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.