'04: Another Tough One for Exhibit Designers?

The past two years have been difficult ones for exhibit design firms. And by the looks of things, this year won't be much different.

After the lean years of stingy customer orders, layoffs and office closings, exhibit designers and builders were more than ready for a rebound. A late-2003 spike in RFPs brought some optimism. But now it appears that '04 will deliver more of the same.

Kim Fracalossi, president and CEO of market-share leader Exhibitgroup/Giltspur, now predicts that 2005 will be the year to watch. "It appears that things aren't going to turn around in 2004," she said.

With the industry highly fragmented, dominated by throngs of small companies, it's difficult to gauge how many players have been forced to close up shop. By one measure, the Tradeshow Week Buyer's Guide, the shakeout has been severe. In 2001, more than 350 exhibit designers were listed in the guide, compared with about 200 in this year's edition. Federal courts, meanwhile, list dozens of exhibit design firms that have filed for bankruptcy in recent years.

And exhibit houses' financial difficulties don't appear to be over yet. Last month, Exhibit Dynamics filed for bankruptcy, leaving vendors and its financial backer owed more than $30 million. A smaller company in Atlantic City called Showtime Exhibit Builders also took the Chapter 11 route, leaving millions owed to its hundreds of creditors. A few weeks later, the 28-year-old Contempo Designs went into reorganization mode, closing offices and laying off staff, but avoiding a Chapter 11 filing.

The bankruptcy of Showtime Exhibit Builders created some confusion, since its name is similar to that of a bigger exhibit design house, the 15-year-old Showtime Enterprises. However, rather than being in financial straits, the Philadelphia-based Showtime Enterprises is in expansion mode. The company recently opened a sixth office in Phoenix and signed a 5-year lease extension on its Las Vegas facility, said Dan Polito, senior vice president of marketing.

Fracalossi said her impression is that many exhibit design firms had been trying to hang on through the difficult market, believing it would end this year. Those without the resources to make it through one more year of depressed demand are apparently throwing in the towel. "As we go through another very tough year, we probably will see some competitors going by the wayside," she said.

Furthermore, according to Fracalossi, the highly competitive environment is causing some companies to exhibit "a bit of irrational behavior just to get some working capital in the door." Design houses are pricing orders below cost in order to generate enough revenue to survive another few months. "It's destructive in the sense that you have a lot of companies in business a long time closing their doors or scaling back significantly," she said.

In its Chapter 11 filing, Exhibit Dynamics said it had been struggling in a depressed exhibit and tradeshow environment since the terrorist attacks of Sept. 11, 2001. The company believed it had secured enough cash to continue operating, but the deal fell apart with the departure of two salespeople who handled $6 million in annual business. After that, landlords threatened eviction and relationships with vendors deteriorated.

The Grand Prairie, Texas-based Exhibit Dynamics plans to continue operating during the reorganization. The company has offices in Strongsville, Ohio; East Brunswick, N.J.; and San Jose and Santa Ana, Calif.

Contempo, meanwhile, closed its offices in Milpitas, Calif. and Portland, Ore. and retained offices in the San Diego, New York and Chicago areas. At its height, the company employed 400 and offered more than 700,000 square feet of manufacturing space.

Besides leaving vendors in the lurch, the financial problems of exhibit houses can be devastating to customers. "Proper-ties can get locked in a warehouse before customers can figure out what's going on. That does cause chaos," said Fracalossi, adding that E/G is currently trying to help several customers caught in that situation. Considering that new exhibits cost anywhere from $50,000 to $500,000, having that large an asset left partially constructed or inaccessible can create significant financial turmoil.

E/G, a subsidiary of the publicly traded Viad, has not been immune to the shrinking demand for exhibit booths. In the first nine months of 2003, the company saw its revenue drop nearly 10 percent to $149.4 million.

But Fracalossi said steps the company took early on – such as consolidating its manufacturing facilities and decreasing the workforce by 20 percent – have enabled it to weather the storm. Having the backing of a large corporation like the Phoenix-based Viad also helps, she said.

"We like to think we're ahead of the curve on a lot of these decisions. We made some tough decisions and started our activity two years ago."

Fracalossi said E/G hasn't lost customers; but the exhibit budgets of some of those customers have shrunk by up to 50 percent. Although many exhibit design companies have expanded into retail and museum displays to weather the slump, Fracalossi said tradeshows remain E/G's core business. "Tradeshows are still the dominant venue," she said.

E/G and GES Expositions Services, Viad's other convention-related subsidiary, plan to team up more on corporate events, similar to Ford's centennial celebration last year. But Fracalossi said the corporate events will complement, not replace, tradeshows.

Viad's spin-off this year of its Travelers Express unit will leave GES and E/G as the company's main subsidiaries. Fracalossi said the move will enable more cash flow to be returned to the convention subsidiary. She doesn't expect the spin-off to improve E/G's acquisition capabilities, since the parent company has never turned down a suitable acquisition.

Fracalossi, whose training is in mechanical engineering, said exhibit design and production is about a lot more than manufacturing. The sales, creative and logistics functions are equally important. In recent years, she said, she's been striving to make sure E/G uses the best equipment possible to improve efficiencies. The company has also adopted quality assurance procedures. "That way there are fewer mistakes on the show floor. You want to get it right going out to the show," she said.

On average, customers redo their exhibits every three or four years, Fracalossi said. These days, 6-year-old booths aren't uncommon. Fracalossi said she recently heard of a company that was trying to squeeze one more year of use from a 9-year-old booth.

With marketing budgets for this year already set, Fracalossi doesn't foresee that many more exhibit dollars will be set free. But eventually, she said, customers are going to need to order new booths.

Fracalossi said there's no danger of the organization being unable to meet exploding demand in the future either.