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Going The Distance

Mail order entrepreneurs take a licking . . .but keep on ticking.

Welcome to the winter of mail order's discontent. With paper prices and postal rates increasing simultaneously, most industry insiders are bracing themselves for the worst blow the mail order industry has weathered in recent memory.

"There have been periodic postal increases and cycles of paper price increases, but the convergence of both has created somewhat of a disaster," says Arnold Fishman, owner and president of Marketing Logistics, a Highland Park, Illinois-based direct-mail and mail order consulting and publishing firm. Specifically, mail order companies are dealing with a rise in paper costs totaling nearly 30 percent in two years. There's also a postage increase of approximately 9 percent expected in 1997-adding to the burden of the 10.3 percent hike last January.

This one-two punch has been "devastating for both large and small companies," says Fishman, "but it's especially unfortunate for entrepreneurs because they typically go through an entry cycle where they're not producing profits for up to three or four years. Under [current] conditions, they should expect to add maybe another year to the [time it takes to reach the] break-even point."

According to Evanston, Illinois, mail order consultant Maxwell Sroge, the cost of producing a mail order

catalog should increase by 15 percent to 20 percent in 1996. "This is the biggest double hit [mail order has experienced] in a short period of time," says Sroge, who has tracked the industry for three decades. "It has seriously affected profits."

Though the latest developments are bleak indeed, Fishman is quick to note all is not lost. "Mail order is still the quintessential entrepreneurial field," he contends. "Many success stories will continue to emerge in mail order, despite the general conditions. Mail order still represents a great opportunity for entrepreneurs; it allows people to go into a market more quickly and at a lower cost than if they were going into a retail outlet.

"In a market that's always changing, emerging and growing, this is a period in which new potential in mail order will be realized. While there are serious problems for conventional, traditional direct marketers, positive changes are occurring."

Like Fishman, Sroge considers the developments not purely threatening, but rather intriguing. "The interesting thing is that consumers seem to be buying more from catalogs than ever before," he says. "While catalogers are having a harder time making a profit, sales are increasing by 12 to 15 percent."

According to the Direct Marketing Association (DMA), more than half the adult population ordered merchandise by mail or phone in 1994. Research conducted by Simmons Market Research Bureau shows that the total number of American adults shopping by phone or mail increased 53 percent in the past decade, compared with an 11.9 percent population increase. The DMA estimates 1995 catalog sales at $62.6 billion and forecasts growth of 6.5 percent each year through the end of the decade. Sroge predicts total mail order sales at $306 billion in 1996.

What will ultimately save the industry are the players. Sroge believes many mail order companies aren't passively awaiting the blow of rising costs but are taking a proactive stance. "It's taken catalog companies a while to respond to these increases," he says. "But now they've adjusted their operations, and, while their profits weren't very good in the fourth quarter of 1995, they should see steadily increasing profits in 1996."

No one has to tell Paul Katzeff about the changing world of mail order. Katzeff, who founded Thanksgiving Coffee Co. in Ft. Bragg, California, with his wife, Joan, has been marketing gourmet coffee blends via mail order since 1987 and now mails to 75,000 customers. Katzeff says his company's decision to switch to a catalog printed on lightweight plastic instead of paper will "more than offset the [rise in] costs." By June 1997, he plans to completely eliminate the print catalog, instead advertising his products on the Internet.

Katzeff believes the current obstacles will not conquer the spirit of new mail order entrepreneurs. "Small-business owners are born; the economic environment can't stop them," he says. "That's how the marketplace changes for the better. The small-business owner gets into the market and overcomes the barriers to entry, change occurs, and the marketplace is dealt with."

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This article was originally published in the February 1996 print edition of Entrepreneur with the headline: Going The Distance.

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