Counselor

The Future of the Promotional Products Industry

Innovators CJ Schmidt and Chuck Fandos look into the industry’s future in this exclusive Counselor interview.

Twenty-plus years his senior, Chuck Fandos is more like CJ Schmidt’s big brother than a client. Close friends for over a decade, they have an easy, funny rapport that affords one of them the right to call the other an “old Greek” and share a knowing laugh over their mutual legendary travel exploits. Innovators both, the new leader of the Power 50 and the reigning Counselor Person of the Year look into the industry’s future.

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Counselor: Chuck, you’ve been in the industry for 30 years, and CJ, of course, is a legacy in the business. With your collective experience, what are three things that you see as changing in the promo marketplace in the next three to five years?
Chuck Fandos: Distributor commissions will change to attract younger account executives, distributors and suppliers will work together more closely and we’ll see technology enhancing relationships.

Counselor: Can you be more specific about the commissions?
CF: The order-by-order commission split, whether it’s 50/50 or some other model, is going to go away. I don’t think young people or newer people in the industry want to work on straight commission, so that model will die with the 55-year-old white guys who are currently working under it.
CJ Schmidt: Integration factors between distributors and suppliers will get even stronger. And you’ll see more distributors buying suppliers, or a supplier buying a distributor to have a full vertical market. There’s also going to be a major hard goods and soft goods supplier merging together at some point.
CF: I think those conversations have already started.

Counselor: Let’s talk about product safety. Chuck, from your end, is it a prevalent thing that most clients are asking for or just Fortune 100 companies?
CF: It’s based on the size of the customer and their market channel, meaning their consumer channel. Most bars and restaurants who buy stuff, most small manufacturing companies that are local, they don’t care about product safety because nobody’s going to sue them over it. But if I’m in the B-to-C market or I’m a big company with procurement departments and legal departments, it’s really, really important.
CS: It comes down to the end-user and how much they want to protect that brand. Simple as that. I did an order for a local guy here for shirts that were being given to kids. We did the right thing by printing their information under the logo showing that there’s tracking information on the shirt, but it got rejected because they didn’t want any information on there. So I don’t know, there’s a type of customer that is definitely very strict about product safety, but people like the trunk slammers don’t ask it from us.
CF: Look, 96% of the industry is companies doing a million dollars or less, and most of those people don’t care about product safety. It’s the bigger accounts and the bigger distributors and suppliers who deal with those accounts – it’s really a different set of standards. And if I was a small supplier, I don’t know if I’d invest in that based on my client base.

Counselor: Well, if you take out the Top 40 suppliers, our State of the Industry data – based on supplier survey input – shows that most industry suppliers are only spending about $1,000 on product safety, if that.
CS: The product safety thing is just so screwed up, period. Disney, who is the most stringent about it, could care less where your product is actually physically made. It’s where you apply the logo to a bag or cup that they care about because they’re selling products to kids.

Counselor: Some of your colleagues in the industry believe this is a mature business, and that we are not going to see the growth in our lifetime that we saw about 15, 20 years ago. What do you think about that?
CF: I used to agree, but now I think they’re wrong. The value of promo product usage as an advertising tool has great ROI, and as people focus on what they’re using or why they’re using promotional products and the return they get, I think we’ve got a lot of growth potential in front of us. I used to think we were mature, but the innovative companies using technology and telling the right stories have a lot of room to grow.
CS. Agreed. And I’ve always thought it could grow and there’s so many different mediums that we don’t take advantage of. As an example, I was on the phone with a Top 40 distributor working on a giant project right now where you can do a pre-decorated shirt with three different logos for a nonprofit organization, and you can upload your image on the back commemorating somebody for that. Five years ago that program didn’t exist. With innovation and technology, as Chuck points out, on the submission of orders and websites, and also on the printing side of things, there are so many avenues that the promo world can get into now because of that.

Counselor: How does this industry compete with the Amazon Primes, especially when millennials – emerging now as the buyers and decision-makers for promo campaigns – expect delivery near instantaneously. Are we built to compete with that?
CS: I believe that Promo Standards and its progression is allowing us to do that. We can do that right now with the right distributor. But I don’t think that these companies are going to come in and change the way everyone does business. Most people in our industry don’t order one to 24 pieces of anything, which is what Vistaprint, Custom Ink, Cafe Press and Amazon specialize in. No supplier wants that business, and if they do, they’re crazy. So I don’t think that they’re as much of a threat as we all claim them to be. They’re dabbling in it, but they have to use suppliers like us to get in because of the complexity of 18 different imprint methods that can be on one bag or cup.
CF: Those companies that sell the small orders don’t have relationships with their customers like we do in this industry. They really just have technology, but I think certain partners in the industry can compete in collaboration and technology with some of these companies.

Counselor: Chuck, what can suppliers like your friend CJ do better?
CF: I wouldn’t put him in this category, but in general, the number-one thing we want suppliers to improve is technology, including using Promo Standards. Right now, around 10% are doing it and the rest – as with product safety – are ignoring it. And we won’t be working with them in a couple of years if they aren’t moving down those integration roads.

Counselor: Why the lag time? Why aren’t more suppliers doing it now?
CF: Either they don’t understand it or don’t want to invest in it. A lot of them have quote-unquote IT departments, but their IT departments are support departments – they don’t have coding and they’re not doing new projects for maintaining what they have. People are waking up to it, but easily the biggest thing is to improve your technology and improve your integration with distributors with that technology. It’s leading the field right now.
CS: They don’t have the personnel is what it boils down to. And maybe the distributors don’t have the personnel either. Some of them say “We have the most robust IT system,” but some of the big boys are the worst. But I get it. The distributors are trying to integrate with their customers first and then on the supplier base after, so they’re putting all their resources into working on a new ERP system, to syncing orders with a Home Depot or a Lowes, whoever they need to versus integrating with us. Even though we’re willing and we have the personnel – we have 10 people that are willing to work that are on our integration team. By the way, distributors aren’t taking advantage of that.

Counselor: CJ, would that be on your wish list for distributors?
CS: Absolutely. Another thing would be that distributor order counts are just getting ridiculously low now. Our order count is up roughly 32% and our volume’s only up about 11% for the year. And that’s been an upward trend. Our order counts are going through the roof. We’re at the point where instead of lowering minimums, we’re raising minimums on many things next year.

Counselor: We all go to the same events and there typically aren’t many people under the age of 30 in the room. How do we get more young people in this industry?
CS: I don’t know the answer to that. We’ve done a good job at our company, and our upper management has employees between the ages of 25 and 40. So we’ve invested heavily in that and I got criticized for saying we’re trying to attract more young people, but it’s just the nature of the beast. We need longevity here and it’s tough on the distributor side. I don’t think anyone’s coming out of college wanting to sell pens – even though it’s a great living and it’s a fun industry.
CF: It’s possible, but we’ve got to paint a better picture and tell a better story on the distributor side. I think it’s a great industry. It’s fun. And we have to change the comp plans on the distributor side because young people hear “commission” and they think “used car salesman.” I don’t think the distributors are having trouble attracting people in the non-sales jobs, but the attitude is we could do better because it’s such a great industry to work in.

Counselor: In our global marketplace, are distributors going direct to Asia to source product the taboo topic it once was?
CS: Here’s the thing: a lot of suppliers don’t even go to the Asian shows anymore because we already have our handful of vendors that we deal with and we meet with them prior to the shows. I just go to the shows to walk the aisles and get creative ideas in my head. That’s it. Yes, some of the larger end-users are driving prices down, which is forcing the distributor to do some overseas buying themselves. I don’t like it personally, I don’t agree with it. I can’t go to the Tampa Bay Lightning, where one of my best friends works, and get their business or else I would be crucified. It’s not really fair, but I’ve accepted it.
CF: I think distributors should be working more with their supplier partners, but if they want to go direct, there’s risk and investments involved and they have to make those business decisions. Personally, I used to do it a lot more, but I’m happy not doing it lately and instead working closely with the Hits of the world when we need things.