“Under protest,” the U.S. Postal Service Board of Governors (BOG) agreed on Dec. 5 to implement the rates recommended in November by the Postal Rate Commission (PRC). The new rates take effect Jan. 7.
The PRC-recommended rates call for a reduction in the size of the rate hike the USPS had proposed in January 2000. But complaining that the PRC reductions won’t provide enough revenue to fund postal operations, the BOG returned portions of the rate case back to the PRC “for further consideration.” If upon re-reviewing the case the PRC agrees with the BOG that more revenue is needed, postal rates could increase again later this year.
The USPS’s financial situation “worsened since the rate filing,” BOG chairman Einar Dyhrkopp said in announcing the protest acceptance. “We cannot accept a situation that threatens the ability of the USPS to provide the service levels expected.”
The BOG also effectively disregarded comments from assorted mailers and mailing organizations that called for a two-month delay in implementing the new rates. “We realize that the implementation time frame is pretty tight,” says Anita Bizzotto, the USPS’s vice president of pricing and design. “But we’ve been working with mailing software vendors all along on this. We’re prepared to work with individual mailers to make sure there’s no interruption in their service.”
In the past, Bizzotto adds, the USPS would allow mailers an unspecified grace period to adapt to the paperwork and other requirements of the new regulations. The agency will likely grant a similar grace period this time around. No grace period will be allowed, however, for paying the new rates.
At press time, the PRC was expected to write up a schedule on which it would act on the BOG’s protest. It will likely issue a response during the next few months. PRC chairman Ed Gleiman, who is scheduled to leave his post Feb. 2, says he doesn’t know when the PRC might finish re-reviewing the case.
“We obviously have an obligation to handle it, and it all depends on what the BOG asks us to look at,” Gleiman says. “My suspicion is that we have to read through the BOG’s protest, see if the mailing industry wants to comment on it, then take it from there.”
Neither Gleiman nor the USPS would speculate if or how catalogers’ postal rates could change following the PRC re-review of the case. The BOG didn’t set any specific goals on which rates might be increased, says USPS rate case attorney Dan Foucheaux. “It’s something the USPS would have to decide on if the PRC asks for any further recommendation on the proposed rates. We felt there were specific issues on which the PRC made errors. If it agrees, then it may ask postal management for a new rate proposal.”
Among the hundreds of postal rate increases that go into effect this month across the various rate categories, no fewer than 75 rates are of interest to catalogers – all within the Standard A mail, the bulk mail category used by most catalogers.
Navigating the rate hike There’s no simple answer as to which rates concern most catalogers, because mailings of different quantities qualify for assorted discounts. Clarence Banks, manager of postal and logistics analysis for printer R.R. Donnelley, says most catalogers use the basic enhanced carrier route presort rate. Most larger mailers are able to drop-ship their books to regional destination entry sectional center facilities (SCFs) to gain bigger discounts, while some smaller mailers can drop-ship into bulk mail centers (BMCs).
And catalogers that drop-ship to SCFs books weighing more than 1 lb. will enjoy rate decreases. The USPS’s reasoning is that ounce per ounce, such books cost less for the agency to process than lighter books.
The flip side of the rate hike equation, then, has mailers of catalogs that weigh 3.3 oz.or less getting hammered. The 3/5-digit automation rate for these lightweight catalogs is increasing 16%-16.3%, depending on whether the mailers can drop-ship into BMCs or SCFs.
Even the confident catalogers who don’t expect a slowing economy to produce a slowdown in sales still have to contend with the Jan. 7 postal rate increase – not to mention higher paper and fuel costs. Below, catalogers share what they’re doing to cut costs, reduce expenses, and boost profits.
JEFF LARGIADER, vice president of marketing for Shrewsbury, NJ-based Programmer’s Paradise, a $244.1 cataloger of software for computer professionals: “We’ll probably opt to trim [administrative costs] a little more, and we’re considering buying our paper direct from the mill. We’re also looking to engage long contract commitments with our printers.” But Lagriader says Programmer’s Paradise will not skimp on merchandising. “Our audience thrives on content,” he says. “We’d like to increase the density of information we provide on our pages and get more bang for our buck.”
SETH MILLER, chief operating officer for Boca Raton, FL-based The Mark Group, which mails the women’s apparel catalogs Mark, Fore, & Strike and Boston Proper and gifts title Charles Keath, expects the company’s Internet business to help the bottom line. Miller says that as the trend of customers shopping via the Web continues to grow, the company’s cost per order will drop, since online ordering doesn’t entail the expense of paying for telephone service reps. The Internet currently accounts for 15% of The Mark Group’s total sales. Miller says.
DAVID HOCHBERG, spokesman for Rye, NY-based Lillian Vernon Corp., a $254 million gifts and home goods cataloger: “With respect to the postal increase, we’re moving one of our mail dates up to before the increase. In terms of future strategies, our goal is to mail smarter. We’ll fine-tune our mailings as our breakeven point changes. And we’ll look into some of the obvious things such as printing on lighter paper, changing trim size, and cutbacks on some of the marginal lists.”
JACK ROSENFELD, president of Medfield, MA-based Potpourri Collection, whose 10 titles include Back in the Saddle, Potpourri, and Catalog Ventures Favorites: “Last fall, we began testing raising our shipping and handling charges by 10%-18% in some books,” he says. The company plans to roll out the raised rates across all its titles this spring. “We are also trying to concentrate our efforts on importing, thereby reducing the cost of our merchandise,” he says.
CATHY MURPHY, vice president of catalogs for As We Change, a San Diego-based marketer of women’s wellness products, says the company switched from using 45-lb. coated groundwood to the cheaper 45-lb. coated freesheet. As for circulation, As We Change will mail 33% fewer catalogs in 2001 than in 2000. But the reduction in catalog circulation was scheduled well in advance of the economic uncertainty. Overall, “we plan to become much more efficient in our business, such as converting older buyers and prospecting less.”
Having been more ubiquitous during holiday 1999 than Regis Philbin, TV commercials from pure-play Internet retailers have faded from the small screen this past season. A survey released in late November by Shop.org and the Boston Consulting Group showed that just 4% of e-tailers were planning to increase their television ad budgets for holiday 2000.
Jupiter Research conducted a survey less than a month before Christmas showing that just 12% of online merchants would be advertising on TV or radio during the holiday season. Nor were these i.merchant pouring dollars into print media campaigns; just 21% planned to advertise in print, according to Jupiter. And only 11% of online retailers spent more than half of their advertising budgets on holiday 2000, compared to the 29% that had spent the majority of their ad budgets on holiday ’99.
So where did all the dot-com advertising go? According to a study by Jupiter Media Metrix division AdRelevance, it stayed online. The survey showed that the number of online advertisers between October and mid-November nearly quadrupled from the same period of ’99, from 657 to 2,313.
Because TV commercials lack source codes and immediate-response mechanisms, their effectiveness can’t be calculated as easily and as definitively as that of direct mail, banner ads, and other sorts of advertising. And that’s not a concern for some catalogers. J.C. Penney and Talbots, for instance, are interested more in projecting a brand image than in giving sales an immediate boost.
But others, such as CDW Computer Centers, promote a unique 800-number on their TV ads to help gauge the influence of the commercials. “We don’t specifically measure the effectiveness of our TV ads or magazine ads,” notes vice president of advertising Don Gordon. “We look at different forms of measurement of our total advertising spending vs. the type of sales we get overall.”
If L.L. Bean returns to TV next year, it too will show a unique toll-free number in its commercials. “For us, TV ads have more to do with a call to action to convey to customers that we’re a direct response company and that we want customers to do something,” says Dave Holmblad, Bean’s director of acquisition and advertising. “The 800-number is a reminder that we’re a direct response company. Posting the 800-number is more symbolic; we don’t expect a lot of calls, and it’s not designed to be a catalog-inquiry vehicle.”
Apparel marketer Nordstrom.com announced Dec. 6 it will close its Nordstromshoes.com and Men’s Edition catalogs, consolidating the books into its two more established titles, Life/Style and Clothes for Life. The Seattle-based cataloger/retailer also laid off 35 employees in its direct division-approximately 3% of the division’s staff.
“We were overmailing to our customers,” says spokesperson Shasha Richardson. “We needed to eliminate a couple of our books, and we thought it best to focus on our two most developed, most profitable books, which have been around the longest and have the most loyal customer base.” The final mailings of the Men’s Edition and Nordstromshoes.com catalogs will be in February.
Nordstrom reported preliminary total sales of $594.6 million for the month of November 2000, an increase of 9.2% from November ’99. Catalog sales are a small portion of that sum, however; for all of 1999, Norstrom’s direct sales were just $210 million. Overall, the company has reported annual year-to-date total sales of nearly $4.5 billion in 2000, up 7.5% from the previous year. Internet sales have increased more than 400% from 1999.
The slowing economy in recent months played into Nordstrom’s decision to close the two titles, Richardson adds. “Early-stage businesses, such as the Men’s Edition and Nordstromshoes.com books, are better supported by a more robust economy. Now that the economy seems to be slowing a bit, it’s more difficult to support those brands.”