Raising Postage Rates for Catalogs Isn't Economically Justified

The USPS’s announcement of new, higher postage rates for catalogers and all other mail is a mistake and should be rolled back. The attempt to boost revenue by raising rates may very well have the exact opposite effect: catalogers will drastically scale back on the number of books they put into the mail, suppressing USPS revenues in the process. Here are some points to consider:

• Catalogers, as well as plenty of other types of business mailers, are driven by their historical break-even metrics. They inevitably mail less when postage rates are increased. Previous economic analyses of rate increases have shown that, for catalogers, a rate increase may result in both lower revenue and lower profits for the USPS.
• There's a “sticker shock” factor when such a large percentage increase is passed on to mailers. While catalogers have been able to budget around the annual 2 percent postage increases of the past 14 years without any real review of changing costs, this increase, which will be nearly 9 percent for many catalogers, combined with the significant increases in paper, ink, and freight rates, is causing brands to look closely at their overall increases in catalog costs. The immediate knee-jerk reaction is to stop mailing catalogs altogether, which would permanently harm the USPS.

As one might expect, catalogers are voicing their opposition to the upcoming postal increase. For example, a high-end men’s apparel cataloger said it knew it would have to absorb the increase in both postage and paper, and would probably mail according to its original plan for the holiday season. Sticking to the plan makes sense because the easing of COVID has resulted in an uptick in response rates, and that should somewhat offset the increased costs. However, earlier plans to increase circulation (which means more revenue for the USPS) were quashed by the postage and paper cost increases.

A woodworking catalog brand said the wave of increases in postage and paper were combined with supply chain issues, and that rising costs would hurt the bottom line at a time when pandemic panic buying was easing. Therefore, the net effect was troubling, but probably wouldn’t affect circulation decisions in the short term. An indication of how closely catalogers know their costs is that the catalog owner knew precisely how much the postage increase would raise his break-even point for mailing catalogs.

A jewelry and clothing catalog owner said that his focus was primarily on getting the actual costs for holiday season nailed down so he knew what his postage, co-mail, paper and freight costs would be. Because catalog response has been so good during the pandemic, his focus was on the inventory and stocking issues ramping up to the holiday season. The company's sales have been strong during the pandemic, and he viewed this cost as a long-term problem rather than an issue affecting second half of the year circulation planning.

Due to paper price increases, paper allocation by the mills, and printers rapidly selling out press time, catalog printers are pushing for catalogers to finalize holiday printing schedules. As a result, circulation decisions are being fast-forwarded and catalogers are scrambling to determine their postage and paper costs so that circulations can be finalized. Catalogers are pushing their printers to get estimated postage costs.

The big picture for business mailers and the USPS is what will happen to catalog volumes because of the postage increase. If the economic impact of the postage increase has been studied, that economic analysis has not been shared. There's more to this rate increase than just 9 percent. That 9 percent increase gets "baked" into the rate base for eternity, so in future years, it's only going to cost mailers more and more.

The economic case should be made to the USPS to increase as much as possible the quantity of catalogs and direct marketing mail that can be included in carrier route bundles. Carrier route bundles are a fixed cost for the Postal Service. The majority of catalogs travel as carrier route bundles, which are actually profitable for the USPS. The more catalogs that contribute to carrier route bundles, the more revenue flows to the USPS with virtually no incremental costs for it to deliver that mail. Additional carrier route participants yield incremental revenue that translates into additional profit for the USPS. Any strategic analysis of how to increase profits would focus on increasing the volume of carrier route mail and not decreasing volume by imposing higher costs.

The Postal Regulatory Commission (PRC) should send this rate hike request back to the Postmaster General and the USPS's Board of Governors and ask that they do their collective homework by providing both an economic analysis and a strategic rate structure for catalogers that would result in actual volume increases of carrier route mail.

It would make economic sense for the Postal Service to encourage catalog volume increases rather than decreases. At the very least, the USPS needs to know the elasticity of demand and the potential impact on revenue and profitability of this rate increase.

Past rate increases for catalogs have hurt revenue and profitability for the USPS. Unfortunately, it appears that the USPS is on the verge of making another critical mistake.

Jim Coogan is the founder and president of Catalog Marketing Economics, a consulting firm focused on catalog circulation planning.