# Presentation: 081447

## The U.S. Catalog Mailing Industry – Today and Tomorrow

***The U.S. Catalog Mailing Industry –****** Today and Tomorrow***

- Hamilton Davison
- Executive Director

**USPS Headquarters Washington, DC**

- January 31, 2008

**MTAC ****Association Presentation:**

## Current Members 

- GAIAM
- Hello Direct, Inc.
- InfoUSA
- J. Schmid Associates
- Johnson Smith Co.
- Jos. A Banks
- K-Log
- Lillian Vernon
- Magnetic Concepts
- MARCO
- Market Force Corp.
- Miles Kimball Company
- MeritDirect
- MOKRYNSKIdirect
- New Page Corporation
- Northern Safety Company
- Oriental Trading Company
- Paradysz Matera

- Paul Fredrick Menstyle
- PC/Nametag
- Peruvian Connection
- PetEdge
- Positive Promotions
- Potpourri Group
- Professional Cutlery Direct, LLC
- Quebecor World
- Rivertown Greetings
- See’s Candies, Inc.
- Seton
- Specialty Store Services
- Taylor Corporation
- The Occasions Group
- Transcontinental Printing
- Vermont Country Store
- Ulla Popken, Ltd.
- Ultimate Office
- Upbeat, Inc.

- Last updated: December 2, 2007

- Ambrose
- American Girl
- Arandell Corporation
- Barco Products Company
- Baudville, Inc.
- BelardiOstroy/ALC, LLC
- Blue Sky Brands
- Carrot-Top Industries
- Crate and Barrel
- Crestline Co.
- Cuddledown
- Day-Timers, Inc.
- DMinSite
- FarmTek
- Gardener’s Supply Company

## Catalog Mailing Industry Overview

- Est. Number of US catalogers: up to 20,000*****
- Business to Business (B2B): 35%**†**
- Business to Consumer (B2C): 60%**†**
- Hybrid B2B/B2C: 5%**†**
- Total 2007 Industry Sales: $270 Billion‡
- B2C Revenues: $102 Billion
- B2B Revenues: $68 Billion
- Online Revenues: $102 Billion

- * Source:  Estimates vary from 15,000 upwards; Gray House Publishing lists 18,000 separate companies but several sources indicate that number did not include many smaller “Mom and Pop” operations
**†**** **Source: Libey Incorporated, 2007
**‡**  Source: ACMA estimates based on a variety of sources (see *infra*)

## Who buys from catalogs*?

- Who buys from catalogs*****?

- Total number of buyers: **90 million**
- Women: 55%
- Men: 45%
- Age of buyers:

- * Source: MediaMark, 2006, includes catalog, phone and online sales

**As the baby boom reaches their end of life years, catalog buying will increase**

**An estimated 49% of all consumers buy from catalogs**

**Age in years**

**Millions of consumers**

**Baby boomers are vigorous catalog buyers**

## What do people buy from catalogs?

- * Source: DMA phone survey of 1,030 adults September 2005

**Percentage of Americans reporting catalog purchases*******

## Mail is “primary” for direct marketers

- Source: UPM North American Multichannel Marketing Report, 2007, page 15

**“****Even after all the investment and growth in the internet platforms since 2000, the catalog is still considered the primary channel and 1 of 3 channels believed to deliver sales.”**
**	****	****	****	****	****	****-- UPM Study, 2007**

## Catalog? Interactive? Retail?*

- Catalog? Interactive? Retail?*****

- * Source: UPM 2007 North American Multichannel Marketing Report

**Lines are blurred between “catalog marketers” and others.... **

**Catalogers have a variety of channels to sell dependent only on cost and performance**

**Tightly integrated business models with the ability to shift between channels   **
** ****in the marketing mix based on cost and effectiveness are most successful.**

## Annual quantity of catalogs

- Here are some popular estimates:
-  RISI**†**: 20.3 billion (2006)
-  UPM*****: 20.1 billion (2005)
-  DMA‡: 19.1 billion (2005)

- †** **As reported in Verso Paper Market Update, July 2007
- * Estimated from PrintCom Consulting Group and PRIMIR Future of Catalogs study
- ‡ Estimated from USPS Revenue, Pieces and Weight by Class of Mail Report for FY05

## The US Catalog Industry is Growing*

- * Source:  ACMA estimates derived from various information obtained by Libey Incorporated, 2007, US Department of Commerce, InteractiveRetailer.com, UPM North American Multichannel Marketing Report and DMA Economic Impact: US Direct and Interactive Marketing Today

** ****Catalogs are growing 25% faster than retail**
** ****American demographic trends suggest this growth will continue**

**Catalog and interactive marketing have a tremendous growth opportunity when compared to the retail channel**

## The Catalog Operating Cycle

- Plan,
- Buy &
- Finance

- List
- Management
- (House &
- Prospects)

-     Merchandise,
- Assort

- Creative
- Design &
- Execution

- Testing

- Order-
- take,
- Fulfill &
- Ship

- Analyze &
- Database
- Mgmt

- Printing
- Production
- &
- Presentment

- Returns,
- Refusals
- &
- Warrantee
- Activities

- Promote

- USPS
- Delivers

- Finalize
- Marketing
- Plan

**The catalog business cycle has multiple steps, long lead times & critical process paths.  **
**Key variables are carefully tested to reduce the risk of error before being incorporated into marketing and mail plans.**

**Typical operating functions of a catalog company**

- * Applies to both B2C and B2B; some functional tasks are contracted out of the company to consultants, list managers, and other external “partners” who function like and extension of the catalog company.

## The Catalog Business Model

**	**

**“****This complex business has little margin for error”**
**-- President $250 million hard goods cataloger**

**   ****RFM: **_**R**_**ecency, **_**F**_**requency and**** **_**M**_**onetary Value**
***The catalog mantra:*****  How recently did they buy?  How frequently?  How much do they spend?**
**  ****Low profit (~5%), high volume**** business**
**  ****Sophisticated marketing ****based on systematic, ****quantitative    ****assessments of customer segments**
**  ****House list ****(existing customers) ****	**
- •  **Prospect lists**** (new customers) **
**   ****Product, Marketing, Fulfillment**** ****Costs** **(including “Shipping &   Handling”)**

## Catalogs Are Uniquely Valuable

**To the U.S. Economy**
- Drives an industry worth over $300 billion a year
- Employs three million Americans
**To Consumers**
- Valued over other kinds of mail (consumers welcome it)
- Like a magazine (purchase = subscription)
- People with disabilities, limited access to internet or retail stores
- Enhances “mail moment”
**To the Postal Service**
- Growing & recurrent volume
- Not likely to saturate consumers
- Extremely high “multiplier” effect (1 purchase = 20-40 pieces of mail)

- * Source: Libey Incorporated estimate, 2007

**Keeps other mail—and mail in general—relevant ****as a means of communication.**

**Notes:**
Why should anyone here care about this class of mail?
Catalogs have many business partners, a number of whom are represented here in this room
Learned from my mailing industry work on another mail class, I had to be concerned about any large group of mail as their health important given the cost coverage and content value they might bring

## Will growth continue?

**  ****After history of growth, now 4 quarters of volume decline:*********  **
**	****Catalogers scrambling for substitutes... with a possible 15% ****	****reduction in mail plans for 2008****†**

***** Source:  Verso Market Update, January 2008 based on RISI data
**†** Source:  ACMA interviews, summer 2007

## Illustration of Multichannel Marketing

- Source: UPM North American Multichannel Marketing Report, 2007, page 16

**Notes:**
Just a few of the substitutes:

Print advertising in newpapers and managzines
Aggressive internet marketing deployments including webinars, blogs, interactive communities
Pay for click, affiliate marketing, online auction sites and bulletin boards
Multi-level marketing systems
Direct sales, distributors, agencies and wholesale channels
Telemarketing, direct response TV

## Impact of the R2006-1 Rate Increase

**Industry is particularly vulnerable**
- High volume low profit,
- Competing with retail stores (so it’s hard to pass on costs to consumers)
- Postage makes up a large percentage of overall costs
**Can’t turn on a dime**
- Easy fixes don’t work (e.g. “slim jims”)
- Long planning cycles
**Disrupts planning cycle**
- Resource shift from “growth” to “treading water”
**Forced to ****cut circulation**
- Provides immediate cost savings
- Some existing customers become unprofitable
**Forced to ****cut prospect mailings**
- Eliminates *multiplier effect*
- Limits potential for new growth

**It may take years to fully evaluate the impact of R2006-1.**

## Reacting to R2006-1

**Catalogers are considering all alternatives and rethinking their business plans.**
**Catalogers are trying to minimize the impact of:**
**   ****20% - 40% increase to postage cost**
**   ****Increased cost of compliance **
**   ****$3 - $4/****hundred weight**** in paper cost**
**   ****6% - 8% increase to ink cost**
**   ****Increased freight**
**   ****Weak dollar**

## Mailers Technical Advisory Committee

**Partner to keep catalogs in the mail**
- Contribution to USPS operational costs
- Content value that helps keep mail relevant
- Postage makes up a large percentage of overall costs
**New to postal affairs**
**Generally do not understand technical details**
- Large and dispersed group of companies
- Importance of partners
**Enormous change**
- To cataloging economics
- To environmental influencers
- To how flats mail is processed

**In the enlightened self interest of every mailer to have**
** ****a vibrant catalog channel**

## Questions & Answers

***Questions & Answers***