Alex Husted, database and circulation manager at Edmund Optics, is watching with concern as the U.S. Postal Service faces the possibility of insolvency. Husted, who directs the catalog business of the global imaging and photonics company, is worried, like many marketers, about the possibility of dramatically rising postal rates, as the Postal Service faces another record loss.
“We're anticipating double-digit postal rate increases annually for the foreseeable future,” Husted said. “When coupled with increasing paper prices, that becomes difficult to manage.”
Husted said Edmund Optics is committed to remaining in the catalog business but is exploring its options.
“Our catalog business puts us at a great advantage over the competition, and we have a lot of marketing prowess here,” Husted said. “At the same time, as the catalog portion gets more expensive, we're going to have to make difficult decisions. Are we going to mail people less, cut back our large book, supplement it with other pieces?”
In the commercial mail space, which includes direct marketers, catalogers and publishers, Husted is not alone. As consumers continue to abandon first-class mail in favor of electronic forms of communication, the Postal Service is predicting a loss of $9 billion or more for its fiscal year ending Sept. 30 and pending insolvency unless it gains relief from Congress and regulators.
“Our issue is we're losing about $8 billion to $9 billion a year,” Paul Vogel, president-chief marketing/sales officer of the Postal Service told BtoB. “We can either ask for legislative changes that put us on a level playing field with the way a normal business operates or continue to reduce our infrastructure, including plants and post offices, to become more efficient.”
The Postal Service wants to do both, but it faces long odds. While not receiving any public money, it nevertheless is restricted by law—and the vagaries of political decision-making—in how it manages its pensions and employee health plans, the products and services it offers, and how much it can charge customers.
This month, Postmaster General Patrick Donahoe appealed to a Senate oversight committee to help the Postal Service avoid default and shore up its ability to function effectively in the future.
In addition to proposed cost-cutting measures, such as eliminating about 120,000 jobs and closing about 3,600 post offices, Donahoe asked Congress to eliminate the Postal Service's annual $5.5 billion prefunding of retiree health benefits; refund to it what he said were retirement fund overpayments totaling $6.9 billion; allow it to consider eliminating Saturday delivery; and permit it to determine its own pricing and product development processes, and restructure its healthcare and pension systems.
“Personally, I think the Postal Service has quite a challenge at this point getting these requests into law,” said Paul Miller, VP-deputy director of the American Catalog Mailers Association (ACMA). “The postal unions are jumping all over the job-cut proposals and won't go down without a fight. And members of Congress don't want post offices closed in their districts.
“On the other hand, the Postal Service is making some bold and viable recommendations,” Miller said. “A lot of pain may go with it, but there will be even more pain if nothing is done.”
Miller said the last major jump in catalog postal rates four years ago severely depressed catalog volume, which hasn't yet completely rebounded.
Commercial mailers are as concerned about the uncertainty of the future as anything.
“It's a scary time for direct marketers, but it could be the impetus for Congress to finally make some changes and allow the Postal Service to operate as a truly independent business,” said Linda Woolley, exec VP-Washington operations at the Direct Marketing Association.
But like ACMA, the Direct Marketing Association would fiercely resist postal increases.
“It would be bad to solve the Postal Service's troubles on the backs of mailers by raising rates,” Woolley said. “Even a slight increase in mail rates would dramatically depress mail volume again, and that is the last thing the Postal Service wants.”
Last year the Postal Service requested the Postal Regulatory Commission allow it to raise rates an average 5.6%. That request was denied, as current law restricts postal rate increases to no more than the rate of inflation.
“Every year we've usually done a pricing change,” Vogel said. “We'll probably go back to the Postal Regulatory Commission next month. We expect a rate increase tied to the Consumer Price Index.”
Vogel said the Postal Service is well aware of the value of commercial mailers and wants to continue to encourage increased volumes of advertising mail. The last two years the Postal Service held “summer sales,” offering postage rebates for increased commercial mailings. And this summer it offered an upfront discount of 3% for mailers of first-class and standard mail that use 2-D barcodes, such as QR codes or Microsoft Tags, on their pieces. It was an attempt, Vogel said, to make mailed pieces more interactive with digital marketing techniques.
Vogel said the summer sales didn't produce the returns he had hoped for because of the complexity involved in qualifying for those rates; generally only large mailers qualified and then had to use a complex formula to prove their volume increased. The barcode promotion, without administration hurdles, performed better, he said, and may serve as a model for the future.
“The QR code promotion worked fantastically, with almost 33.9% of standard-mail pieces in July and August having some form of code,” he said.
Vogel pointed to other business-friendly initiatives, such as the new Every Door Direct Mail program, allowing businesses to use so-called “saturation mail” to every business or home in a geographic area without having to include actual recipient names on the pieces.
Mailers, meanwhile, are planning for a future that may not include as much of a reliance on the Postal Service. It may entail what Edmund Optics' Husted called “the elasticity of direct marketing spend.”
“For example, we've been working closely with our customers in the electronics industry to trade ideas on possibly just dropping the catalog program entirely,” he said. “And we're exploring new ways to get people engaged. For example, because our catalog is a big piece, we send it BPM (Bound Printed Matter, a class of mail that is used for pieces over 1 pound). “We're committed to mail, but honestly, other than a few other companies I talk to, I have no idea how committed other big direct mailers are to keeping the Postal Service model alive.”