At deadline

Jun 01, 1998 9:30 PM  By

RATE COMMISSION REDUCES POSTAGE HIKE On May 11, the Postal Rate Commission (PRC), the independent government agency that has deliberated over the U.S. Postal Service’s July 1997 proposal for rate increases, determined that most of the USPS-proposed rate hikes were too high. As a result, the PRC recommended that, among other rates, the cost of standard A mail (which includes most catalogs) be increased on average to two-thirds the amount proposed by the USPS. (The USPS proposed rate hikes for catalogs of 1.8%-7.4%, depending on the extent to which they automate and presort.) The PRC also urged the USPS not to implement the new rates until January 1999, rather than in July ’98 as the USPS had requested. “While the decision rests with the USPS Board of Governors,” said PRC chairman Ed Gleiman in announcing the recommendation, “given the strength of the economy and the upswing in mail volume that traditionally begins in late summer, [we] see no reason any increases should be put into effect” before January. Overall, the PRC recommended that the USPS be allowed rate increases that will bring in only $1.65 billion in revenue, rather than the $2.4 billion in revenue the USPS had sought. The adjustment to the USPS revenue requirement “corrects Postal Service overestimates of the impact of inflation on its costs and for computational errors and the failure to reflect fully the savings from cost-reduction programs,” Gleiman said. “It also recognizes the impact of recent operating surpluses on the recovery of prior years’ losses.” News of the recommended modification of the postal rate hike delighted Direct Marketing Association president/CEO Robert Wientzen. In a statement, he commended the PRC “for keeping the postal rate increases within the growth rate of inflation.” As of mid-May, the USPS Board of Governors was expected to meet on the PRC recommendation by early June. At that time, the governors will either approve and implement the rate changes as per the PRC recommendations, or reject the PRC proposal and turn the whole case back to the PRC for reconsideration. They’ll also decide when to implement the new rates.

HENDERSON SUCCEEDS RUNYON AS POSTMASTER GENERAL For the first time since 1986, the U.S. Postal Service Board of Governors has chosen a postal employee to become postmaster general. William Henderson, who was promoted to chief operating officer under former PMG Marvin Runyon, was named Runyon’s replacement on May 12; his term began on May 16. The board chose Henderson for his operations and marketing expertise as well as for his reportedly solid relations with labor and management. The USPS begins negotiating with its two biggest labor unions-the American Postal Workers Union and the National Association of Letter Carriers-later this summer. Industry organizations applaud the choice. “Henderson’s appointment is a good move for the USPS,” says Gene Del Polito, president of the Advertising Mail Marketing Association. “Coming from a marketing and operations background, Henderson knows what mailers’ concerns and needs are in regard to the Postal Service. He has worked at all levels of the organization and has a true strategic vision for the future.”

J. CREW TO UNLOAD CLIFFORD & WILLS Apparel cataloger/retailer J. Crew Group said in mid-May that it was looking to sell women’s apparel catalog Clifford & Wills. “Our decision to divest of Clifford & Wills reflects our strategy to focus on building the J. Crew brand,” CEO Howard Socol said in a statement. The CW catalog showed a 50% growth in earnings in 1997, according to analysts. J. Crew as a whole did not fare as well, however. While ’97 sales increased to $830 million from $571 million in 1993, profits fell from $14 million to $12.5 million, as operating expenses also grew to 43.1% of sales from 41.6%. Investment firm Texas Pacific, which borrowed money to buy J. Crew last fall, saddled the cataloger/retailer with a substantial amount of debt-$283.9 million, compared with $86.9 million before the deal. Kevin Silverman, an analyst with Chicago-based Everen Securities, says J. Crew is taking a logical step in exploring a Clifford & Wills sale to raise badly needed capital. Perhaps, Silverman says, J. Crew views its women’s apparel subsidiary as a “distraction to the core catalog.” Meanwhile, J. Crew has promoted Trudy Sullivan, who has served as president of CW over the past three years, to president of J. Crew Mail Order, the company’s catalog unit.

No real threats in ’98 For catalogers, the most important bills in the Senate and the House of Representatives address Internet taxation, privacy, and federal use tax. Yet “I don’t see any of those bills as they now exist being passed,” says Richard Barton, senior vice president of congressional relations for the Direct Marketing Association.

That doesn’t mean catalogers can rest easy, however, and assume that they’ll be free from legislative interference indefinitely. The current bills, even if they don’t pass, are likely to beget compromise bills that Congress could find more palatable.

Internet taxes Both the Internet Tax Freedom Act, introduced by Rep. Christopher Cox (R-CA) in 1997, and the Internet Fairness and Interstate Responsibility Act (S.1888), introduced on March 31 by Sen. Judd Gregg (R-NH) and Sen. Joe Lieberman (D-CT), seek a three-year moratorium on Internet taxation. The key difference between the two bills is how they’d structure the commissions that would decide on post-moratorium taxation.

Cox’s bill would establish a 29-member commission that would include 15 local and state representatives. These members, who would make up a majority of the commission, would likely be in favor of taxation. Gregg-Lieberman’s commission would be made up of an equal number of members representing federal, state, and business interests, which should more fairly represent catalogers’ interests.

The DMA, which supports the Gregg-Lieberman proposal, doubts that either bill will muster enough support to pass. But Barton believes that a compromise bill will pass eventually. “I see some resolution regarding Internet tax” within the next three years, he says.

Privacy “There are 35-40 privacy-related bills in Congress now, and we’re watching some of them,” says DMA spokesman Chet Dalzell. “Not many of them, however, have legs.”

Perhaps the most notable privacy bill is the Children’s Privacy Protection and Parental Empowerment Act of 1997, introduced by Sen. Dianne Feinstein (D-CA) and Rep. Bob Franks (R-NJ). The bill would prohibit the buying, selling, and renting of lists that contain information about children without the consent of the child’s parents. The bill also gives the parents the right to receive from the list user the source of the data and whether it had been transmitted to another entity. The bill, according to the DMA, would effectively eliminate children’s lists.

Luckily for catalogers of children’s products, “as Franks’s bill is currently written, there is little chance of it being passed,” Barton says, as the House subcommittee charged with reviewing the bill doesn’t believe mailing lists in any way endanger children.

But some observers speculate that Franks will try to attach his restrictions on the use of children’s marketing lists to the Child Protection and Sexual Predator Punishment Act of 1998 when it comes up for a floor vote. Sources in the DMA don’t know when that is likely to happen, however.

In the last several Congresses, and most recently this past April, Sen. Dale Bumpers (D-AR) has introduced legislation that would require out-of-state marketers to collect sales tax on purchases-even in states where the marketers have no physical presence. Such use-tax collection, he feels, will level the playing field for retailers that must collect sales tax.

But Bumpers has had no success with such bills in the past, and he’s unlikely to this year, Barton says. And to paraphrase Richard Nixon, catalogers won’t have Bumpers to kick around anymore: He will be retiring from Congress in October.-YM