Distributor 2023 Sales Reach New Record Despite Weak Q4

ASI Research shows that distributor revenue grew to $26.1 billion last year, though fourth quarter revenue was essentially flat.

Promotional products distributors overcame a plethora of challenges to turn 2023 into a record-breaker.

The just-released Distributor Quarterly Sales Survey from ASI Research shows that in 2023, distributors collectively increased sales by 1.2% year over year to $26.1 billion. The annual tally surpassed the industry’s previous highwater mark of $25.8 billion, first set in the last pre-COVID year of 2019 and matched again in 2022. The industry’s increase rate was down from 2022’s 11.4%, and below the U.S. gross domestic product growth of 2.5% recorded in 2023.

“While not spectacular growth, distributors in our industry did show resilience in the face of what seemed like constant threats to the promo business,” says Nate Kucsma, ASI’s senior executive director of research, who spearheads the quarterly survey. “Engineering a gain under those circumstances is impressive, even if it wasn’t huge.”

While 2023 was ultimately a win, some of the shine was dulled by what was weaker growth in the second half of the year and struggles by the industry’s larger distributorships.

ASI Research shows that in the fourth quarter, year-over-year sales for all distributors were essentially flat, limping to a 0.1% rise. That still marked the 11th consecutive quarter of growth, but it was the most anemic quarterly increase of the post-pandemic recovery period. The previous low quarter during that time? Q3 2023, when sales ticked up 2.4% – down from the 5.6% and 3.3% increases experienced in Q2 and Q1, respectively.

Factors like inflation, marketplace uncertainty, recession fears among corporate buyers, tremors in the technology and financial industries, concern about fallout from wars in Ukraine and the Middle East, and political volatility domestically all were factors that affected promo investment in 2023 and Q4 in particular, executives say.

“Looking forward to 2024, the hope is that the constant threat of an economic slowdown buoyed by inflationary pressures will transition to a period of more stable growth,” says Kucsma.

Mid-Sized Firms Led the Way

Peak Performance Enterprises (asi/292453) had a banner year in 2023. The Georgia-based distributorship increased sales by 23%, thanks in significant part to finding creative ways to expand opportunities with long-term existing clients and earning quality referrals.

“When we’d come through for one client, they would volunteer referrals within their organization as a result,” says co-owner/President Dick Francis. “We were able to build considerable success in this way.”

Mid-sized distributors like Peak Performance (annual revenue between $250,000 and $1 million) had the biggest collective gain of any distributorship revenue category last year at 3.1%. Furthermore, 53% of these distributorships grew full-year sales – again tops among the various distributor revenue categories.

Why the relative success? A single reason is tough to pin down. Distributors ASI Media spoke to commonly cited factors like greater willingness among key clients to spend, mining current customers for expanded sales opportunities, and successful prospecting that led to new business.

In addition, medium-sized distributors typically work with small-to-mid-sized customers – a group that wasn’t as put off by economic headwinds as larger corporate customers. Relatedly, some medium-sized distributor customers were just returning to pre-pandemic promo investment levels in 2023, which helped matters, too, industry pros say.

Seth Kaminstein certainly spent 2023 hustling to secure what business there was to be had.

The president of Florida-based SK Promotions Inc. (asi/525995) was a one-man show who more than doubled his distributorship’s business to $500,000 in annual revenue, providing solutions for clients that included universities, high schools, healthcare providers, social media influencers and social events like weddings and bar/bat mitzvahs.

Kaminstein says strong sales techniques and customer/order management skills helped him get clients and keep them happy. “Our account base continues to grow thanks to referrals,” Kaminstein shares. “There’s plenty of business out there for all of us. It just takes hard work, great communication, dedication, consistency and solid relationships to grow.”

Larger Distributors Labored

Overall, 46% of distributors increased sales in 2023, while 41% of firms saw sales decline last year. Larger distributors labored the most.

To wit, nearly half (46%) of large distributors (with revenue between $1 million and $5 million) and 43% of extra-large distributors (over $5 million in revenue) saw revenue drop.

Furthermore, extra-large distributors grew annual sales by the smallest of margins – just 0.1% on average. Large distributors fared better at 1.5%, but that was still a slower increase rate than firms in lower revenue categories.

Concerns over the economy led more than a few end-buyers to tighten the purse strings on their marketing spend, according to executives at larger industry firms.

“Corporate customers were wary of the economic headwinds at the start of the year, and didn’t really adjust even as the economy responded positively to moves by the Biden administration,” says Jo Gilley, CEO of Illinois-based Top 40 distributor Overture Promotions (asi/288473) and a member of Counselor’s Power 50 list of promo’s most influential people.

Meanwhile, some clients were reallocating available budget dollars, spending more on everything from business travel to hosting in-person events. Certain extra-large distributors admit that some big clients pulled back promo spend due to concerns over sustainability – such as the impact of product manufacturing on the planet and issues with what they felt was inadequate documentation of the eco-impact of production and materials used.

Executives also assert that 2022 was such a robust year for the branded merchandise business, as bigger corporate and institutional buyers broke out of the COVID doldrums with checkbooks at the ready, that it was always going to be hard to surpass the performance of that 12-month span.

“In 2022, the industry experienced a significant surge in growth, driven largely by pent-up demand from COVID,” says Terry McGuire, senior vice president at Top 40 distributor HALO Branded Solutions (asi/356000), whose sales declined slightly last year. “In 2023, the industry’s return to its usual growth trends impacted the market’s largest players.”

Texas-based Home Run Promotions (asi/226303) is a promo/print provider with annual sales in the $1 million to $5 million range. Revenue retreated for the firm in 2023 compared to 2022.

Reasons for the decline, says owner Larry Forbes, included inflation, higher taxes hurting the business environment, and greater competition from large online promotional products companies. “We’ve also found that fewer companies are investing in attending trade shows, and we had to deal with more late and non-payment clients than in past years,” Forbes states.

Still, there were of course success stories to be found among the industry’s larger distributors, too. 4imprint (asi/197045), promo’s largest distributorship, says preliminary figures show global revenue rose 16% to $1.33 billion last year. Overture, while not up dramatically, executed a single-digit percentage increase. Publicly traded Stran & Co. (asi/337725), a Top 40 distributor, was on pace for what would be a record-breaking year for the business.

And then there’s Platform Industries (asi/528523) – a Pennsylvania-based distributor/decorator in the $1 million to $5 million category. The firm grew annual sales by upwards of 22% last year.

“We did a really good job of retaining customers while acquiring new ones, so our base was always growing,” reports owner Chris Murray. “Good customer service is what drives businesses in our industry to succeed, and we’ve dug into that. We’re in the customer service field and we happen to sell promotional products.”

A Tough Q4

Unfortunately, promotional products industry sales in 2023 ended with a whimper, as the nearly flat 0.1% year-over-year Q4 attests. That was well below the reported 3.3% U.S. Q4 GDP growth.

Digging deeper into the numbers, less than half (44%) of all distributors grew sales year over year in the quarter, while 41% saw the topline fall below the revenue level of 2022’s Q4. It was the lowest percentage of distributors recording quarterly growth in any quarter since the start of the industry’s sales recovery from COVID declines.

Large firms had the toughest sledding, suffering a year-over-year quarterly sales decline of 2.6%. Medium and extra-large distributors posted near identical performances in terms of growth percentage, coming in at 0.7% and 0.8%, respectively.

Notably, it was the industry’s smallest distributorships – those producing $250,000 and below – that had the strongest quarterly growth. They pulled off a 1.1% year-over-year quarterly increase.

Paradise Promotions & Designs (asi/129643) was among the successful $250K-and-below firms. The Alabama-based distributorship was up double-digits in percentage terms for the quarter and 2023 as a whole.

“We picked up a lot more business in the real estate market,” says owner Traci Kontoulas. “We also saw an influx of younger adults/influencers starting product lines via social media. We helped them with their line launches.”

Arizona-based Amazing Marketing Products.com (asi/119390) is a two-year-old distributorship with under $250K in revenue that pressed the growth gas pedal to the floor in Q4, nearly doubling sales compared to 2022’s fourth quarter. Tireless community networking and forming strong partnerships with quality suppliers helped founder Alicia Gillman find opportunities and make the most of them.

“Mainly,” Gillman tells ASI Media, “my sales were focused in the education sector, as well as retail.”

Gillman wasn’t alone in scoring sales with education clients: Overall, distributors rated education the most robust market for sales in the fourth quarter, ASI Research shows. Rounding out the top five markets were healthcare, construction, professional services and nonprofits.

Even though nonprofit was still a top-five market, the percentage of distributors listing it as robust dropped by 12 percentage points in Q4 2023 compared to Q3 2023, a steep decline that was nearly mirrored in the 11-percentage-point freefall in associations/clubs. Even so, higher percentages of distributors listed other key markets as robust in Q4 compared to the immediately preceding quarter, including manufacturing, financial, construction and retail.

2024 Outlook

The Counselor Confidence Index, which measures distributors’ financial health and business optimism, fell to its lowest level in three years in the fourth quarter. The reading of 99 also marked the first time in three years that the index retreated below its baseline measure of 100, first established in 2001.

The stormy sentiment should come as no surprise given the generally limp sales in Q4, which continued the slower growth trend from the previous quarter. “Challenging,” “slow,” “sluggish” and “cautious” were among the most common words distributors used to describe Q4 to ASI Research. Even so, in a sign of the complexity of the times and how experience can vary, words like “good,” “steady,” “stable,” and “busy” occurred with regularity, too.

A notable bright side: The cloudy feeling that pervaded Q4 hasn’t, as yet, seeped into 2024. When asked about their confidence levels for the new year, distributors responded more positively, returning a projected Counselor Confidence Index reading of 103 for 2024. That’s above the baseline measure again and roughly in line with readings in the post-pandemic period.

Even though challenges and concerns persist and not everyone’s upbeat, there are definitely distributors expecting better days ahead.

“Our outlook for 2024 is optimistic,” says HALO’s McGuire. “We’re seeing increasing demand across the healthcare, retail, and manufacturing sectors. Moreover, there is once again positive momentum among the larger technology companies, driven by their renewed focus on growth.”

Others were a bit more muted in their expectations, but still expecting revenue to rise. “I think sales will be up, but not massive growth,” says Gilley of Overture. “We’re assuming our customers will remain cautious, with significant global uncertainties in Ukraine and the Middle East and our election cycle.”

It wasn’t just Top 40 firms forecasting top-line increases.

“We believe 2024 will be a better year, as we use the same proven approach of becoming a trustworthy partner that adds value for our clients,” says Francis, whose firm is in the $250K to $1 million range. “That wins loyalty.”

Gillman has a positive view, too. “I’m building my business on loyalty and rewarding my customers when they come back to me,” she says. “My sales continue to grow.”

Hopefully, promo will be able to say the same come year’s end.