The U.S. Catalog Mailing Industry Today and Tomorrow

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The U.S. Catalog Mailing Industry Today and
Tomorrow
MTAC Association Presentation

• Hamilton Davison
• Executive Director

January 31, 2008
USPS Headquarters Washington, DC
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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
• Sees Candies, Inc.
• Seton
• Specialty Store Services
• Taylor Corporation
• The Occasions Group
• Transcontinental Printing
• Vermont Country Store
• Ulla Popken, Ltd.
• Ultimate Office
• Upbeat, Inc.

• 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
• Gardeners Supply Company

Last updated December 2, 2007
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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)
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Who buys from catalogs?

• Total number of buyers 90 million
• Women 55
• Men 45
• Age of buyers

An estimated 49 of all consumers buy from
catalogs
Baby boomers are vigorous catalog buyers
As the baby boom reaches their end of life
years, catalog buying will increase
Millions of consumers
Age in years
Source MediaMark, 2006, includes catalog,
phone and online sales
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What do people buy from catalogs?
Percentage of Americans reporting catalog
purchases
Source DMA phone survey of 1,030 adults
September 2005
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Mail is primary for direct marketers
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
Source UPM North American Multichannel Marketing
Report, 2007, page 15
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Catalog? Interactive? Retail?
Catalogers have a variety of channels to sell
dependent only on cost and performance
Lines are blurred between catalog marketers and
others.
Tightly integrated business models with the
ability to shift between channels in the
marketing mix based on cost and effectiveness are
most successful.
Source UPM 2007 North American Multichannel
Marketing Report
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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
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The US Catalog Industry is Growing

• 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
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
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The Catalog Operating Cycle
Typical operating functions of a catalog company
Plan, Buy Finance
List Management (House Prospects)
Merchandise, Assort
Creative Design Execution
Printing Production Presentment
Testing
Analyze Database Mgmt
Order- take, Fulfill Ship
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.
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.
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The Catalog Business Model

• RFM Recency, Frequency and Monetary 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)

This complex business has little margin for
error -- President 250 million hard goods
cataloger
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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)

Keeps other mailand mail in generalrelevant as
a means of communication.
Source Libey Incorporated estimate, 2007
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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
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Illustration of Multichannel Marketing
Source UPM North American Multichannel Marketing
Report, 2007, page 16
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Impact of the R2006-1 Rate Increase

• Industry is particularly vulnerable
• High volume low profit,
• Competing with retail stores (so its hard to
  pass on costs to consumers)
• Postage makes up a large percentage of overall
  costs
• Cant turn on a dime
• Easy fixes dont 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.
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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

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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
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Questions Answers