Will USPS Survive Despite Tanking Direct Mail Revenue?
All has not been well with the U.S. Postal Service (USPS) since the COVID-19 outbreak. Since March, it has curtailed international services in over 100 markets across the world.
While this contributed to a slide in revenue, the USPS faces a real crisis within its bulk mail and advertising segment – its primary revenue source. A dramatic fall in its main revenue stream has led to a state of alarm within the logistics major, as the USPS will battle insolvency later this year if it fails to receive immediate emergency assistance.
Direct mail, which accounts for marketing, advertising, and cataloging services, contributed 23% of USPS revenue in 2019. Apart from making up nearly a quarter of USPS revenue, the segment is extremely critical to the growth prospects of a vast number of stakeholders within the consumer-goods sector.
For direct-to-consumer (DTC) startups, USPS is a proverbial leg to stand on, as the relatively inexpensive direct mail marketing services it offers help businesses reach more customers at a significant discount to market prices. Direct mail marketing includes all kinds of marketing that companies do to reach their consumers, including catalogs, brochures, postcards, and even targeted advertising based on customer buying history and preferences.
FreightWaves spoke with Donna Belardi, the president of digital marketing agency Belardi Wong, to understand the impact of COVID-19 on USPS and what the future holds in store for the postal giant's revenue from its direct mail segment.
"The direct mail market has gone through a resurgence in the last few years. The combination of direct mail and online advertising helps drive the most valuable customers to companies – especially to online and DTC retail brands," said Belardi. "While we've seen cutbacks in some catalog mailings over the last few years, more companies are looking to get into direct mail. At Belardi Wong, we've put more than 200 new brands that were never in direct mail into the direct mail system in the last few years."
However, companies are pulling back on their marketing spend as the COVID-19 crisis has been particularly hard-felt within the retail industry. This has negatively impacted the direct mail market, leading to a decrease in revenue for USPS from this stream. However, large-scale quarantining across most cities within the U.S. meant a 20% increase in the number of packages that moved through USPS, helping increase revenue.
For USPS, one of the major issues has been the challenge of tackling rising logistics costs. While Congress expects USPS to increase its prices on mail and packages to cover expenses, it could be a bad strategy. There is a genuine possibility that companies would reduce their volume if prices go up, leading USPS to end up manufacturing a tangential problem.
"For every delivery, the postal delivery worker would have to go to the houses and deliver mail – regardless of the volume that gets delivered to a particular address. When postal rates go up, direct mail companies cut back on the volume. They'd still mail, but will mail less volume," said Belardi. "This is a Catch-22 situation. For USPS to increase revenue, it also needs to keep its volumes up, and raising prices will only drive volumes down."
In the long-term, Belardi suggested that USPS should go through a large reform that addresses the issue of retiree benefits for its workers. Private businesses in the U.S. do not have the retirement benefit costs that USPS has, and this burdens the company from pricing even more competitively in the market.
"USPS should look to develop other sources of revenue streams. For instance, there has been a proposal for it to deliver beer and wine," said Belardi. "It's about two things. Looking at the best practices within the private sector and adopting them, and then being able to invest the profits it derives from such practices into something better than low-interest Treasury bills."
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