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News November 22, 2021

Suppliers: Q4 Sales Are Surging

Despite slight improvements, supply chain challenges still remain, but suppliers are surmounting them to meet the rampant holiday demand.

By  Christopher Ruvo

Suppliers say they’re finding success amid the madness.

At just beyond the calendar mid-point of the promotional products industry’s all-important fourth quarter, leading suppliers report that there have been some slight improvements in the supply chain mess that has made business vastly more complicated and challenging in 2021, though huge challenges remain and are likely to be in play well into next year.

Still, despite the constant pressure of those supply chain fiascos, suppliers say that demand for a broad range of promo products has been rampant in the fourth quarter, helping to drive what so far has been year-over-year quarterly sales gains and even, in some cases, revenue for Q4 that surpasses levels seen in the same quarter in 2019, a year when collective distributor sales reached a record $25.8 billion.

Fourth quarter

“We are up over both last year’s fourth quarter and 2019’s Q4,” says Marc Held, senior vice president of sales at Trevose, PA-headquartered alphabroder (asi/34063), the second largest supplier in the promo industry. “We’re seeing gains across categories. End-customers are doing a lot from an appreciation standpoint.”

Sales at Top 40 supplier Bag Makers (asi/37940) are up year over year across its portfolio of bag styles, with a variety of imprint processes also proving popular.

“October 2021 sales increased 23% compared to October 2020, and November will have a similar percentage increase,” says Maribeth Sandford, founder and CEO of the Union, IL-based supplier. “While we don’t anticipate this same increase in December, we do expect December 2021 to be up from December 2020.”

Sandford’s point about potentially slower growth in December was mentioned by other executives, too. The thinking is that distributors and end-clients, aware of supply chain problems and the related delays in order delivery, have been frontloading their orders for the quarter into October and November.

Even if that phenomenon is occurring, many suppliers still anticipate a strong December and a fourth quarter that soundly beats last year’s performance.

“We’re very excited and optimistic,” says Held. “It’s going to be a very good quarter.” 

The promo industry had a relatively strong fourth quarter last year, but the pandemic hangover still led to sales falling 16.8% in Q4 2020 compared to 2019. Should promo’s collective Q4 2021 best the same three-month span from 2020, it would mark the third straight quarter that industry sales have increased, following five straight quarters of pandemic-induced declines. In Q3 2021, distributor sales rose 18.4% year over year.

Polyconcept North America (PCNA, asi/78897), promo’s fourth largest supplier, reports that Q4 sales are tracking above 2020 and 2019 levels. The New Kensington, PA-headquartered company says that key categories driving the results include fleece, outerwear, blankets, audio, drinkware and bags. “We took an aggressive inventory strategy and these items continue to drive significant sales,” says Liz Haesler, chief merchandising officer.

Name brands have had an important role in fueling the sales acceleration at PCNA, with brands such as CamelBak, Herschel, Skullcandy and Artic Zone tracking up over 50% compared to 2019 performance. “We placed big bets with key strategic brands,” adds Haesler.

At SanMar (asi/84863), promo’s single largest supplier, Q4 sales have risen significantly year over year, while fellow Top 40 firm Gemline (asi/56070), Counselor’s 2021 Supplier of the Year, says fourth-quarter performance is vastly outpacing the Q4s of 2020 and 2019.

Holiday gifting, employee/client appreciation initiatives, and the continued return of in-person events have been among the factors contributing to the demand for promotional products.

Melissa Ralston“The gift-giving season really took off this year with many companies wanting to show their appreciation to employees for weathering the last year.” Melissa Ralston, Koozie Group

So, too, has the fact that many end-clients have experienced a rebound in their businesses amid the economic bounce-back that’s occurred following COVID-19 societal shutdowns, providing them with more cash to invest in merch. Relatedly, end-user budgets for branded merchandise have also been bolstered by the fact that companies are spending less on travel, meals, entertainment and even office space, meaning they have more money to invest in marketing/promo.

At Clearwater, FL-based Koozie Group (asi/40480), fourth quarter sales in 2021 for the Top 40 supplier are outpacing Q4 2020 at a rate of double-digit percentage growth. “We’ve seen some outstanding growth from new markets that we’ve added with acquisitions,” says Melissa Ralston, Koozie Group’s chief revenue officer and a member of Counselor’s Power 50 list of promo’s most influential people.

“As always,” Ralston continues, “our calendars and writing instruments continue to perform very well. Customers really appreciate our sustainability stance, and we’ve seen great growth with our KG Factor items. Finally, the gift-giving season really took off this year with many companies wanting to show their appreciation to employees for weathering the last year of unpredictability due to COVID.”

Supply Chain Status

The strong sales performance comes in the face of truly unprecedented supply chain disruption, which has reverberated across industries, including promo. Factors like inflated costs for shipping/ocean freight and importing delays (caused by everything from port congestion to lack of space on cargo ships) and many more have led to inventory shortfalls, higher product prices, longer production times, shortages of materials and delays in order delivery.

On the bright side, there has been some limited progress of late regarding the supply chain. Executives say container availability has improved somewhat and that the cost of containers has lessened compared to peak price levels experienced earlier this year.

For instance, during the week of Nov. 7, the cost to move a container from China to the U.S. West Coast fell 26% compared with the week before to $13,295, according to the Freightos Baltic Index. While an improvement, that’s still more than three times higher than at the start of 2021 when the same cargo box cost $4,200. Pre-pandemic, some promo suppliers report they paid around $1,900 for the same container along the same route.

“We’re certainly not back down to anything near pre-COVID prices for containers, but of late it’s encouraging that there has not been a continual upward trend in pricing,” says Jonathan Isaacson, CEO/Chairman of Gemline and Counselor’s 2021 Person of the Year.

Jeffrey Nanus, CEO of Norwood, NJ-based hard goods supplier AAA Innovations (asi/30023), says that the electricity rationing/power shortages that were impacting factories in China, where the majority of domestically sold promotional products are made, appear to have lessened in severity of late – another supply line positive. “It seems China has provided more power to keep most factories going in November,” Nanus says. “While it’s uncertain what future months hold, factories pushing out merchandise is a plus for our industry.”

Even so, the gain comes with caveats, including that China’s factory gate prices (the price of goods as they leave the factory) rose at the fastest pace in 26 years in October, “beating forecasts and further squeezing profit margins for producers already grappling with soaring coal prices and other commodity costs due to a power crunch,” CNBC recently reported. Ultimately, such inflation can contribute to price increases on promo products.

Port congestion has emerged as another major chokepoint in the supply chain. Cargo ships, laden with in-demand imported goods, are waiting at anchor at top American ports like Los Angeles and Long Beach, unable to speedily unload as there is not enough capacity. That’s caused delays in getting promo products and other goods to their domestic destinations throughout 2021.

There was a glimmer of good news last week when the ports of LA/Long Beach, through which 40% of imported cargo containers enter the United States, reported that progress had been made in clearing long-idling containers. Since the ports announced their intention to levy fines for containers left to sit beyond a set number of days, the ports have experienced a 26% decline in what was described as old cargo on the docks, according to port executives.

Nonetheless, the logjam of ships remains. The Marine Exchange of Southern California, for instance, reported that 102 ships were at anchor or loitering at LA/Long Beach on Nov. 18. Prior to the pandemic, even one ship at anchor was an anomaly.

The port problems – including trouble getting product out of the ports expediently once it’s docked due to trucking/rail capacity issues – continues to affect promo suppliers’ operations.

“We’ve managed the port delays aggressively and are now challenged by increased lead times once the product arrives in the United States, which has moved from 9 to 20 days on average,” says PCNA’s Haesler. “Getting this product to our facilities remains our focus – and we’ve added significant labor to ensure we’re able to unload as soon as the containers arrive.”

Talking about importing issues, Bag Makers’ Sandford shares that “the number of shipments during September and early October increased compared to the previous two months, and transit times for a few of these ocean shipments have shown improvement. However, transit times are still a lot longer than ‘normal’ and there’s still inconsistency with scheduled sailings.”

Andrea Routzahn“We don’t see much normalcy returning until the second half of 2022 at the earliest.” Andrea Lara Routzahn, alphabroder

Promo executives say predicting when supply chain challenges will abate is extremely difficult. So many variables come into play, from the potential for more COVID-19 shutdowns in production hubs like China to possible fluctuations in demand for consumer goods to labor levels in the U.S. and abroad. There’s a consensus, however, that the issues will persist through the first half of next year.

“We don’t see much normalcy returning until the second half of 2022 at the earliest,” says Andrea Lara Routzahn, alphabroder’s chief merchant.

“Our current expectations are that ‘normal’ won’t be back until the back half of 2022 and into 2023,” says Adam Black, director of supply planning and logistics at Koozie Group. “If demand stays high, supply will be affected and work will need to continue on building more vessels, more containers, more efficient ports, etc. Also, COVID cases may continue to pose challenges by creating quick, unexpected and wide-sweeping shutdowns.”

As they’ve done to date, top suppliers say their strategy will be to adapt and manage the challenges as best they can.

For many, this strategy includes ordering inventory far earlier than would’ve been the case pre-pandemic and carrying larger loads of inventory domestically. Firms like Gemline, for instance, have record stock levels. The Top 40 firm isn’t the only one taking such steps.

“Our plan is to literally have double the normal inventory levels in stock,” says Nanus of AAA Innovations. “We don’t see any other way.”

While some stock gaps are an unfortunate reality for promo, the fact that suppliers have beefed up inventory in advance, where possible, means there are certainly products to sell – an important factor in the industry being able to broadly meet the increased demand for promotional products in the fourth quarter of 2021, even if end-client first choice items aren’t always available, executives assert.

Furthermore, while insufficient labor levels remain a problem for some, other suppliers have bulked up workforces to help ensure there are enough workers on hand to get orders produced and out the door by deadlines.  

Of course, challenges remain along the supply network. Suppliers can’t, for instance, control how fast domestic shippers like FedEx and UPS deliver. And, inflationary pressures have intensified. “Rising raw material costs and rising product costs are the biggest challenge now,” reports Routzahn. “The impact of inflation on the global economy going into next year is likely the major concern everywhere.”

Such inflation could contribute to further price increases on promo products in 2022. Nonetheless, product costs elevated in 2021 too, and that hasn’t derailed demand for branded merchandise. As they have this year, suppliers and distributors will have to continue to adapt, working together to create viable solutions for end-buyers that demonstrate the value of promotional product solutions.

“We are committed,” says Haesler, “to doing everything possible to make our customers successful.”