WhatTheyThink was saddened, and quite frankly, surprised, to learn about the closure of Dallas-based Padgett Printing, a respected family-owned printing business that had operated for more than 100 years. When we spoke with President David Torok in January of 2009, he was relatively positive about the firm's prospects and optimistic we would see an economic recovery that has not yet materialized.
Many firms that have gone out of business, especially in the last few years, have done so because they were over-leveraged. This was not the case with Padgett, who Torok indicates managing debt by refinancing loans, renegotiating leases with the assistance of their working capital lender. He explained the two major factors that caused a liquidity crisis in the company that ultimately ended in closing its doors.
"The first factor," said Torok, "was an embezzlement by our controller that had been ongoing for some time. This was uncovered six years ago, and amounted to a loss in excess $3.5 million. It is difficult to recover from that type of operating capital loss."
The second factor, according to Torok, is one that printers are struggling with every day: How do you find, train and retain the right sales people to sell new products and services while still retaining the existing sales force and legacy revenues from offset. Although much has been written on this subject here and in other trade press outlets, the advice can, admittedly, be difficult to implement at the street level. Sadly, what happened to Padgett is a big red warning flag to other printing businesses that they must step up their efforts to transform the way they sell.
Torok says, "If you have a sales force that has been successful for a long period of time because customers are buying more print, they tend to forget how to prospect. Because we were not doing enough prospecting and thus gaining new business, we couldn't overcome the business that we lost through reduction in customer business or customers who just went away. Our problem was just not customer bad debt; it was simply lack of sales and inadequate selling margins."
Torok built the business organically from $8 million when he joined the company in 1989 to its high of $32 million in 2007. In 2008, as the market tanked, so did Padgett, and by early 2011, the company had revenues in the $12 million range, had reduced its work force from 126 to 64, sold its real estate in 2009 with a lease-back option to raise additional operating capital, but simply could not bring the infrastructure costs down fast enough to compensate for revenue losses.
"This was not a quality or service issue, either," adds Torok. "We had one customer that was producing 10 $40,000 print and mail campaigns every year that eliminated that program entirely. Another customer found a full web printer that could beat our half web prices. Another had severe financial problems and significantly reduced its kitting and fulfillment. An insurance company for whom we were doing millions of dollars of mailing per year decided to try to do everything online. And with postal rate changes and decline in direct mail, that segment of our business suffered as well. The litany goes on." Even with all of this going on, Padgett scored a number of awards for its work in the PIA MidAmerica Graphex competition, including Best In Class, Platinum for its division, Digital gold and five Best of Categories. "We had 64 very talented and hardworking people here at the plant at the end," Torok says.
Padgett was very highly thought of in the industry and often cited as an example of a conventional printer making the leap to marketing and other value-added services. Padgett was the first North Texas printer to install a digital press (1999), added mailing in 2001, started developing customer web sites in 2005, and embarked upon kitting and fulfillment in 2007 with 60% of its output was going into the mail stream. Padgett was a long-time user of EFI Logic as its Print MIS. Seemingly, all the right pieces were in place.
At the same time, the competitive playing field was changing for offset, including non-traditional competition from alternative media, and a squeezing from above and below as full web companies began to encroach on the company's business from above, and long perfecters from below.
Torok indicates that the company did everything it could to fix the sales issue, including replacing sales managers in 2008 and again in April of 2011. Even incenting sales people to follow the money with a sales contest backfired when the sales manager failed to monitor job profitability, resulting in jobs being sold at a loss, negatively impacting the bottom line even more.
"In February 2011," comments Torok, "with the economy still a mess and all of the bad weather we had in Texas, we had our worst sales month in 16 years. We had a great month in December of 2010, but that meant big bills coming due and with little revenue in February, we were facing a severe liquidity crisis. Our landlords, working capital lender, equipment suppliers-everyone bent over backwards to help us. But it ultimate became clear that we had no option but to close the company."
When we spoke with Torok last week, he was still working to address all customer issues, including transporting inventory from their warehouses and returning digital files to customers. He is also working with employees to try to help them where possible in getting new jobs. He said, "Padgett was always a classy operation, and we will go out with class."
As for Torok, he is looking for the next opportunity in the North Texas area and has promised to let us know where he lands.