B-to-B: The Markets to Watch

Market #1: Personal and business security equipment

Clearly the Sept. 11 terrorist attacks have spurred increased governmental spending on security. In fact, President Bush plans to spend about $37 billion on the “war on terrorism,” which will include tightening national security.

As for sales of personal and business security equipment, no figures are yet available to prove that the terrorist attacks led to a steady rise in sales of burglar alarms, entry access systems, automotive vehicle identification systems, and the like. At Lexington, KY-based cataloger Galls, which sells security and safety equipment for public safety professionals, after Sept. 11 sales did surge “dramatically for a short period,” says vice president of advertising Tim O’Malley, “then things definitely settled down. But it seems like more corporations are contracting with private security companies to hire guards they’ve never employed before.”

No matter. There are still plenty of other reasons for catalogers to expect the home and business security equipment industry to thrive during the next few years. According to SDM magazine, a publication for the $18.1 billion industry, economic conditions are the leading driver of security equipment sales. The better the economy, the greater the demand for alarm systems, motion detectors, closed-circuit television systems, and the like. So while the recession of the past year may suggest a lull in sales, the inevitable turnaround should in turn spark a boom — or at least a boomlet — in business.

Crime rates, obviously, also influence the ebb and flow of security equipment sales. For instance, the 1999 massacre at Columbine High School in Colorado has led to increased interest in security systems among schools. “We don’t sell to schools,” says Galls’ O’Malley, “but our vendors tell us that they’ve been on their radar screens ever since Columbine.”

Steve Horne, president of New York-based b-to-b direct marketing consultancy Analytici, seconds that observation. He says that some schools are even looking into such security-related items as wristbands that can tell administrators where students are. “Ultimately,” he says, “you may see implants with little GPS [global positioning system] monitors in them, much like some people track pets or trained animals.”

An increase in commercial and residential building activity also generates increased sales of security equipment. And according to the U.S. Census, new-housing starts for the first two months of this year (the most recent statistics available at press time) were up 9% from January and February 2001.

Changes in building codes act as a corollary to construction activity levels in terms of spurring security equipment sales. When the government announces changes in security and fire codes, marketers can anticipate a rise in demand for the products needed to satisfy the new requirements.

Given all of the above indicators, it’s no surprise that the Security Industry Association (SIA), based in Alexandria, VA, expects sales of security devices and services to increase 9%-10% a year through 2005. Furthermore, 73% of the security equipment dealers surveyed last year by SDM expected their revenue to increase this year, with only 1% anticipating a decline in business.

The steady stream of new and improved security technology helps to keep business thriving as well. “We have to constantly offer new and exciting products to remain a leader in the industry,” says a spokesperson for DoorKing, an Inglewood, CA-based manufacturer/marketer of access control systems. DoorKing’s team of more than 2,000 distributors, reps, and dealers use the company’s catalog to sell its products — which include telephone entry and intercom systems, vehicular gate operators, and electromagnetic locks — to licensed installation companies.

While virtually all security product categories have had significant sales increases during the past 20 years, electronic access control and closed-circuit television have had the most robust growth, according to the SIA, growing at 621% and 589% clips respectively between 1980 and 2000.

Market #2: Educational materials

In January, President Bush signed into law a reform bill increasing federal funds for education from $18.5 billion a year to $26.5 billion. Because much of that money is intended for academic testing, literacy programs, and transfers of students from poor public schools, how much of that $26.5 billion will translate into increased business for catalogers of school furniture, books, audiovisual equipment, and other educational supplies is anyone’s guess.

But “kids will always have to read books to learn — there’s no way around that,” says Will Goodman, president/owner of Guidance Associates, a Mount Kisco, NY-based cataloger of educational videos. In other words, although school budgets may fluctuate according to the amount of money school districts receive from the federal budget, schools will still need to buy at least the most basic supplies.

And demographic information suggests that the need for such supplies will slowly but steadily increase during the next few decades. According to the U.S. Census Bureau, in 1999 there were 70.2 million children in the U.S. under the age of 18. By 2020, that is expected to increase to 77.2 million youngsters.

As for the size of the market in terms of expenditures, multititle catalog mailer School Specialty estimates annual U.S. spending on nontextbook educational supplies at $6.2 billion. (School Specialty also assesses its share of the market at 13%.)

Within the educational materials market, sales of computer hardware and software, for use by students and admininstration alike, are pegged for the greatest growth. Eduventures.com, an education industry analyst firm, expects spending on online coursework by both educators and students to grow from $4 billion in 2000 to $11 billion next year.

“I see schools probably shifting more to online education programs,” says School Specialty president/chief operating officer Dave Vander Zanden. To that end, last year the Greenville, WI-based cataloger bought Premier Agenda, whose products include a software program that eliminates the textbook in the science classroom. “It comes with a manual and a kit for the kids to use, and it’s supported by CD-ROMs and the Internet,” Vander Zanden explains.

“I think you’re going to see in the next five years a lot more of that coming online,” he continues. “And as teachers get more and more comfortable teaching with online tools, I think you’ll see a shift in our product mix in that direction as well.”

Market #3: Public and industrial safety equipment

“Better safe than sorry” has taken on added significance for police officers, firefighters, and other public safety professionals since Sept. 11.

“Markets expanded as a result,” says Dan Shipp, president of the Arlington, VA-based International Safety Equipment Association (ISEA). “A lot of companies have made products for years for fire, police, and emergency medical departments. But since Sept. 11, there’s been a lot more attention toward outfitting them with protective equipment.”

Catalogers that specialize in safety gear such as protective apparel and respirator accessories are seeing sales rise as a result. “We got a lot of recognition from customers coming to us for support as a result of Sept. 11,” says Jim O’Shaughnessy, anchor categories manager for Lincolnshire, IL-based manufacturer/marketer Grainger. “It has awakened us to some other needs our customers have.”

Indeed, even companies — never mind individuals — not involved in public safety are looking to buy equipment such as face shields, gas masks, and first-aid supplies. “There’s a considerable amount of paranoia out there, with companies wanting to protect themselves,” says Analytici’s Horne. “Companies are becoming more cognizant of having disaster plans and other services to protect their assets.”

Such concern among the private sector is one reason that manufacturers “are developing respiratory protection equipment designed for protection against weapons of mass destruction,” says ISEA’s Shipp. “Government research on such products is ongoing, but individual marketers are researching too.”

Demand for other sorts of safety equipment, from barrier fences to body belts, is tied to the state of the economy and the level of construction activity. “When manufacturing is down, safety equipment sales drop because there are fewer construction workers,” Shipp says. “Conversely, when construction is going fine, the sales look good.” And as mentioned earlier, new-housing starts are up from last year.

If you’re looking for figures regarding the size of the public safety and industrial safety market, good luck. Such numbers are elusive, partly because definitions of the market differ dramatically. But the good news is that the market is not dominated by any one company or select few firms.

“There’s been an awful lot of consolidation, with family companies selling out,” Shipp says. But at the same time, he adds, there’s been an influx of independent distributors, many of them selling via catalogs and the Internet, entering the market.

The continual influx of new competitors, as well as downsizing among some of its corporate customers and bargain-hunting on the part of others, has led Grainger to become “more than a generalist,” O’Shaughnessy says. “It forces us to offer more value-added services, carry the right brands, offer access to key supplier resources, and offer a service provider network to give customers the necessary expertise to support their employees and keep their workplaces safe.”

Market #4: Healthcare

Complementing the steady increase in the number of children in the U.S. is the rise in the number of senior citizens and the increase in life expectancy due to improved healthcare and medical advances. The number of Americans 65 and older rose 12% between 1990 and 2000. And while seniors make up 13% of the U.S. population today, by 2020 they’re expected to account for 17%.

So improved healthcare, it seems, leads to a need for more healthcare products. To put it another way, as people live longer, especially those with serious or chronic illnesses, they will spend more on healthcare supplies.

According to the federal Health Care Financing Administration (HCFA), total national health expenditures — which includes everything from doctor visits to prescription drugs to hospital supplies — soared from $696.0 billion in 1990 to just shy of $1.3 trillion in 2000. By 2011, according to HCFA estimates, health spending will reach $2.8 trillion — that’s a mean annual growth rate of 7.3% between 2001 and 2011.

Although there are several large catalogers in the healthcare market — such as $2.6 billion Henry Schein, which bills itself as “the largest distributor of healthcare products to office-based practitioners in the combined North American and European markets” — in a market this huge there’s clearly room for myriad smaller, niche players.

For instance, Sam Ocel, owner of APA Medical, a Minneapolis-based cataloger of replacement parts for wheelchairs, hospital beds, patient lifts, and other medical equipment, sees solid business ahead. “We’ve had gradual steady catalog sales increases in recent years,” he notes. “And we see continued growth in the niche marketing we’re doing.”

In launching Webster City, IA-based catalog MyMedMart last year, Maureen Seamonds homed in on a different niche. “Cost pressures are shortening hospital stays,” she says, leading to greater demand for home healthcare supplies. Her catalog sells items as varied as trachea shower covers and electrodes to homecare providers, patients, and small clinics not aligned with huge hospital buying groups.

“Doctor-owned unaffiliated clinics are our long-term focus,” Seamonds says, “because larger clinics are tied into major buying groups that are usually tied in with major metropolitan hospital networks. So the smaller clinics will be more receptive to our offers.” She’s hoping that MyMedMart will reach $1 million in sales by year’s end.

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