Cheap Doesn’t Pay
The current USPS rate change crisis for the direct-to-customer industry, reminds us that the industry is in a sea change. Years ago we could rationalize postal increases far better than we can today. By rationalize I mean figure how to offset costs elsewhere and get the increases back. Things have changed.
Response rates have been declining for over ten years. Transportation costs (inbound and outbound) are now equal to or more than fulfillment labor costs and escalating each year—the USPS rate increases are coming on top of significant increases by all the major carriers just this January. In the last five years the cost of labor has increased in fulfillment and call centers from under $7 per hour to over $10.50 per hour in many businesses.
Online businesses continue to offer free shipping and handling—but if catalogs have to offer free shipping and handling, it would eat up much of their profit. The shape of the competitive landscape has changed. The Internet now is a very real competitor for catalogs, even though 90% or more of its traffic is generated by the catalog circulation.
What’s the answer? For one thing, you can’t save yourself just by cutting expenses; you must change merchandising to increase the top-line sales.
Related posts
Postal Rate Increase, Act II
It’s ironic: No sooner did the postal reform bill get signed into law than the Postal Regulatory Commission’s recommendation for unexpectedly sharp USPS rate increases sent shock waves through the direct-to-customer industry. Some sources are talking about 20%–40% hikes in rates for flat pieces, the category most directly affecting the catalog industry. (The USPS recommendation was a 12.5%increase.) The postal reform bill, designed in part to reduce just this sort of increase, will not fully take effect until 2008, and the current rate increase, though not the specific amount, has been in the pipeline since last year.
Thanks to several quickly organized protests—see the March 6 post on this blog below, for instance—hundreds of letters went to the USPS board of governors last week, asking them to reconsider or reject the PRC’s recommended rates. In addition, we understand that hundreds of companies attended what turned out to be a sometimes heated open forum of the USPS Board of Governors a few days ago.
The rates for flat mailings in particular are twice what the USPS proposed, according to DM News. The Board of Governors announced two days ago (March 19) their approval of the recommended changes. However, the Board allowed three of those changes under protest, and resubmitted them to the PRC to consider mitigation. The three changes to be reconsidered include: 1) rates for standard mail flats; 2) surcharges on first-class, non-machinable mail; and 3) flat-rate Priority Mail box fees.
Catalogers must nevertheless plan for significantly higher-than-expected flat mailing rates to take effect May 14.
The DMA hosted a Webinar yesterday (March 20) on the rate case to give mailers an update and to explain how the proposed rates could impact bottom lines and operations. We’ll provide a recp of the webinar here, so check back soon.
Related posts
Postal rate increase will grievously damage the Catalog Industry
Posted from Mark Swedlund of Haggin Marketing
If any of the friends and readers of Curt’s blog have any clout with the Postal Board of Governors, now is the time to exercise it.
For months we’ve been expecting a 7-9% rate increase, mid year this year.. Now at the 11th hour, it appears that true rate increase for catalog mailers if going to be much higher than that.
In fact, Haggin Marketing asked its printers to estimate the likely impact on some current mailings. Their resulting forecast is an 18% increase. The news is worse for small catalogers who mail in limited quantity. A friend, who heads marketing for a $10mm a year cataloger told me he estimates their rate increase to be 28% or four hundred thousand a year.
A rate increase of this size is simply unbearable and unforgivable.
This week we have a last minute chance to make our vices heard. Below is the information for complaining to the BOG; take the time to write. The job you save may be your own.
Communicating to the Board of Governors regarding the PRC’s recommendation for the R2006-1 rate case.
If the Postal Service wants to hear directly from postage ratepayers, then let’s have them hear from postage ratepayers. Anyone who has gotten burned by this decision should immediately fire off a letter to the Governors of the Postal Service to tell them what the impact of this decision is likely to be on their business.
Whatever you do, DON’T tell the Governors that you’re just upset about being asked to pay more postage. Make the impact on your business clear.
Be sure to explain that since the recommended increases are substantially higher than even the Postal Service proposed, you are going to take steps to reduce your use of the mail. You don’t want to take about percentage rate increases. You want to talk about dollar increase in cost per thousand (You don’t need to give them details–just that “on average my cost per thousand will increase by X dollars and that you’re going to curtail volume, not selectively–i.e. at the ADC or Mixed ADC level–but across the board.
Your letter has to be filed with the Secretary of the Board of Governors not later than Thursday, March 8. Your letter should be addressed to:
The Honorable James C. Miller III
Chairman, Board of Governors
U.S. Postal Service
475 L’Enfant Plaza, SW, Rm 10300
Washington, DC 20260-1000
Now, here’s the bit of irony. DON’T mail your letter. USPS mail still gets irradiated, and there is a delay in when this mail gets delivered.
FAX your letter into the USPS at 202-268-5472
Related posts
Credit Card Insecurity
The PCI Security Standards Council, the consortium including Visa, Mastercard, Discover, JCB, and American Express, mandated that Tier 1, 2, and 3 merchants (those that handle more than 6 million transactions per year, those with 150K to 6 million transactions a year, and those with 20K to 150K transactions a year, respectively) should be in compliance with PCI data security standards by June last year. A newer version of the standards became effective Jan. 1 this year.
We’re hearing from clients that credit card companies have begun to send out auditors and assess fines. The auditors have so far handed out relatively small fines for clients who have not met Payment Card Industry standards, but that could change. A major breach at TJX (T.J. Maxx, Marshalls, and HomeGoods stores) sometime between May and December 2006, and maybe earlier, has already affected dozens of banks (and their customers) in Massachusetts. Evidently the TJX security breach involved storing customer credit card information on store POS systems, which is against PCI rules. As a Tier 1 merchant, TJX can expect serious repercussions from the credit card companies. Besides fines, indefinite suspension of the right to process credit card transactions is one of the sanctions possible.
In spite of the threat of fines, Gartner Inc. analysts estimate that only 50% of Tier 1 companies are actually compliant with the PCI requirements. Although a list of compliant credit card service providers is available, a list of compliant merchants is not.
A related issue for direct-to-customer merchants is how their software vendors support them in cases where a vendor might change elements of its package related to POS, for instance.
The whole subject of PCI compliance and related issues is liable to be even more important in the next few months: Beginning June 30, 2007, even Tier 4 merchants—those with less than 20,000 credit card transactions a year—will also be subject to PCI compliance standards or face fines. The potential threat of fines for noncompliance is huge. We’re interested in hearing from readers about their experience with PCI standards. How are you doing? Are you being penalized?
Related posts
Taking Your Company’s Operational Pulse
Bob Betke, vice president of F. Curtis Barry & Company, talks about F. Curtis Barry & Company’s innovative Benchmarking ShareGroups, celebrating their eleventh anniversary this year. ShareGroups cover a range of topics, including warehousing/pick, pack and ship, retail replenishment, forecasting and inventory management, and call center/customer contact center.
To learn more visit the “Continue Reading” link below…
Related posts
Crutchfield Chooses JunctionMCR
A major direct marketer of consumer electronics products, the Crutchfield Corporation, has decided to use Junction Solutions’ JunctionMCR solution to supply merchandising information to its Web applications, call center applications, and POS locations. Lincolnshire, IL-based Junction Solutions is a Gold Certified Microsoft Partner offering industry-specific functionality built on the latest standard technologies from Microsoft. JunctionMCR will integrate easily with Crutchfield’s existing Microsoft infrastructure. According to Crutchfield’s vice president of IT, Steve Weiskircher, JunctionMCR will help integrate the multichannel shopping experience for its customers. “We expect that the new merchandising solution will provide our merchants with better workflow automation, streamlining our product lifecycle management process,†Weiskircher says.
Related posts
Business Intelligence Firm Gets Investment Boost
On-demand business intelligence software OCO, Inc., has received $10 million in a Series C financing from investment funds managed by Highfields Capital Management LP, based in Boston, MA. The investment positions OCO to consolidate its first-to-market position in on-demand business intelligence.
OCO’s on-demand data integration and analysis software can dramatically reduce the time, cost, and risk associated with more traditional BI implementations. In just six weeks, OCO’s integrated solution takes any amount of data from any source and integrates, organizes and delivers it to desktops in reports and dashboards. OCO guarantees the results on a fixed-cost, fixed-time basis.
OCO has established a growing presence in the retail sector, where information systems may differ at store locations, corporate headquarters, and online merchandising operations. According to Dennis Hernreich, COO and CFO of Casual Male, “We chose OCO after considering other more traditional business intelligence solutions with significantly higher project costs and longer integration and deployment periods.†Casual Male Retail Group (CMRG), which has more than 500 stores in the United States, Canada, and England, credits OCO with helping to increase its profit margins by 3.5%.
For more information, visit www.oco-inc.com.
Related posts
New Sales VP at Sigma Micro
Multichannel retail solutions provider Sigma Micro LLC has announced that John Roth has joined the company as vice president, sales. Roth has over ten years of previous experience with software, retail, sales, and business development at companies such as Voxware Incorporated, Mincron Software, Manhattan Associates LLC, and EDS. Sigma Micro president Joe Swern says Roth’s “knowledge and understanding of retail customers, as well as his experience working in the warehouse and distribution software space make him the perfect addition to help us continue to expand the position of SigmaCommerce as the true fully integrated multi-channel solution for mid-market retailers.â€
Sigma Micro, a privately held company with headquarters in Indianapolis, IN, and development offices in India, provides .Net enterprise applications solutions to multichannel retailers. The company’s clients include retailers such as Sears, L’Oreal, Land’s End, Eastbay, and Drysdales. For more information contact Jeff Dahltorp (jsdahltorp@sigma-micro.com) or visit www.sigma-micro.com.
Related posts
Deal on Wheels
Tire Factory, the Portland, OR-based tire retail chain made up of independent dealers in the West, has decided on a new, integrated point-of-sale and ERP system. Tire Factory’s choice is JunctionISS from Junction Solutions, headquartered in Lincolnshire, IL. Junction ISS will be integrated to Microsoft Dynamics AX to provide a comprehensive enterprise resource planning system.
JunctionISS is a browser-based, touch (optional), GUI point-of-sale and back-office application designed to offer retailers a flexible, scaleable and standards-based solution using XML/XSLT Web technologies. Junction Solutions is a Gold Certified Microsoft Partner offering industry-specific functionality built on the latest standard technologies from Microsoft. Junction Solutions focuses 100% on solving business issues in the retail, food and beverage processing, and manufacturing and distribution industries.
The new system to be developed for Tire Factory will manage financial data, trade agreements, and warehouse and distribution activities for over 180 stores in 11 Western states.
For more information, visit www.junctionsolutions.com.
Related posts
Year-end Pt. II: Traffic Jam
We just finished the merchandising review for the holiday season with a major gift and home catalog. In this four-drop season, the first two drops (dated 08/30/06, and 09/27/06) did +9.5% and +2.2% above plan, respectively.
However, the later two drops were far below plan, even though there were no major differences in the circulation make-up (list segments, etc.). One of the issues with the third and fourth drops may have been late delivery in-home (see the earlier post, Year-end Pt. 1: Frustration for Catalogers below).
As we all know, customers are buying every year closer to Christmas. Customers make split-second decisions to read your offer based on whether they have bought from you before or whether it’s an interesting new offer. Add to that zealous e-mail campaigns, often several per week from a business. It looks like the direct-to-customer industry has created a traffic jam in customers’ mail boxes with too many offers to sort out and read.
Additionally, this puts severe strain on the fulfillment departments. During the last six weeks of the year, customer contact center peak volumes are often 10 times the average day during the rest of the year. It’s harder and harder to staff for those peaks, as businesses want to use part-timers.
What has been your experience? Where is all this going as we try to sell and service the same Christmas customer?