key catalog industry paper issues todayb2c, b2b, b2g • everything you can buy at retail … &...

“Forget the Paper—I’m going to the Web!” Key Catalog Industry Paper Issues Today

Drivers of increased paper sales into the catalog sector Hamilton Davison

President & Executive Director hdavison@catalogmailers.org

Agenda

•  State of the US Catalog industry today -  Overview -  Demographic drivers and social trends

•  Critical issues and opportunities for suppliers -  Why mail hard copy anyway? -  Inputs to cataloger paper demand -  Other issues that can affect demand

•  What catalog buyers are thinking today •  Challenge question: telling our story •  Q&A

© 2010 American Catalog Mailers Association

State of the Catalog Industry Today an overview •  Size: $270 billion in 2006 (pre-recession, pre-postal rate hike)

! Online and offline ! Catalogs + upstream suppliers ! B2C, B2B, B2G

•  Everything you can buy at retail … & more

•  Low margin, high scale, variable cost business model

•  Highly analytic decision making (test, test, test!)

•  Improves people’s lives: the social benefits of cataloging (see whitepaper)

•  Content value in the mail: -  Americans like catalogs -  Drives consumer interest keeping mail powerful for all types of messaging

State of the Catalog Industry Today an overview (continued) Historically growing … but •  2006:

-  15,000++ separate catalog publishers -  20 billion catalogs mailed

•  2010: -  20-30% fewer publishers (estimates vary) -  13 billion catalogs mailed (estimated)

•  Unprecedented contraction: -  The recession -  Contraction of capital availability -  Change to business model economics due to 20-40% increase in

postage cost Source: ACMA estimates from various sources

State of the Catalog Industry Today an overview (continued)

•  Huge demographic “tailwind” – this should be the golden years…

Age ranges

Mill

ions

of c

onsu

mer

s

Baby boomers are vigorous catalog buyers Catalog buying does up with age: As baby boomers reach their ‘golden’ years, their catalog buying should increase

Source: MediaMark, 2006, includes catalog, phone and online sales

Catalog marketing is a highly variable cost business model - Total cost drives total volume

Source: 2009 actual cost data from a successful upscale cataloger

Only 17%* Cataloger 1’s costs are ‘fixed’

Cataloger Example 1:!

* Some catalogers have much lower fixed costs, in the 7-10% range

Components of fixed and variable costs

Catalog marketing is a highly variable cost business model - Total cost drives total volume

Postage is the largest cost component of mailing an incremental catalog

1990

Printing & Paper

Postage

2008

Printing & Paper

Postage

Cataloger Example 2:!

Source: company records from established catalog brand

Shift in the mix of cost for a successful catalog

Postage trends have far exceeded inflation & other catalog cost components

$50.00

$100.00

$150.00

$200.00

$250.00

$300.00

$350.00

Dol

lars

per

M

Year

Printing Paper Postage

Between 1997 and 2008: - Inflation increased 34% - Postage increased 58% - Paper increased 16% - Print decreased 18%

Analysis of historical cost trends by major industry supplier

Due to costs, catalogers have increasingly been using to other options!Source: Quad/Graphics analysis of hundreds of catalog clients purchasing history

2009 Revenue Sources and Respective Costs per Source for large B2C

Catalogers have a Choice on How to Reach Customers

Rev

enue

s in

Mill

ions

and

Mill

ions

Costs as a P

ercentage of Revenues

Cataloger Example 3:!

Why mail a catalog? The role of mail in the catalog marketing plan:

•  Universal, unparalleled reach and frequency •  Invasive, yet welcome •  High visual profile demands attention … and tells a story •  Speed shopping: catalog versus electronic •  Unmatched color accuracy: apparel, home furnishings, gifts, floral

and garden, food, etc. •  Plethora of marketing options, but multichannel is ideal •  Role of Internet reinforces, but does not cannibalize •  Incremental circulation volume decision making •  Mutually reinforcing: mail begets mail

Why catalogs? •  Long-term growth opportunity due to favorable demographics •  Hard copy has a defendable, sustainable, competitive advantage •  Supply chain issues can be solved if collaboratively approached •  Technology will enhance, not replace paper, if properly managed.

Catalogs are a segment worth focusing on!

What catalogers look for in paper: •  Cost, cost, COST! (& why it matters), plus premium print quality •  Reproduction: white, bright, accurate, low ink absorption •  “Show-thru” and opacity •  High-speed handling during production •  Consistent with brand statement (high perceived value) •  Stiff but smooth (and at low basis weights)

What catalogers look for in a paper supplier: •  Short order lead-times – pressure on date of last change (LCD) •  Consistency from run to run (and mill to mill) •  To be committed to, and knowing about, my business •  Value-added supplier (provide ideas for cost savings, improved

effectiveness, etc.)

Environmental issues

•  Certified is best, with FSC slightly preferred by catalogers •  High PCW preferred, especially by catalogs with an

environmental promise in their brand identity ! but not all agree with high PCW due to cost or aesthetic issues

•  Paper Industry has a great environmental record… but not telling anyone about it

Environmental issues (continued)

•  Great environmental record but not telling anyone about it

The Plastics Industry has been aggressive at consumer-level advertising and education

Even the generic and store brands have followed this lead.

Food suppliers have picked up on the theme

Even products that are not organic are on message.

The catalog environmental story

•  The importance of telling our story •  13 billion consumer impressions every year

The catalog environmental story

The Paper Industry needs to lead this effort by being aggressive at consumer-level education as today, paper is not considered environmentally friendly. This popular sentiment is spreading everywhere in America and threatens to undermine every paper-based segment and product.

What can you do to grow your catalog business? What happens at the USPS affects your Catalog Sector demand! Some issues to consider:

•  USPS Cost Improvement -  Headcount reduction -  Station, Branch & Plant – count, closure, issues -  Delivery Frequency

•  Automation and FSS (Flats Sequencing System) -  Why droop matters -  Deflection standards -  Make it stiff!

•  Role of Congress Paper interests with a significant economic stake in the health of the catalog industry may find it in their self interest to support ACMA’s work.

What can you do to grow your catalog business? (continued)

•  Get involved:

•  Financially support Mail Moves America

•  Unify the impact: Join the broad-based coalition to speak with one voice:

What can you do to grow your catalog business? (continued)

•  Alliance of Nonprofit Mailers Magazine Publishers of America •  American Business Media Mailing & Fulfillment Svc Assn •  American Catalog Mailers Association National Newspaper Assn •  American Express National Postal Policy Council •  AT&T NewPage Corp. •  Bowe Bell+Howell NPES •  Datamatx NPTA Alliance •  Direct Marketing Association Printing Industries of America •  Domtar Pitney Bowes Inc. •  Eastman Kodak Company Quad Graphics •  Envelope Manufacturers Association RR Donnelley •  Greeting Card Association Time Warner Inc. •  INg Verizon •  International Paper

For more information please follow up to see how you can help affect the outcome!

American Catalog Mailers Association, Inc. a Washington-based 501(c)6 not-for-profit trade group

www.catalogmailers.org

Contacts: Paul Miller Hamilton Davison Vice President & Deputy Director President & Executive Director pmiller@catalogmailers.org hdavison@catalogmailers.org 914-669-8391 800-509-9514