We’ve all heard the pandemic, with the resulting migration of the workforce out of the office and into work from home (WFH) environments, was a catalyst that simply accelerated what was already happening in business printing. Our recent look at OEM financials shows this is true to an extent.
Process automation and digital transformation were already moving business processes away from using paper, as has been predicted and marketed for many years. With office closures due to the pandemic creating a widely distributed workforce; the workforce being made up of more “digital natives” than ever before; and faster adoption of technology like mobile devices, video conferencing and other collaborative platforms; the reliance on print and paper documents has ebbed faster.
Indeed, even paper companies like Domtar and Boise have seen a decline in demand for paper for office use. Uncoated freesheet shipments were down 22% in July 2020 as compared to July 2019, and in April both Domtar and Boise have cut back production and even shuttered some paper mills.
The questions on everyone’s mind, of course, are “What’s next?” Will business rebound and when? How long will it take to begin that recovery? What does the future hold for the industry?
The economy and recovery
Office printing relies on workers in the office. In this time of the most severe recession in the post-World War II era, the second quarter’s average quarterly unemployment rate is at 13%. That’s the highest ever since 1948 and is one-third higher than the previous worst rate of 10% in 1983.
Getting employees back on the payroll, let alone into the office, depends upon how soon the COVID-19 situation is finally resolved. Even if vaccines and therapeutic practices become available, any real economic recovery will only be reflected in the speed at which unemployment declines.
How much longer?
At the start of 2008, the average quarterly unemployment rate was 5%. From the start of the financial crisis in that year, the rate rose to a high of 9.8% in the first quarter of 2010 before showing any signs of coming down, and took until the end of 2015 to recover to the 5% level. Once headed down, unemployment was on a trajectory to the lowest levels ever recorded as the economy became the strongest in history.
Today, unemployment is 9.5 percentage points higher than the fourth quarter of 2019, the quarter before COVID-19 began taking its toll. Most economists now assume the U.S and European economies will not recover to pre-coronavirus levels until mid to end of 2022 and that is all predicated upon whether the COVID-19 situation is finally resolved.
Still, there are many workers currently employed who need the technology, products, and services found in the imaging channel. At some point more workers will be re-employed, and they will have the same needs. The solutions providers in the channel who understand “from crisis comes opportunity” will need to deal pragmatically with facts and prevent the wishful thinking that business will soon “get back to pre-pandemic normal.” Preparation and planning using facts have, and will continue to, let them adapt to ride out the storm and exit this crisis stronger than ever. However, what is important to remember is that even though workers will be re-employed by those businesses that survive, it doesn’t mean they will be back in the office or get back to printing as they did before or during the pandemic.
The office workplace has changed forever
According to Forrester Research, up to 30% of employees currently working from home will become permanently remote. Cushman Wakefield, one of the largest commercial real estate solutions providers in the world, envisions up to 50% of the workforce working across a “Total Workplace Ecosystem balancing office, home, and third places.” The structural impacts on the “old” office workplace are important to understand.
Some businesses have already begun to review and change their overall real estate footprint. Some are downsizing total office space to align their real estate needs with a reduced, on-site workforce. Some are moving from city downtown spaces to suburban spaces to better meet the needs of their distributed workforce. Most are also looking at how to keep employees safe during this pandemic and beyond by following social distancing guidelines using “the six-foot office” concept.
Underlying all these scenarios is an examination of the technologies and devices needed to support the new paradigm. Some will no doubt be reduced or removed; some will be used more than in the past. The acceleration away from paper-based processes that require office printing is part of the former.
The office will continue to play a vital role in the way organizations work and grow. Workers still need to manage and process vast amounts of information, workflows, and business processes, but those are being digitized more rapidly than before in the digital transformation initiatives accelerated through the COVID-19 crisis. The demand for print may never get to zero, but how low does a virtual zero need to be, and what does this mean to the printer/copier/MFD industry recovery and future?
Surviving the cliff
A question posed for many years by industry analysts has been “what would happen if you (insert OEM, dealer name) lost half your page volume overnight? And many of us have asked when that “cliff” would appear. Unfortunately, at least in the second quarter of 2020, both happened, and perhaps they were always in view.
The 2019 annual print solutions revenue reported by OEMs was approximately $22 billion less than reported in 2008. That is equivalent to average annual revenues, over those 12 years, produced by Ricoh and Konica Minolta combined. So, is the second quarter 2020 performance the historic wake-up call that changes the print and copier industry forever?
Already, OKI Data Americas has announced the end-of-life of OKI branded hardware in the Americas’ markets due to ”considerable shifts in printer market demand due to the COVID-19 pandemic.” This is only the Americas arm of OKI, but it’s not hard to imagine others in the industry considering a similar strategy. While the exit of competitors in the market or consolidations through M&A may help the remaining players in the short term, those strategies alone lack the big picture view. That view is that the overall print and copier market as we know it is in continuous decline and those that rely heavily on office printing will continue to pay a price as print usage and page volumes continue to erode.
To be sure, there are pockets of continued print opportunity including signage, packaging, labels, and production and commercial niches. OEMs with products in these areas will see that business grow and offset some of the losses that will inevitably continue from the office. OEMs with consumer business will see some continued uptick in that business as work from home becomes a permanent part of the new workplace ecosystem; however, that business will eventually erode as well, and its difficult to imagine how imaging channel dealers can really position themselves to exploit that market completely, especially as some major OEMs have established online businesses.
Many forward-thinking dealers continue to acquire other dealers to add to their existing business and to add new technologies and services that allow them to be well-positioned to compete in the new workplace ecosystem. Even as dealers explore new paths to market such as e-commerce efforts and work-from-home bundles, it’s evident they know they must position themselves to reduce their reliance on print and copying. Respondents to The Imaging Channel’s 2019 Market Trends study reported that while 67% of their total 2018 revenue was printer/copier/MFP hardware, supplies, and service, that was down from 70% the year before. The other 33% of revenue came from consulting, IT services, software, financing, and other.
At the dealer and channel reseller level, those who understand the need to have a well-balanced mix of products and services will find recovery easier. They also have the most opportunity for growth in the changed office and workplace.
The OEMs that will recover fastest will be those that don’t hit the “snooze” button on the current alarm and are prepared to ask the bold questions of how their operation, business strategy, current, and new products fit into this new world. Cost-cutting alone, while delivering profits during the past few years in revenue downturns, will not be the only answer.
Print is not going away completely, but difficult questions about office product portfolios will need to be asked and answered. How many A3 products are really needed, and is A4 the only other answer? Is a $2,000 A4 laser or inkjet MFP really required for remote workers or do sub-$200 inkjets fit the bill? Reprioritizing R&D spending will need to happen. Those OEMs that are willing to reinvent themselves from hardware and print manufacturer to a provider of solutions and services that fit in the new workplace ecosystem will most likely find a better and more balanced future. Many already have made steps in this direction, some more than others.
A matter of action
We don’t have a crystal ball to accurately predict what the future really has in store, but clearly, action is required. This time is one of historical importance and we are optimistic that the players in the industry (as many have already done) will rise to the occasion.
Particularly, we think how OEMs react to this time will have long-lasting effects on their partners, resellers, dealers, customers, and investors – for good or bad. Imaging channel resellers and dealers are creative entrepreneurs that have found success by adapting to changing business dynamics. Those OEMs that continue to view their resellers only as a path to sell the products they manufacture will most likely find little success. Those OEMs that act to help their resellers and dealers continue to adapt and deliver the right mix of print hardware and other solutions and services that the new workplace requires will be those that will find the most success. Working with resellers through programs and helping them discover and create new paths to market will also build sincere, strong, and long-lasting partnerships.
A speaker we heard recently asked, “How do you connect with an office that’s been changed forever?” The answer, we think, has always been by being an industry like ours that changes forever along with that office.