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."
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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."