Seeking Solutions to Postal Predicament

Now that most of the changes proposed as part of the current postal rate case are scheduled to go into effect on May 14, catalogers are scrambling for ways to minimize their effect. The sense of urgency is compounded by the fact that the Standard Mail rate increases are steeper than originally proposed last year. (See page 7 for details.)

For many mailers, a few tweaks to the circulation plan won’t be enough to offset the additional postal costs. As Kevin Bergerson, marketing manager at St. Paul, MN-based The Sportsman’s Guide, says, “We will be reacting to [the rate case] in different ways. Probably some mailing reduction, page-count reduction, and possibly paper weight reductions.”

Matthew Marrazzo, circulation manager for the Baker’s Catalogue from King Arthur Flour, says that officials at his company were “shocked” when they heard the new proposed rates.

“Since our catalog falls under the 3.3-oz. ‘magic’ weight, “ Marrazzo says, “our increase in postage expense will come to the tune of 25%. In total dollars, it will mean an added $350,000 in costs added to our selling expense.” (If its catalog weighed more than 3.3 oz., the increase would probably have been even higher, in part because such Standard flats are subject to both a per-piece rate and a per-pound rate.)

For King Arthur Flour, which mails about 6 million catalogs a year, compensating for the postage increase is at odds with its goal of continued growth. “We would have to cut 700,000 books, or almost 12% of our circulation, just to pay the same amount of postage that we did last year,” Marrazzo says. “We might not go to that extreme, but we will definitely not be mailing as many books, and prospecting is always the easiest group to cut.”

The Norwich, VT-based company has discussed other options, such as focusing more on e-mail, eliminating an entire remail, and not mailing buyers as often.

Like Baker’s Catalogue, Yankee Candle Co. estimates that its catalog postage will rise 25%, says Dana Springfield, the company’s general manager of consumer direct. That means the South Deerfield, MA-based scented candles manufacturer/marketer will likely “be forced to make serious cuts in catalog circulation, catalog page counts, and paper weight,” he says. “The impact on our business model would be significant.”

Yankee Candle has planned 10 mailings for 2007, dropping a total of 10 million catalogs. Springfield anticipates having to “eliminate at least one mailing, cut total circulation by 15%, and lower the basis weight of our catalog paper.”

Electronics, gifts, and gadgets merchant Sharper Image “like other direct-mail retailers, is very disappointed with the significant increase proposed by the Postal Rate Commission,” according to a statement from spokesperson Tersh Barber. “The company has planned for an increase in postal rates, but at levels below the currently proposed rates. [The approved changes will] likely cause The Sharper Image to review its 2007 plans and potentially result in a reduction of circulation.” The San Francisco-based cataloger/retailer had already slashed catalog circulation by nearly a third last year as part of its turnaround efforts.

Cutting circulation is a typical strategy in light of a rate hike. Brookstone, a Merrimack, NH-based competitor of Sharper Image, is going a step further. In January the company merged both its titles, Hard-to-Find Tools and Brookstone, into one book, which will simply be known as Brookstone.

“We are testing this concept in light of the recent proposed postal increase,” says Brookstone spokesperson Robert Padgett. “We think it will be a more efficient way to distribute our catalogs to our customers.”

Changing channels

Fair Indigo is a multichannel start-up that sells apparel, coffee, tea, and gifts, made by “fair trade” companies — those that pay workers more than the minimal wages of sweatshops. The Middleton, WI-based company mailed about 500,000 copies of its debut 40-page catalog this past fall. Terry Nelson, the company’s marketing manager, would not discuss circulation plans, but says, “We are aggressively pursuing cobinding opportunities with our printer and looking at other marketing channels such as e-mail and both organic and paid-for search results.” Cobinding allows catalogers to have their books bound on the same bindery line at the same time with the catalogs of another company so that the catalogs can be aggregated, put into mail order sequence, and comailed as a means of obtaining greater postal discounts. (For more on cobinding and comailing, see “Preparing for the Postal Rate Hike” in the October 2006 issue.)

Fair Indigo is also considering a more aggressive retail expansion, Nelson says. It currently has one store in Madison, WI, and plans to open three to five stores starting in 2008. “We will put our dollars where they provide the best return. A 20% increase in postage will lead to a higher percentage of my marketing spend going to other channels.”

Other multichannel merchants will no doubt follow suit, reallocating within their marketing budget. And that goes for larger companies as well as small. Plano, TX-based cataloger/retailer J.C. Penney Co., for instance, had yet to finalize a game plan as of mid-March. But Bill Zimmer, direct marketing operations and media distribution manager, says, “We are reevaluating our catalog and retail strategies, and the role the Postal Service plays in supporting these businesses.”

Please, Mr. Postman

After poring through the complete 700-page Postal Regulatory Commission recommendation released on Feb. 26 and realizing the severity of the rate increases and rule changes, industry trade groups and suppliers urged mailers to fax letters to the USPS Board of Governors (BOG) urging it not to approve the recommendations. Within two weeks the USPS received more than 1,000 pieces of correspondence regarding the matter.

“Our primary effort was lobbying the BOG,” says Jude Dippold, spokesperson for Warren, PA-based apparel and home decor merchant Blair Corp., which last year mailed 151 million catalogs. “It was through a combination of letters and phone calls. We contacted our area congressmen and enlisted their support, and they sent letters opposing it. We went after state-level politicians and top local-level officials. We had very strong political support.”

The catalog vice president of a multichannel merchant that sells apparel for healthcare professionals describes the rate hike as “devastating.” This year the company planned to mail 2.64 million catalogs. But now, the number of catalogs in the mail “will be drastically reduced, and our focus will shift to Internet marketing,” says the catalog executive, who requested anonymity.

In a letter to BOG chairman James C. Miller III, the catalog executive stated: “If the proposed increase were put into effect, this would impact our company up to $67,000 in 2007. There is no way we could profitably plan 2008 at these increased cost levels. Bottom line, this would be devastating for our catalog business, forcing us to reevaluate our entire catalog marketing strategy… Please accept this as a plea to find a reasonable middle ground in your rate increases; one that will not have a devastating affect on your clients along with your business.”