Dying Industries

Outsourcing, offshoring, technology changes or the recession's fallout have sent these industries into a downward spiral.

By IBISWorld Analysts Caitlin Moldvay & Douglas Kelly

After taking a beating during the recession, economic indicators are slowly returning to normalcy. Per capita disposable income, corporate profit and consumer sentiment are all returning to growth while unemployment abates from its peak of 9.6% in 2010. Despite the gradual recovery, not all industries are finding relief – in fact, some are pushing daisies. IBISWorld has identified a list of dying industries, defined by a declining life cycle stage, a decline in revenue and in industry participants between 2002 and 2012 and continued declines in these metrics through 2017. Based on these parameters, IBISWorld has highlighted 10 industries that have exhibited exceptionally sour performance. Whether suffering from import competition or substitution from technologically advanced products and services, these 10 industries are losing ground quickly.

Looking overseas

The offshoring and outsourcing of production has been one of the dominant factors leading to the decline of dozens of US manufacturing industries. To remain competitive, US firms in the Women’s and Girls’ Apparel Manufacturing, Costume and Team Uniform Manufacturing, Shoe and Footwear Manufacturing and Hardware Manufacturing industries have increasingly shifted production from American plants to international markets to capitalize on lower production costs. The primary destinations are in the Asia Pacificregion – China, Vietnam and Indonesiain particular – though Mexico and Central American countries offer similar advantages for manufacturing facilities.

When a company outsources production, it contracts a third party to perform the manufacturing functions; on the other hand, offshoring involves the relocation of a company’s own manufacturing operations to another country. One of the primary reasons companies have made these moves is to limit labor costs. For the US appare lmanufacturing sector, wages average 22.6% of revenue for industry operators. To reduce these costs, industry operators relocate their manufacturing facilities abroad to areas with far lower average wages. According to the IMF World Economic Outlook Database, in 2010, the average wage in China was $2,250. In Vietnam, a worker made $1,152 for the year, and in Indonesia, a worker made $1,089. The average wage for employees of US-based manufacturers of women’s and girls’ apparel, costume and team uniforms and shoes was $33,579.

The Women’s and Girls’ Apparel Manufacturing industry has been particularly hard hit by offshoring and outsourcing. Industry revenue is less than half of what it was in 2002; revenue has fallen at an average annual rate of 8.2% over the past decade to $8.6 billion. The Costume and Team Uniform Manufacturing has experienced similar declines, with average annual contractions of 6.7% over the 10-year period. The industry‘s worth has plummeted to $906.6 million from $2.0 billion just 10 years ago. Comparatively, the Shoe and Footwear Manufacturing industry has faced slower revenue decline, with an average annual contraction of 4.9% over the past decade to $1.8 billion.

As the relocation of manufacturing siphons revenue from these industries, the number of facilities producing apparel has continued to fall. Like revenue, the number of US facilities manufacturing women’s and girls’clothing is nearly half of what it was a decade ago. There are currently 1,196 manufacturing sites producing women’sand girls’ apparel in the United States; 10 years ago, there were 2,272. The movement abroad is expected to continue over the next five years for these four industries, as mounting price pressures from retail customers and competition from import markets force companies to seek ever-greater cost efficiency.

Import invasion

Rising competition from low-cost imports is also accelerating the decline of these industries. This trend has hastened the demise of the Hardware Manufacturing industry throughout the past decade. Imports currently account for more than half of all metal hinges, handles, keys and locks hardware sold in the United States, compared with just 29.3% in 2002. The majority of these imports come from China, Mexico and Canada, though China represents the largest and fastest-growing source. Revenue from Chinese industry products have more than tripled over the past decade.

Import competition has been particularly dramatic for the Shoe and Footwear Manufacturing industry, which must contend with low-cost imports that make up a massive 95.0% of domestic consumption. Again, China leads the pack, accounting for almost three quarters of the industry’s imports. Recently, though, Vietnam has emerged as a growing source of footwear and other forms of apparel. Rising wages in China have made Vietnam a more attractive destination for manufacturers.

External competition

The Appliance Repair industry has faced its own troubles, largely stemming from a rising tendency among consumers to purchase new household appliances rather than repair them. The industry mainly repairs and services garden equipment and household appliances such as lawn mowers, washing machines and refrigerators. However, over the past decade, the retail price of household appliances has fallen at an annualized rate of 2.4%, according to data from the Bureau of Labor Statistics. With retail prices continuing to fall, agreater number of homeowners are simply purchasing new appliances rather than repairing existing ones, a factor that has contributed to the industry’s long-term decline.

More directly responsible for the industry’s downturn, however, is the increasing trend among manufacturers to offer warranties on new appliances. This often-free service undercuts independent repair shops’ prices and will continue to pose a competitive threat to the Appliance Repair industry. Improving appliance technologies have also resulted in lower demand for repair services; as manufacturers revamp product performance, appliances break down less often and last longer between repairs. Consequently, revenue for the Appliance Repair industry has fallen 5.7% per year on average over the 10-year period, to an anticipated $3.7 billion in 2012.

Tech takeovers

Technological developments result in new products and services, but they also come at the expense of established industries that struggle to adapt to a changed marketplace. Many traditional industries fail to embrace new technologies to meet changing consumer preferences and ultimately fall under new waves of competition. Four industries in particular have faced significant internet based competition as consumer preferences have shifted toward digital media consumption: the DVD, Game and Video Rental industry, the Newspaper Publishing industry, the Photofinishing industry and the Recordable Media Manufacturing industry.

As consumers continued shifting toward streaming, video on demand (VOD) and downloaded media to the detriment of older mediums, the DVD, Game and Video Rental industry has seen revenue fall at an average rate of 6.6% per year to an expected $5.9 billion in 2012. IBISWorld anticipates that the cost savings, multi-platform accessibility and diffusion of digital media will continue to hurt the industry, hammering revenue down 13.8% per year over the next five years.

The Newspaper Publishing industry is in a similarly bleak state: Revenue has declined at an average annual rate of 6.4% over the past 10 years, largely driven by competition from web-based outlets. Consumer preferences have shifted toward the real-time reporting capabilities of online news outlets, including social networking platforms like Twitter. As a result, advertisers are spending less money on print placements and more on website space, where they can develop more customized advertising campaigns. IBISWorld forecasts revenue to keep falling, at an average rate of 4.2% per year, over the next five years.

Competition from digital cameras and, increasingly, camera phones, has left the Photofinishing industry struggling to stay relevant. Industry revenue has shrunk 11.4% per year over the past 10 years to an expected $2.0 billion in 2012. Consumers have and will continue to print far fewer images as the proliferation of digital devices and online photosharing platforms allow consumers to view, manipulate, store and share images more quickly and cheaply than printing them. Consequently, IBISWorld forecasts revenue to fall a further 9.9% per year over the next five years.

The Recordable Media Manufacturing industry, which manufactures tapes and disks, has also faced significant competition from a wide range of technologies. Consumers first shifted toward alternative storage technologies like hard drives; more recently, though, online downloading and streaming technologies are becoming the norm. Ashift toward alternative storage and media consumption technologies, combined with the increasing availability of on-demand digital media, caused industry revenue to fall at an average annual rate of 7.4% over the past 10 years to an expected $4.1 billion in 2012. IBISWorld forecasts the proliferation of digital devices, and the accessibility to the digital media they provide, to further erode industry revenue at an average rate of 4.4% per year over the five years to 2017.

Busted banks

The Money Markets and Other Banking industry, composed of banks owned by non-financial companies and private (i.e.unincorporated) banks not regulated by the Federal Reserve, was devastated by the financial crisis. Too small to warrant inclusion in the Troubled Asset Relief Program (TARP), banks in this industry were forced to seek sanctuary under the aegis of commercial banking structures in order to access bailout funds. As a result, the industry lost many of its largest players to the recession, including the industrial banks of Goldman Sachs and Morgan Stanley. Incentives in the form of easier access to funding, the ability to offer a greater range of products and government regulation under the Federal Reserve have pushed industry banks toward commercial banking status, leading to an average annual revenue decline of 6.9% over the past five years, to $834 million in 2012. Consolidation trends in the larger banking sector will continue to squeeze the industry; IBISWorld projects industry revenue to decline at an average rate of 0.9% per year over the next five years.

Opportunities

Not all is doom and gloom for these 10 dying industries. While these industries are losing ground in their current form, select industry players will be able to transform their businesses to pursue new opportunities. Operators that protect their competitive strengths in profitable market segments, target new niche opportunities and adapt to technological change will return to success over the next five years.

For example, companies in the Women’s and Girls’ Apparel Manufacturing industry and Shoe and Footwear Manufacturing industry will likely continue to focus on manufacturing high-end goods that cannot be cheaply produced abroad. To combat import infiltration, domestic firms have altered product mixes to include more high-end products that carry a bigger price tag and attract a more specific consumer base. Companies are also focusing on high-value activities like designing and marketing, a strategy that has helped stabilize revenue for women’s and girls’ apparel manufacturers and footwear producers.

Certain companies in other industries can survive by embracing newer technologies and adopting new business models. For example, some newspaper publishers have transformed the internet from a threat into an integrated part of their platform. Major newspapers such as the New York Times and the Wall Street Journal were quick to roll out applications that allow consumers to access full issues and multimedia content across numerous mobile platforms, including phones and tablets, for a price. Despite intense competition among online news sources, publishers that offer timely, accurate and high-value media to consumers will stay ahead of the game.

Likewise, the Recordable Media Manufacturing industry has growth potential in manufacturing disks that hold 3D movies. The upstream Movie and Video Production industry has strong incentives to keep physical disks relevant to better control the distribution of content and the revenue generated from it. Also, pending a major technology breakthrough, current streaming technologies cannot support the massive sizes of 3D movie files, presenting the industry with a niche opportunity to remain afloat.

To download full research reports for the industries discussed in this article, click on the report titles below.

Women’s and Girls’ Apparel ManufacturingCostume and Team Uniform Manufacturing, Shoe & Footwear ManufacturingHardware ManufacturingAppliance RepairDVD, Game and Video Rental,  Newspaper Publishing, Photofinishing, Recordable Media ManufacturingMoney Markets & Other Banking