Wait and See: Mailers react to USPS fiscal crisis
There is no question that the U.S. Postal Service is facing financial trouble. In early September, Postmaster General Patrick Donahoe characterized its "restrictive business model" as being in a state of "crisis." Remedies for this crisis could include anything from rate increases to curtailed delivery days to reductions in labor forces.
The Obama administration is pushing for a three-month reprieve on a $5.5 billion retiree health benefits payment. Flexibility in making this payment would help the postal service avoid maxing out its $15 billion borrowing limit on Sept. 30, the end of its fiscal year.
Should the service default on its payments, the worst-case scenario–an absolute shutdown of mail delivery–isn't likely to happen, Donahoe has said. But even absent that threat, there's a lot of room for concern—and room for concern can play havoc with mailers' abilities to plan schedules.
The Cost of Uncertainty
"Having this sort of uncertainty in a key cost makes it extremely difficult to plan for the future," says Terri Alpert, CEO of Stony Creek Brands. That uncertainty goes beyond mailing quantities, she adds. Changes in delivery schedules, or emergency postage rate increases, will have an impact on her company's revenue, and that may trickle down to inventory management and hiring practices.
Stony Creek mails 12 million catalogs annually on behalf of its two brands—Uno Alla Volta, which offers one of a of-a-kind jewelry and home décor items and The Artisan Table. The company spends 17% of its sales on catalog postage. In contrast, the company allocates 13% of its sales to payroll.
"If the president and Congress are serious about creating jobs, then at least for our industry they'd better remove the great uncertainty around our single largest cost," Alpert says, adding that if the government decides to address the situation with an unscheduled rate increase, "they will see their revenue disappear, not only in our industry but in our extensive supply chains."
According to Donahoe's Congressional testimony, standard mail volume has dropped from 9.9 billion pieces annually in 2007—the time of the last rate increase—to a projected 8.4 billion pieces during the current fiscal year.
Alpert's customers tend to skew toward the mature end of consumers, a cohort quite comfortable with using traditional mail to receive solicitations and place orders. And the mail channel has shown itself to generate better customers than e-mail, paid search and other digital strategies. "Those customers are not worth much," she says. "The likelihood is that they are one-time shoppers.
"Our long-term solution has to be to find a different method of delivery," Alpert continues. "Which means we are highly incented to make the post office irrelevant, because Congress has shown us that we can't count on the postal system to be run in a rational manner, even if those who manage the post office understand how to run it in a rational manner."
Rationality will likely include some service cuts. In testifying before Congress, Donahoe made six legislative recommendations geared toward bringing the postal service back to health. Four of them call for internal financial changes, but two—giving the USPS authority over delivery frequency and streamlining the process for product development and pricing—could affect marketers' operations.
A Move Online
Some nonprofits are also uncertain about the current state of affairs and are exploring a greater use of electronic marketing.
"We are always looking for ways to improve how we get our product and message to our customers," says Roy Haas, director of sales and marketing for Printery House, a marketer of religious greeting cards. "With the cost for direct mail continuing to rise we are definitely exploring electronic communication options.
Just the same, Printery House, which mails out more than 500,000 catalogs per year, has actually increased its direct mailings over the years.
Some smaller nonprofit marketers–which have always relied on direct mail—might have a hard time adjusting to electronic communications.
"I do not believe that many of the smaller organizations have developed or deployed new models in anticipation of such change," says James Kopp, director of diocesan services, Roman Catholic Diocese of Erie, PA. "More importantly, their constituents are not used to receiving e-based communication programs. The issue will not only impact the organization, but their contributors as well."
In contrast, some marketers believe the threatened USPS default won't make that much of a difference and that the issue will get resolved.
"Ultimately, Congress will act and avoid a default and the USPS will not take the actions necessary to re-invent itself and be competitive in a 21st century world and will continue its long, inexorable decline," says Shep Moyle, president and CEO of Shindigz, a cataloger and online marketer of party supplies. "The USPS is a buggy whip operation in an iPad world."
Moyle, which still uses catalogs for 50% of Shindigz's marketing, does not think any of this will affect any of his plans going forward.
"Just like the debt ceiling debate, there will much ado about nothing," he says.
Too Late To Adjust Mail Quantities
Between the Obama administration's attempt to offer leeway for the $5.5 billion payment and Postmaster General Patrick Donahoe's assurance that there won't be a shutdown, mailers can probably continue operations as anticipated, at least for the immediate future.
"Marketers—as well as the average person—just don't think that mail delivery will stop," Bonnie Catena, deputy director of direct response at Amnesty International says. "Hopefully this is another form of the recent debt ceiling crisis—lost of speculation, but no actual crisis. It's an almost universal belief that Congress will ultimately intervene and mail will arrive in homes and businesses."
Amnesty International raises a significant portion of its income during the last part of every year, as do many nonprofits. Even if the threat of shutdown at the end of September were more likely, however, the organization wouldn't scramble to increase its current activities.
"Although direct mail fundraising is a significant portion of Amnesty International USA's income, we do have a diversified pool of funding sources to mitigate the theoretical impact of the ebbing of one income stream," Catena says.
The frequency of Stony Creek's campaigns doesn't allow it to radically adjust mail volume, such as by front-loading efforts before the default deadlines. "If I mailed four or five times a year I could make adjustments, but each of my brands mails 16 times a year," Alpert says. "We have, on average, three-and-a-half weeks between our mailings, and a shorter gap between mailings in the fourth quarter.
Alpert is not alone in the relative inflexibility of mail schedules: Between the need to purchase paper and budget both for expenses and anticipated revenue, catalogers usually need at least nine months to make significant adjustments to their mail campaigns.
