Postal rates: the growing threat - includes information on postal employee benefits

Nation's Business, May, 1990 by Albert G. Holzinger

The Postal Service--unless Congress steps in--will impose its largest rate hike ever, lifting mail costs to record heights and threatening the sales and the bottom lines of small firms still reeling from earlier increases.

When John Haas opened a small furniture store in a San Francisco suburb in 1976, he assumed that the U.S. mail would offer him the most cost-effective means of advertising.

In the early years of his Suburbia Furniture shop, Haas mailed 75,000 copies of an eight-page color circular three times a month to those he considered his most likely customers--nearby residents of Daly City.

That strategy was successful. Sales totaled about $350,000 in 1976 and grew steadily to about $1 million in 1985.

In 1985, however, postal rates went up sharply, and Haas had no choice but to cut his mailing list by one-third. Rates increased substantially again in 1988; Haas reduced mailings to twice a month, and the eight-page circular retreated to a single oversized postcard bearing ad messages. Cutting back on advertising, the lifeline to his customers, has "killed sales and my bottom line," says Haas, who adds that his limited budget left him no other choice.

Haas is typical of countless small-business owners who are being overwhelmed by increases in mailing costs.

The concern of business people about postal-rate trends has been intensified by the U.S. Postal Service's plan to raise mail rates yet again, this time by an average of 19 percent for all classes of mail. The plan, which, depending on mail volume, could cost individuals and business-mail users a total of as much as $8 billion, is officially subject to review by the Postal Rate Commission.

However, as the result of a federal court decision, the five-member commission has no effective authority to block increases. "We're just a bunch of eunuchs in that respect," admits John W. Crutcher, a postal-rate commissioner since 1982. "All we can do is put on the green eye shades and move the beans around the bingo card until we determine how to divide [the rate increase proposed by the Postal Board of Governors] equitably among mailers."

The Postal Service's latest proposed increase, which will become effective in February unless Congress takes the unprecedented step of intervening, will have a devastating impact on business generally and on small business in particular.

Haas of Suburbia Furniture, who says he was both terrified and indignant upon learning of the proposal, projects that if the rate hike takes effect, he will be down to a single mailing a month to perhaps one-third of his original list of 75,000 names.

The Direct Marketing Association (DMA) notes that more than 86 percent of the 14,500 mail-order companies in this country have sales under $1 million a year, and the profit margins of many of them "are smaller than the additional postage they may have to pay" under the proposed increase. "Postal rates to these companies are literally a life-and-death issue," Richard A. Barton, the DMA's senior vice president for government affairs, recently told the House of Representatives' committee on the Postal Service.

Another major voice of concern about the upward climb of postal rates is that of the Mailers Council; it represents larger companies, which employ nearly 1 million workers, plus trade associations representing an additional 18,000 firms, including many small ones. That membership accounts for 75 percent of all mail volume.

Richard McLaughlin, president and chief operating officer of the Reader's Digest Association and a council board member, told the House committee hearing: "Postal costs do not only affect bloodless bottom lines; they affect jobs, competitiveness, and the general state of the economy."

The extent to which postal-rate hikes correspondingly increase the cost of doing business is evident in two mail-intensive industries. One is banking: Each year, the nation's banks mail more than 5 billion pieces of first-class mail and receive more than 3 billion pieces. The other is direct mail: More than 90 million individuals made a direct-marketing purchase last year as a result of receiving a catalog, letter, package insert, card pack, or other advertisement through the mail.

Catalog merchandisers point out that they will be hit particularly hard. "If you market goods and services by catalog," says Gene A. Del Polito, executive director of the Third Class Mail Association, "your percentage increase will be about 33 percent. So the impact of the increase will be substantial."

Even mail-service firms will be adversely impacted. Lee Epstein, president of Mailmen Inc., a medium-sized New York City direct-mail firm, says the proposed postal increase will cut sharply into the business of his company and others like it: "The mail-processing shops ... have all expanded with equipment and people in recent years because [business] was healthy. Well, it's gotten a little weak lately [because high interest rates have slowed down the economy] ... and [a big postal] increase will make it much worse."