They Got Those Post-Exigency Postal Blues
Mailers put on a grumpy face.
Joe Schick wasn't surprised by the lumps of coal left in mailers' stockings by the Postal Regulatory Commission on Christmas Eve. Like other stakeholders who'd been following the exigency drama, he'd hoped a reduced number might be put into play by the PRC, but he didn't blink when he learned that the PRC went for the full 4.3% increase. Instead, Quad/Graphics' long-time director of postal affairs had the resigned attitude of a man whose wife had run off with his best friend and stole his car to do it.
“I'm never surprised at what comes out of the Postal Service or the Commission,” Schick says, though it's clear that the timing and the aggressiveness of the Christmas assault on mailers had cut to the bone. “When we used to do rate cases, there would be some work-sharing opportunities that would let us reduce costs for our customers, but there's none of that here. A lot of mailers were not happy about it coming down on Christmas Eve, and then two days later they file for an advisory opinion on load leveling that takes some Monday deliveries away from us. So that's the way it's going to be going forward. If the Postal Service has a problem it can't fix, it can raise prices and cut services, like it did Christmas week.”
The fact that the PRC limited the exigency to two years or the collection of $2.8 billion in added revenues gave mailers little solace. Even if exigency were to be phased out—and no mailers we spoke with were optimistic that the federal government would shut off a running revenue stream—their businesses are and will be handicapped by the rate hike for years to come.
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. What's more, it sees an 8% decrease in the mailing costs it will pay to USPS 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.”
USPS won't see the decrease initially from catalog companies, most of which have already printed catalogs for their initial 2014 mailings. However the drop-offs will come fast and furious from catalogers and direct mailers alike, most likely culminating with cuts during the fall, a period USPS counts on to bolster its Fiscal Q4 numbers.
“We're a P&L oriented company, so we're going to cut our circulation more than what the postal increase is,” says AmeriMark VP Marketing Dale Fujimoto. “We can never really recover from the postage increase, we can only mitigate it. So, we're going to take away the mailings that fall below our profit cutoffs. Cutting out prospects leads to shrinkage of your 12-month file, and once that happens, it's hard to build it up again. We're going to have fewer orders and less customer retention.”
Paul Ercolino, president of US Monitor, which tracks and measures direct mail campaigns for large mailers and fundraisers, sees this becoming an industry-wide dynamic. “You're not going to prospect as much when you're facing a 6% postal increase,” he says. “If you planned on doing 12 campaigns, you cut it to 10.”
Ercolino actually sees the exigent increase as a potential boon to US Monitor's business, as clients endeavor to explore efficiencies. However, he doesn't see it being a net revenue boon for the Post Office. “It's going to take some time to regain that [$2.8 billion] because of the declining volume,” he says. “It's going to be difficult to get it done in two years.”
The irony is that the organization that stands the most to lose in new customer acquisition as a result of the exigency increase is the Postal Service itself. That's the view of Brian Kurtz, EVP of Boardroom Inc., a newsletter publisher that relies almost exclusively on mail to prospect, as well as to deliver its printed products.
“Direct mail still works, it still scales beautifully. It has so many advantages over digital, like merged and purged lists with upfront credit scores. It gives us the opportunity to send bill-me offers instead of up-front credit card purchases. That gives us a four-time greater response, and more than half are going to pay, so it's two to three times the conversion rate. ” Kurtz says. “A lot of digital marketers are starting to figure out how to use direct mail in their mix. This is a huge new potential market for the Postal Service, but the Postal Service is pricing a lot of them out of the business.”
Amid the flying arrows and slinging stones filling the direct mail skies in recent weeks, there remains a whiff of hope, like the lingering aroma of the perfume of that two-timin' wife. It's called postal reform, and it was a constant topic of discussion among both congressmen and mailers until exigency passed and the topic was apparently dropped. Mailers, by and large, remain confident that the passage of a new reform bill might lift the horrifying specter of exigency and allow them to go back to business as usual.
“I think postal reform should take exigency off the books,” US Monitor's Ercolino says. “If they get the reform package and they eliminate Saturday delivery, savings should already be in the $2 billion range.”
But Quad/Graphics' Schick is not so sure that even reform will have mailers smelling roses again. “The indications given by the Postal Service is that this exigency will give them enough to carry them through 2017, so I don't see why Congress would even consider it,” he says. “[Rep. Darrel] Issa has come out and focused on the five-day delivery, but I don't see that as a positive for mailers. The Senate wants to take away the governance of the regulatory commission. It's only bad stuff.”
What once was a symbiotic relationship between post office and mailer is over. They still need and depend on each other, but the separation papers have been filed and approved by the PRC. “We'll muddle through,” Schick says, “but it's not going to be easy.”