are looking at price - the ones who are not particularly interested in things like the fire retardancy of materials.
We are working on a couple of £50m fit-outs in the city [London] - the Financial Times’ new offices and Schroders’ new offices - and the sign packages range between £100,000 and £500,000 - so those are our big ticket jobs for 2018. We know we can compete on a level playing field there because the architect has specified a particular finish - we’ve had that dialogue directly with the architect in the first place.
Signbox has grown its turnover on average by 10-12% over the last three years. Do you expect that level of growth to continue through 2018 – and if so how do you expect to achieve that? If not, why? We are very much in a niche sector here and at the premium end and because of that I think we will achieve a turnover growth as long as the economy stays buoyant - and there’s no reason to think it won’t.
Also, we are very lucky to have the powerhouse of London on our doorstep. Most of our work is in the city and the south east, where we’re still seeing plenty of activity.
So how much of your turnover is print-based?
It must be 40-45% now, and I envisage it staying at around that in 2018. There are basically two sides to what we do here - fabricated architectural signage and environmental graphics. We are often specified on the external architectural signage way before we talk about the internals because of course the external stuff needs to be discussed before anything is built. So we start a conversation early on in the job, which of course gives us scope to discuss options for internal work further down the line.
A lot of the architectural practices now not only have interior teams, but interior graphics teams - or indeed they’ll be working with the branding consultants to the end client. So in the case of the Schroders job we are talking to the architect - which has a very capable graphics team - and to dn&co, branding and identity specialists - so there are a number of creative strands to the conversation we are involved in.
I guess PSPs that are not having those types of conversations could start to suffer more than I expect us to.
What about profitability? As you know, we talk a lot about diversification and concentration on niche markets where margins may be stronger – but is the economic landscape helping/hindering that kind of business development as we go into 2018?
As I mentioned earlier, we are certainly seeing a more competitive environment and so I must say that in terms of margin I’m not expecting 2018 to be a vintage year. Having said that, we know our business model very well, and we know we have to achieve a certain level of turnover to maintain our profits. And profitability is so important when you’re talking about large investment in machinery to expand your market. Do you subcontract work because you know someone who has a Durst Rho 320 and can handle the size, speed and output quality for a one-off job, and when do you bring it in-house? If we see demand grow for a particular product then we would look to invest, but you can only do that if you’re making the right level of profits in the first place.
I think the thing to consider is changing sector as opposed to changing your business model. For instance, we’ve tended to concentrate on corporate office environments, but we have noticed an increasing number of enquiries coming from the education sector. So we’re sticking with the type of application we know we’re good at but looking to sell it out into another sector.
Also, we win work off the back of the level of creativity the company shows. If you want to work alongside some of the bigger names and designers you have to be prepared to have at your disposal a good creative studio, and you can’t bring that in overnight. Investing there is very important I think, and that comes back to profits and having a good enough level to be able to invest in good staff!
Do you think that business resilience is more important than growth in the countdown to Brexit?
Mmm - I think those companies that have recently set up must certainly ask themselves how resilient they are going to be to a sudden drop in business if they don’t have a balance sheet to fall back on. And a lot boils to down to where you’re based and what your outgoings are. I mean, this place [in Egham] costs – business rates have gone up, rent has gone up! Then there are pressures on salaries, and where we are here the pressure is vast because we’re close to London and a major employer at Heathrow Airport, and you can earn very good money doing lots of other jobs in this area where there’s zero unemployment. We recognise that if you want to get the best people you have to pay for them.
So are PSP battening down the hatches do you think?
I think it depends on what they’re doing and where they are. We’re at the end of the construction chain and there’s still plenty of work in that sector that’s due for completion in 2018. It’s if there is a slowdown in starting new projects in that sector that might impact us in two years’ time.
When I look back to 2007/8 when we had the last big crash our bank manager at the time told us to focus in on losing a third of our turnover and to put in place measures to absorb that. And he was right, we did lose a third of our turnover the following year and suddenly we were looking for new markets. Thankfully we recovered.
Also, thankfully, we’re not having that type of conversation now, despite the uncertainly surrounding Brexit.
What is the mood of your customers and how is that impacting Signbox and the rest of the large-format sector do you think?
Our own customers are extremely busy at the moment. All the fit-out companies that we deal with have projects well into 2018. Architects are very busy and there doesn’t seem to be any slowdown from that angle.
Our blue chip customers are also buoyant. We’re not seeing any hesitation in them going forward with projects. Perhaps a couple of the smaller companies in certain sectors - like international travel - are being a bit more reserved. We have a couple that have said ‘look, let’s wait until next year before we have any more cap-ex spending. I think where there’s hesitation is where consumer spend is an issue, and that’s because there’s been pressure on wages.
Talking about looking for new work, getting the message out to the wider creative community about the potential of large-format print is an uphill slog. What’s your take on how PSPs, and the sector as a whole can work to maximise that potential?
Well, we did 100% Design for years as you know, but stopped doing exhibitions some time ago because we saw it was falling off as a route to get in front on the people we wanted to attract - attendees at shows are becoming fewer.
The difficulty with fee earners - which architects and many creatives are - is that they are chained to their desks because that is where they make their money. Once you do get to them it’s like kids in a sweetshop, but you need to take the offering to them. To that end we’ve recently focused our marketing spend on the digital world, and in particular social media, and even more specifically Pinterest. Our analytics show us that the majority of organic visits to our website come from that, because that’s what our customers use to create mood boards etc.
So overall, are you looking to 2018 with optimism or dread?
Cautious optimism. We probably have a bigger pipeline in terms of signed orders for 2018 than we ever have before, but things are constantly evolving and we need to evolve with it.
We lost our biggest client Deloitte in 2016, a client we’d had for many years and accounted for around 11% of our business. We lost out to a company that priced 30% below us and we just can’t work out how they could afford to do that because our margins on that weren’t that great. It was a real wake up call for us and we realise that pricing is becoming more of an issue at every level.
That client loss means that our turnover has dipped from £4.5m to just over £4m. But we are confident that we can recoup the loss in 2018 due to the work we have already secured, opportunities in new markets - like the education sector - and because we have upped the anti with our eshop sales. We are relaunching that in January, having invested in a new ecommerce platform that provides better SEO capability.
With the online store we’re aiming to get completely organic searches for low-value items that we can run off on our machines in slower periods and have ready stocked. At the moment it is small beer, brining in £60,000-£80,000 a year but that could be a £1m business in no time at all if it was properly marketed.
The other thing we’ve got our finger on the button with is NFC. The Internet of Things is highly important, and print integration is going become more of an imperative.