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Merchandise sector tops the £1bn mark

The promotional merchandise sector in the UK is now worth more than £1 billion, ten years after the financial crisis hammered the industry. Sourcing City’s annual state of the nation Market Report 2017, shows a sector in rude health, albeit with structural differences to a decade ago, and facing new and emerging challenges.

For the eighth year in succession there has been steady and continual growth in the UK & Ireland promotional merchandise market. The industry was worth £1,025 million in 2017, £108m ahead of the year before the banking crisis of 2008, representing an overall recovery of £351m from the low point of 2010. The market grew by £58m last year – growth of 7.7% from 2016.

In terms of the make-up of the market, there is a significant trend for professional distributors with a turnover in excess of £500,000 to grow faster than smaller distributors. The market share of large distributors has once again increased even though the number of £1m+ distributors remained relatively static in 2017.

In 2017 the total market contained 2,077 professional distributor companies – an increase of 102 new distributors on the 1,975 from 2016. Almost all the new distributor companies have a turnover of less than £500,000 at present.

Analysis shows that larger distributors control a disproportionate share of the market. There are 1,735 distributors who have a turnover of under £500,000, representing 83% of distributors by number, but only 25.4% of market spend. Just 342 distributor companies with an annual turnover more than £500,000 are responsible for 75% of spend.

This represents a turnaround in respective market share between large and small distributors in the past decade. In 2007 distributors with a turnover in excess of £500,000 accounted for just 24% of the total market spend – this has more than trebled in the past 10 years. Just 145 distributor companies, with a turnover more than £1m, represent £617m, or 60.2%of the entire market spend. In 2007 the more than £1m turnover group accounted for 40.7% of the entire end-user market.

One possible factor driving the growth of larger players may be inflation and changing cost prices, something the market has not faced for several years. End-user customers are now experiencing prices increasing rather than constantly reducing.

Another challenge has been increasing competition from players such as printers looking to offer merchandise as a cross sell. For new companies looking to enter the market, the barriers to entry are very low, with mass product information and support systems available at low cost or even free from some quarters.

The report suggests that the less professional of these new entrants tend to sell with a lack of expertise or experience, creating hidden costs for suppliers
in managing orders. When they sell promotional merchandise at low margins, the entire professional distributor sales chain is put at risk.

Vistaprint, which has made a strong move into the sector, is not seen as a direct threat yet as most distributors have little interest in the low quantity orders it serves. If Vistaprint maintains its original ‘Power of one’ strategy, then it poses little threat to most professional distributors who operate on a consultative basis, the report claims.

NO. AND TURNOVER OF DISTRIBUTOR COMPANIES

Distributor
Size Band
Distributors
in Market
% of All
Distributors
Turnover/ Market
Value
% of Total Market
By Distributor
Size
  2,077 100.0% £1,025,210,000 100.0%
£10m+ 8 0.4% £220,000,000 21.5%
£5m-£10m 12 0.6% £102,000,000 9.9%
£3-£5m 18 0.9% £81,000,000 7.9%
£1m-£3m 107 5.2% £214,000,000 20.9%
£500k-£1m 197 9.5% £147,750,000 14.4%
£250k-£500k 553 26.6% £165,900,000 16.2%
<£250k 1182 56.9% £94,560,000 9.2%

Despite high profile cases, such as Dukes of London’s demise, the number of companies ceasing trading in 2017 dropped from the previous year and was the second lowest in the past seven years. In 2017, 44 distributor companies ceased to trade, and the majority had a turnover below £250,000. At 24, the number of supplier companies that ceased trading last year was the lowest recorded since 2014.

The report provides a useful breakdown of the most popular products by value. These have remained relatively constant for the past six years.

In revenue terms bags continue to be consistently number one, followed by pens and pencils, and then plastic giveaways. Mugs and confectionery have swapped positions to take fourth and fifth spots, while sports bottles and USB accessories have both grown their market share significantly.

The full Promotional Merchandise Industry Market Report is exclusively available to Purple Club Members. The Purple Club is open for membership by any recognised professional distributor company or industry supplier. See sourcingcity.co.uk for more details.

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