What Makes A Record Year For Promo?
Based on PPAI’s annual Sales Volume Estimate, it’s hard not to feel good about the state of the promotional products industry. It was a record year, with promo topping $25 billion in total sales for the first time ever.
A 13% increase over 2021 total sales suggests that the industry has fully rebounded from the unprecedented circumstances of the first year of the pandemic. But a record-breaking year inevitably leads to questions about 2023: Is this type of growth sustainable? Or is down the only direction left for 2023?
Most would agree that 2022 required, as Proforma CEO Vera Muzzillo calls it, a “confluence of positive events that contributed to the significant growth.” Quite a few factors went into the exceptionally high sales totals in the promo industry in 2022. Since early 2023, when the early results of the Sales Volume Estimate were indicating a record year, PPAI Media has spoken with key leaders from some of the industry’s biggest companies to get a clearer picture of what those factors truly are.
Some of them might prove to be specific to 2022. Others might have staying power. Examined together, rational expectations for 2023 may begin to emerge.
The Flash-In-The-Pan Factors
There isn’t an industry – or perhaps even an individual – who can realistically talk about 2022 without bringing up inflation. It may well have been the word of the year, and it is very much part of the conversation when it comes to the promo industry’s big year.
Inflated prices mean inflated sales numbers, at least to some degree.
“It’s conceivable that, while we may have experienced record top-line numbers for the industry, we may not yet have eclipsed the same unit sales as the industry experienced in 2019, due to higher prices for similar items,” says Kevin Walsh, CAS, president of Showdown Displays and PPAI board chair.
Thus, inflation is the big caveat that the promo world will have to wrestle with when using 2022 as an indicator of the future. Promo companies were forced to sell products at a higher price because they were paying higher prices for nearly everything that went into their promo business. As Nancy Schmidt, CEO of AIA Corporation, says, “Inflationary prices drove higher total revenues.”
Parsing out how much price inflation might have inflated sales totals is no easy task, considering that independent of inflation, many promo companies were very happy with the number of sales they achieved in the year. Furthermore, inflation began to show signs of letting up in the latter half of the year, meaning promo companies, like many industries, no longer had to constantly react to inflation’s whims.
“Price fluctuation amongst various commodities started to level out, which thus made it easier to stabilize pricing for a longer period of time,” says CJ Schmidt, CEO of Hit Promotional Products.
Another factor potentially specific to 2022 was that many clients might have stockpiled marketing budgets from more cautious spending in the two years prior. It wasn’t until a few months into 2022 that many brands went full throttle back into their marketing plans, likely with some amount of surplus carried over from a spending pause in 2020 and 2021. Promo likely saw the dividends in 2022.
“I believe that most corporations had a larger budget piling up from the previous two years, which increased their promotional spending,” says CJ Schmidt.
Calling this a flash in the pan would be presumptuous. Certainly, some of that spend on promo was used with surplus dollars, but if the strategy was effective, there’s no reason to think most clients will not continue to double down.
“Distributors and end buyers are increasingly incorporating promotional products as part of their integrated marketing strategy, resulting in a higher share of their budgets being devoted to promo,” says Nancy Schmidt.
The Promising Factors
If a big portion of stockpiled marketing budgets went toward promotional products, it certainly wasn’t for arbitrary reasons. The return of in-person events such as concerts, sporting events, conferences, sales meetings, trade shows and other events were significant contributors to 2022’s growth.
Live events often go hand-in-hand with promo, but they also create a buzz that reminds clients of the lasting effect of promo. It’s almost a domino effect.
“We returned to events in full force, recapturing the annual energy of promo for the first time since the pandemic began,” says Nancy Schmidt.
All of this was only made reasonably cost effective, however, because of a fairly dramatic improvement to the supply chain – a major talking point in Q1 – as we progressed deeper into 2022.
“Having the goods available for sale at the industry’s peak season was a major contributing factor,” says Walsh.
As China contends with its own major wave of COVID-19, complications may still arise going forward, but a supply chain turnaround can only be seen as good news. CJ Schmidt agrees that inventory levels “started to creep their way back to a level of normalcy towards the latter half of 2022,” which was ultimately a prerequisite for record-breaking sales numbers.
Essentially all of these factors are related to the COVID-19 pandemic and its unprecedented global and economic effects. Times were hard, and there’s no getting around that.
“Many businesses thrived through the pandemic, but generally speaking, that was not the case with promotional products,” Walsh says.
The further we get from the onset of the pandemic, the easier it has become to do business, resulting in something of a delayed recovery for the promo industry.
What About 2023 (And Beyond)?
The promo leaders we spoke to all seem confident in another strong year for promo in 2023, albeit with possibly less growth than in 2022. Of course, there is the remote but lingering possibility of rockier economic conditions ahead.
“I see the industry growing again, at least 5-10%,” predicts Muzzillo. “If we hit a recession, all bets are off.”
To Muzzillo, much of what has been detailed above indicates positive and relatively sustainable momentum. Surviving the pandemic brought more than just survival. Proforma’s pivot into PPE products and e-commerce improvements actually laid the groundwork for growth that paid off in 2022.
“A lot of what we did really set our owners and our distributors up for success, because it brought on new customers, new opportunities, and we delivered quality products on time during COVID,” Muzzillo says.
Independent of economic and global factors, there are two impactful areas that the promotional products industry focused on and improved in during 2022: higher-quality products and education.
Much of the promo world understands that higher-quality products will be a requirement of the industry’s growth. End users care about the sustainability of the products put in front of them. That means products that last longer, and in turn, come at higher price points. It’s possible 2022 proved that clients are willing to pay those higher prices for the idea that end users will equate the quality of the brand with the quality of the promotional product.
“Eco-friendly, renewable products and products with social impact tend to carry a higher price point to match the higher perceived (and real) value,” Nancy Schmidt says.
Additionally, the industry and PPAI have made efforts to explain to clients what we already know: Promotional Products Work! That’s the name of the Association’s initiative to translate the range and effectiveness of promo to potential and existing clients. Perhaps 2022 is the beginning of those efforts landing with their intended targets.
“People are really starting to understand that the cost per impression, and the return on the investment of a promotional product and the longevity of it, has such tremendous value relative to other forms of advertising,” Muzzillo says. “I think we, as the leaders of this industry, have a responsibility to continue to get that message out.”
All of this has promo leaders confident that, even with the inflation caveat, 2023 will be another year of growth.
“We are expecting a low double-digit growth in 2023, after a very strong year in 2022,” says CJ Schmidt.
Perhaps we are emphasizing the wrong metrics when looking toward the future. Muzzillo points out that promo still makes up a relatively small portion of many companies’ advertising spending, while delivering great results. Her big prediction is that we may see a change in that regard.
“[Promo] will continue to propel this industry forward, I believe, at a slightly enhanced rate relative to other forms of media and advertising,” Muzzillo says.
Auping is the news editor at PPAI.