UPDATE Friday, April 3rd
This article was updated April 3rd to include insights from Michael Freter, managing director of Germany-based PSI, Europe’s largest network of promotional products companies.

During the first couple of weeks of March, incoming inquiries at London, U.K.-based distributorship Outstanding Branding (asi/288519) dropped by 83%. At the same time, average order profit plummeted by 38%.

The stark statistics are emblematic of the rapid, precipitous decline in business that promotional products distributors and suppliers in the United Kingdom and continental Europe are dealing with as a result of the economic disruption wrought by the novel coronavirus.

London's normally busy Piccadilly Circus, a popular tourist destination, is nearly empty as people self-isolate during the coronavirus crisis.

“There are similar impacts to what we’re experiencing in terms of sales levels all across Europe,” Sarah Penn, CEO of Outstanding Branding, told Counselor. “Some countries, including Italy and Spain, have been hugely impacted by the virus.”

Like Outstanding Branding and their industry counterparts in North America, European promo firms say that as the virus tightened its grip on their continent in March, prompting widespread event cancellations, business shutdowns and social distancing, sales dried up almost overnight.

“Up until two weeks ago, our sales in the U.K. were still ahead of last year,” Jo-an Lantz, CEO of Lewiston, ME-based Top 40 distributor Geiger (asi/202900), told Counselor on March 30. Geiger operates extensively in Europe through its U.K. subsidiary, GeigerBTC. “In early March,” Lantz continued, “we began to see a decline in the meetings and events portion of our business; that coincided with the travel and large gathering bans. Now that the shelter-in-place is in effect, there has been a much greater impact.”

Marcus Sperber, general partner at large Germany-based supplier Elasto Form KG, told Counselor that the shutdown in public life has contributed directly to an approximately 75% drop in business. “Everybody is afraid as nobody expected such a large impact,” Sperber says. “Nobody knows how the coming weeks and months will develop.”

Chris Lee, CEO of Manchester, U.K.-headquartered The Pebble Group, which is parent company of Facilisgroup and U.K.-based global distributor Brand Addition (asi/202515), told Counselor that the progression of the disruption for the promo industry in Europe has closely mirrored that of North America. The trouble reared initially as a sourcing issue; COVID-19 hobbled the manufacturing sector in China where so many promotional products are produced. But as the virus infiltrated western countries at scale, what started as supply chain headaches exploded into something much more dire.

Deserted outdoor chairs and tables from a street restaurant in Friedrichshain, a Berlin neighborhood known for its nightlife, during the coronavirus shutdown in Germany.

“It has turned into a demand issue – and this escalated very quickly,” Lee told Counselor. “With our clients closing their offices, cancelling travel and working from home, their need for merchandise in the short-term has quickly changed. The difficulty has been the speed of the change and the uncertainty of when we will return to ‘normal.’”

David Long told Counselor that order plunges have created pervasive cash flow challenges for European promo firms – challenges that have been exacerbated by similarly cash-strapped end-clients holding onto their money and not paying debts.

“Many supplier companies have reduced the size of their workforces and some have even shut down temporarily,” says Long, CEO/executive chairman of Sourcing City, a trade service organization that provides a suite of solutions to the U.K. promotional products industry. “Distributors are almost universally struggling and doing all they can to survive this period. It is expected that a number of suppliers and distributors might not make it through, but the scale of the company failures is unclear so far.”

Sarah Penn, CEO, Outstanding Branding

Relatedly, the upheaval has ignited product sourcing issues not just down the supply line in China as happened initially, but with some European supplier firms as well. “Many U.K.-based manufacturers and printers have chosen or felt compelled to close their doors, either for purely economic reasons or to ensure they protect their staff,” Penn told Counselor. “So, like everyone, we now have to not only work harder for inquiries and orders, but also have to make sure we are selling products we can actually supply and that meet the standards we and our clients expect.”

Sperber noted that border security has contributed to supply chain disruption and more for Europe’s promo firms. “Most European borders are closed, which influences the whole supply chain. The supply chain from Eastern Europe, for instance, is blocked,” he told Counselor. “One of the biggest events for the promo industry here in 2020 was supposed to be the European Soccer Cup this summer, but it was postponed until 2021.”

Products that can be obtained are also getting more expensive, thereby eroding margins. Before the coronavirus crisis, it cost approximately € 4.00 per kg to air freight transport goods from China to Germany, says Michael Freter, managing director of Germany-based PSI, Europe’s largest network of promotional products companies. “At the moment, you can pay as much as € 17.00 per kg,” Freter told Counselor. “The prices of products that used to cost a few cents before the virus are now into double digits. Such developments are having a major impact on margins throughout Europe, resulting in a huge amount of pressure on our industry as a whole.”

Noting that firms are laying off staff or putting them on short-term working, Freter told Counselor the drop in demand, supply chain challenges, margin pressures and more have amounted to a perfect storm continent-wide for Europe’s promo industry. “If, as many fear, turnover in our industry nosedives during the next two months, this could lead to a double-digit percentage drop in overall turnover,” Freter says. “This would mean an enormous loss in a market with a Europe-wide turnover of € 14 billion… A lot of things will never be the same again once the crisis is over. It is pretty clear that a lot of smaller companies will not survive.”

Adapting to Disruption
Despite the challenges, promo companies like Outstanding Branding are trying to remain dexterous and proactive to navigate the troubled waters.

Take the sourcing issue Penn mentioned. To deal with it, she and her team are compiling a list of suppliers that are open and have a plan to remain so throughout the COVID-19 challenge. Outstanding Branding is then ensuring that data from these suppliers is prominently displayed on its website, and that the distributorship’s sales team knows which products to present to clients.

People wear facemasks in Milan, Italy in late February to protect themselves against the coronavirus.

“Some major European suppliers are currently still operating and of course that helps us too, as we can work with them through our U.K. business or Dutch business,” Penn told Counselor.

European promo firms are also adapting operations as best they can to keep some sales moving. This includes leveraging technology to empower employees who can work from home to do so. “Fortunately, we had the same advanced technology at GeigerBTC in the U.K. as in the U.S so all office associates in our four offices in the U.K. were able to move home prior to the required stay-at-home direction from the government,” Lantz told Counselor. “Also, our decoration and distribution center in London is still operating with a core group of associates.”

GeigerBTC and Outstanding Branding are among the distributors identifying clients and prospects that have a need for promo at the moment – and trying to work with them. “For instance, we service a major grocery and food company, and with them, apparel and other promo items are still in demand,” Lantz says. “We’re also sharing marketing materials, as well as promotions, to assist clients who have work-at-home programs to stay connected.” Added Penn: “Outstanding Branding was born in a recession, so this kind of environment is one we really understand. A lot more work needs to be done to get close to previous sales levels, but we’re putting in that work.”

Of course, PSI is doing its part too, providing the industry with an enhanced range of services, including a daily news bulletin, concrete offers of help and more, such as preparing a supplier availability list that will give distributors a clear overview of which suppliers can currently provide what products.

“We are also extending payment deadlines if someone is having liquidity problems due to a lack of orders,” Freter told Counselor. “We are also currently offering products for free that we normally charge for… In addition, we’re passing on any positive messages that we come across. Despite their own difficult situation, many of our members are also out there helping other people, such as staff who work in hospitals or supermarkets. We are supporting this activity by spreading the good news to the market.”

Thanks to everyone who has been staying at home.

By delaying the spread of the disease we can reduce the pressure on our NHS, and that's how we hope to save many thousands of lives.#StayHomeSaveLives pic.twitter.com/kxdqItMYSE

— Boris Johnson #StayHomeSaveLives (@BorisJohnson) March 29, 2020

Promo firms are also availing themselves of financial supports that government is offering to business amid the coronavirus. Penn noted that the British government has released a business support package that funds companies to furlough staff, take out government-backed business interruption loans, defer the payment of business rates and taxes, and more. “We’re looking to use all the support from government to navigate through the short-term,” Lee told Counselor. “We’ll continue to adapt as we learn more.”

In Germany, Elasto Form is working hard to develop new products and build a foundation from which it can branch into new markets. The company is also drawing on government support to shore up financial issues.

Long said that the financial support from government is welcomed, but noted that “it remains to be seen if it will be sufficient for every business to survive.”

Eyes Ahead for Europe
Even if permanent business closures become a sad reality for some firms, European promo executives believe the industry in their part of the world will see brighter days again, with perhaps certain collective improvements put into play.

“The promotional merchandise industry will recover, but it will take time,” says Long. “The current desperate times cannot be underestimated, and the suffering for some is difficult to come to terms with. From an emotional point of view, I think this experience will change a lot of us in some way forever. Still, when this nightmare is over, I do think things will reinvigorate quickly, as relief will be palpable. That optimism will find companies enthusiastically promoting themselves as they rebuild their businesses.”

While Penn strongly emphasized that she didn’t want to minimize the professional and personal toll the virus was taking on the industry, its people and society in general, she believes the COVID-19 experience will encourage promo firms that emerge to become stronger. She opined that surviving companies could be more apt to embrace new ways of working that include making best use of technology to communicate with teams, suppliers and clients. Industry companies will also be looking for smarter ways to do business, she opined.

Furthermore, clients could be influenced to desire more thoughtful, meaningful and targeted merchandise solutions. “I believe this will make us all that little bit more creative in how we market our own businesses, how we look for opportunities, and how our clients consider promotional products and see how they can really be used to communicate a message,” Penn told Counselor. “If we can all take this creative mindset forward with us, then we can revitalize the promo products industry.”