Cimpress Aims To Mitigate Risks By Decentralizing Operations

On May 15, we updated the research report on business services provider, Cimpress N.V. CMPR.

Cimpress' business is scalable and its web presence and online tools for customer use are well established. While additional demand often results in various capital investments such as additional printing presses, these fixed costs are spread over a wider revenue base. The company's solid operational position is reflected in its history of strong fundamentals, which we expect to continue, going forward.

Management has also decided to implement a radical change in the organizational structure by decentralizing operations to improve accountability for customer satisfaction and capital returns, simplify decision-making and improve the speed of execution. With operations in about 50 locations spanning 30 countries across six continents, decentralized decision making will enable the company to be nimble and entrepreneurial. The evolved corporate structure will likely lead to more accountability as the company expands into new geographical regions and markets to strengthen its position as a leading provider of mass customization business products.

With the use of proprietary web-based design software and advanced computer integrated printing facilities, Cimpress has a competitive advantage over traditional graphic design and printing methods. The company has shifted its value proposition away from deep discounts and free-offer direct marketing efforts to tap the large market opportunity beyond the traditional base of highly price-sensitive customers. At the same time, Cimpress is making steady progress with investments in new markets and its business strategy is focused on higher quality products and delivery, increased customer service and more transparent pricing to promote long-term customer relationships.

In addition, Cimpress has been acquiring firms with complementary product offerings and expects to ramp up its revenues with operating synergies through economies of scale and technological collaboration to serve customers across the globe.

However, headwinds in currency translation often add to its woes as the company generates almost half of its revenues outside the United States. The strategic repositioning of the Cimpress brand further entails a huge risk. Presently, when the economy of Europe is highly unpredictable post the Brexit referendum, it becomes difficult for the company to increase revenues and reduce costs. In addition, it is likely to be stifled by the renegotiated deals and restrictions imposed on trade with other European Union members. Brexit could further result in higher tariff and non-tariff barriers to trade between the U.K. and the European Union, lowering productivity of the company.

Despite enjoying a leading position in the industry, Cimpress faces significant competition from traditional graphic design and printing companies and other online suppliers. Moreover, increasingly advanced desktop publishing software and more capable desktop printers offer small businesses another cost-effective solution for their marketing needs. While these sources cannot meet the extent of Cimpress' product offerings, they can handle day-to-day marketing needs of small business customers. This could hurt top-line growth of the company.

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