Mailers Prepare to Deal With a Walloping Postal Rate Increase
Experts expect direct mail to decrease in response to the postal rate increase.
Direct mailers did not go gently into January 28. Throughout the final quarter of 2013, they fought hard to derail the 4.3% exigent postal rate increase that went into effect on that day. Add in the standard CPI rate adjustment and mailers now face a business-jarring 5.9% rate hike that figures to upend their mailing plans and their bottom lines for the next two years, and perhaps beyond.
“Generations of customers will pay for an undeserved postage rate increase that is triple the inflation rate,” carped a statement from a mailers coalition following the Christmas Eve exigency decision by the Postal Regulatory Commission (PRC). “Worse, this rate increase does not fix what is wrong with the Postal Service, will further depress mail volume, and will worsen the Postal Service's financial woes.”
The PRC determined that USPS had lost $2.8 billion in revenue due to the Great Recession—the exceptional circumstance behind the Postal Service's exigency request—and granted the full 4.3% request on the condition that the rate be decreased and, ultimately, eliminated as the Post Office closed in on collecting the lost revenue. Mailers' groups such as the American Catalog Mailers Association had hoped the PRC might knock the exigent increase down to the 2% level, but that appeared not to be in the cards.
“Since the enactment of the [Postal Accountability and Enhancement Act], the Commission has been reluctant to set rates,” says PRC Chairman Ruth Goldway, one of three commissioners who decided on the exigency request. “What we did was tell the Postal Service to report to us on a regular basis as to how much additional revenue they recover. By our calculations, we feel that there will be a cutoff in year two [of the exigent increase].”
Mailers, however, aren't so sure. Because mailers—and especially catalog marketers—had print runs and lists completed before the increase went through, the Postal Service is likely to experience a boom in Q1 revenues. But the gains figure to drop off precipitously in Q3, and mailer malaise will worsen in 2015, insiders say.
AmeriMark, an online retailer of apparel and general merchandise for which mail order is still a huge component, sees its mailings declining by more than 13% within two years of exigency rates being put in place. The fees it pays to the Postal Service will drop 8% as a result. “The exigent increase leads to reductions in circulation, which actually leads to lower gross revenue for the Postal Service,” says AmeriMark President Louis Giesler. “It can set in place a death spiral.”
To hit P&L targets, mailers will be forced to focus mailings on high-performing customers and downplay customer acquisition, which will affect future business and the size of future lists. “You're not going to prospect as much when you're facing a 6% postal increase. If you planned on doing 12 campaigns this year, you cut it to 10,” says Paul Ercolino, president of US Monitor, which tracks and measures direct mail campaigns. “It's going to take some time to regain that [$2.8 billion] because of the declining volume. It's going to be difficult to get it done in two years.”
Sen. Susan Collins (R-ME), one of the authors of the PAEA bill that established the exigency option, expressed disappointment over the PRC's decision to implement it. “My concern is that a rate increase of this magnitude will worsen the Postal Service's crisis by further driving down mail volume, eroding the Postal Service's steadily declining customer base, and leading to a further decline in revenues,” she said in a written statement. “The Postal Service should be implementing more initiatives that will increase volume and attract more consumers. Even though temporary, these rate increases may well do just the opposite.”
Spurned mailers, it appears, are of the same opinion.