05/08/2010 - 00:00

Worldwide credit crisis snaps printers into new era

05/08/2010 - 00:00

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The new owners of loss-making print franchise Worldwide Online aim to revive a battered brand to take on market leader Snap Printing.

Worldwide credit crisis snaps printers into new era

WORLDWIDE Online Printing seemed to have everything in its favour. With an innovative ‘hub and spoke’ business model and the backing of a major international investor, Navis Capital, it had consistently achieved rapid growth year after year.

To support its growth, Worldwide had been a big investor in the latest print technology and IT systems, all designed to optimise service and efficiency.

What the rest of the industry didn’t know, at least until February when Worldwide went into administration, was that the group had incurred operating losses since 2007 totalling more than $12 million.

In hindsight, Worldwide provides a classic example of what not to do – the group had continued to spend up big, exhausting its cash reserves and leaving it dangerously exposed when the GFC led many businesses to cut their marketing spend.

“This had a direct impact on the print industry which was also burdened by overcapacity and unsustainable pricing practices,” a creditors report by administrator McGrathNicol concluded.

“The Worldwide Group has also been impacted by a pronounced print industry shift from offset printing to digital printing, which has resulted in offset equipment becoming redundant sooner and an overall excess of offset capacity.”

Adding to its woes, Worldwide also did some strange things, such as buying marketing firm Wordplay. The purchase failed to add significantly to cash flow and its disposal led to a $625,000 write-down of goodwill.

The failure of Worldwide added to a tumultuous year for the national printing industry, during which many established players have exited the industry.

The industry downturn has created challenges for the printing franchises in WA, three of which were established in Perth.

Burswood-based Snap Printing, headed by former AFL umpire Grant Vernon, remains the market leader with 23 WA franchises and more than 150 nationally.

“In the industry generally, we are seeing businesses close their doors,” Mr Vernon told WA Business News.

“There is continuing pressure on prices; that has been the case for the whole nine years I’ve been here.”

The extra squeeze came from a slowdown in sales during 2009, but Mr Vernon has seen a recovery in the past six months.

“It’s a return to more normal levels of activity,” he said.

Snap’s largest direct competitor in WA is Worldwide Online, which today is a cut down version of the old business.

Its national network of printing hubs has gone and the number of franchisees has shrunk to 77 (and 20 in WA) after McGrathNicol terminated five franchise agreements.

Worldwide is now in the hands of new owners, who paid $2.7 million for the business.

The major shareholders are Arnold Whiteside, Mick Skender and former Carlton footballer Jon Dorotich, who run Cannington business Crystal Printing Solutions, which trades as Worldwide Online Printing Cannington.

Other shareholders include Rob Dallimore, who previously held Worldwide’s NSW master franchise and is the group’s new managing director.

The new owners face the task of reviving the Worldwide brand after four months in the hands of administrators.

They also face competition from other franchises, such as local group quickcolourprint.com.au, which offers a unique combination of printing and singage, and giant US groups Minuteman Press and Kwik Kopy, which are relatively underweight in WA.

Another likely competitor is printing.com. John Stangeland, who held the master franchise for Worldwide in WA, is understood to be in talks to bring the UK franchise to the Australian market.

Clive Denholm, who founded Worldwide in Perth in 1994 before selling out to Navis Capital in 2006, is adding to the rapid change in the print industry.

Mr Denholm is in the midst of a national roll-out of his CMYKhub business – a specialist trade printer promoted as an efficient, high-quality service provider to small and medium size printers.

“Instead of people renewing or buying new equipment, they are choosing to outsource,” Mr Denholm said.

He believes his specialist focus enables high utilisation of expensive equipment, which most other printers can’t achieve.

The first CMYKhub opened in Melbourne three years ago, a $4 million Sydney hub opened in January, and a smaller WA hub has opened in East Peth.

Mr Denholm expects his turnover will be close to $12 million this year, which he says is a good outcome for a new player in a sector characterised by overcapacity.

Under Mr Denholm, Worldwide pioneered the use of printing hubs in Australia, with the establishment of four sites across the country.

Snap also has print hubs, though in its case it is franchisees rather than the parent company that have pooled resources to open three hubs.

Whether the manufacturing hubs make money is another question. In Worldwide’s case, it appears they didn’t.

McGrath Nicol chose to “exit unprofitable manufacturing that was impeding the performance of the Worldwide Group”, the creditors report stated.

Worldwide’s major printing hub in Cannington (which operated in premises leased from Crystal) was taken over by Crystal shortly after the group went into administration.

During the administration, Crystal also paid the bills for Worldwide’s manufacturing employees.

Mr Dorotich said Worldwide’s new owners were adopting a steady-as-she-goes approach.

“We need to keep up the deliverables to the network,” Mr Dorotich told WA Business News.

“It’s about getting in there and helping the franchise network, to help them manage their business more efficiently.”

Crystal will continue as the “exclusive supplier to the Worldwide network”, according to McGrathNicol, but Mr Dorotich readily acknowledges it cannot meet all of the network’s print needs.

He is supported by Mr Dallimore, who said Worldwide’s previous focus on its manufacturing hubs was to the detriment of the group.

“Our focus is going back to the basics of franchising,” he said.

This will include simplifying its internal systems and offering more field support in areas like sales and marketing.

Mr Vernon said Snap’s print hubs had been successful because they were owned by franchisees, who set the pricing, and were limited to carefully-selected niche services.

“Our franchisees still outsource a lot of work to other printers,” he said.

Snap may be the market leader in Australia by a wide margin but Mr Vernon said the group was planning further expansion, based on the introduction of a smaller franchise model that he likened to a mortgage broking business.

“We think we can start to expand our footprint,” he said, throwing down a challenge to the rest of the sector.

 

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