Are You Ready For Some Junk Mail?
Faced with multibillion-dollar losses and significant declines in first-class mail, the post office is cutting deals with businesses and direct mail marketers to increase the number of promotional offerings they send by standard mail, the official term the agency uses for what is less kindly referred to as “junk mail.”
The post office’s first-class mail volume has dropped by 26 percent over the last five years. Unfortunately for consumers junk mail is one of its most promising growth businesses. Advertisements in the mail have increased over the last three years, and now account for 48 percent of all mail. The Postal Service made $17 billion last year from direct mail, and the agency thinks it can make more.
Although the USPS is structured to operate like a self-financing business, this model recently has not worked well. The rise of e-mail and online bill-paying, competition from private delivery companies like FedEx and UPS, and the recession of 2007–09 have hit the USPS hard. In March 2010, former postmaster general John Potter acknowledged that his agency’s efforts to keep pace have fallen short and that technology has made obsolete many aspects of the USPS business model.
The convergence of economic factors and broad sweeping impact of the internet caught post office officials flat-footed.
After previous economic downturns businesses like catalogers have increased mailings. Not this time. Most direct retailers receive over 70 percent of revenue from their ecommerce sites, while catalogs are used primarily for prospecting new customers. We find it stunning that no one at the post office forecasted the impact of online bill payment, email, and ecommerce on consumer behavior. Certainly someone in a decision-making role at the USPS might have come to awareness - from their own personal experience!
Not only has the revenue of the USPS been declining, but the trend of its operating costs is upward. A key driver of the cost of delivering mail is the obligation to deliver to virtually every mailing address, regardless of volume, six days a week. Fulfilling this universal service obligation requires 36,000 post offices, stations, and branches. It also involves 220,000 vehicles, $2.6 billion in air transportation, and 600 processing facilities.
Worse still wages and benefits account for 80 percent of USPS costs, an eye-popping percentage that has remained steady over the years despite major advances in technology and automatic postal operations.
In July 2011 we wrote, “Closing Post Offices Could Be The Best Thing For The Postal Service” – now over a year later that post is just a pertinent as it was when it was published.
Until Congress allows the post office to be run like a business it will continue on its current unsustainable track but taxpayers will have the benefit of increasing pounds of junk mail to toss in the recycling bin!