Subtle Violations of Postal Regulations Can Cost Mailers Millions

Sept. 30, 2015 update: So much for turning fines into a new source of postal revenue. A federal judge marked the Southern California Edison fine "Return to Sender" yesterday, ruling that the Postal Service did not use "reasoned decisionmaking." 

"USPS's position appears to be that even if a mailer complies with 99 percent of the requirements and incurs substantial workshare expenses to bring its mail pieces into compliance, a single form of noncompliance - even accidental, even inconsequential - is sufficient to render a revenue-deficiency assessment for 100 percent of a mailer's discounted rates," wrote U.S. District Court Judge James Boasberg, according to Courthouse News, which has details of the ruling.

Violating postal regulations, even in subtle and unintentional ways, can cost business mailers millions of dollars, two recent lawsuits reveal.

The U.S. Postal Service assessed Southern California Edison $7.6 million in penalties for not keeping its address lists up to date and Sears $1.1 million for allegedly violating the rules governing how folded self-mailers should be sealed, according to the lawsuits.

The two companies filed appeals of the USPS decisions on June 18 with the U.S. District Court in Washington. Both are represented by Venable LLP, a major Washington, DC law firm.

SCE was dinged because of a “suspiciously high increase” in the amount of undeliverable and return-to-sender First Class Mail it sent between 2006 and 2008. The big utility acknowledges two minor errors in its address-correction procedures – regarding missing suite or apartment numbers and the handling of fractional-number street addresses (such as 29 ½ Elm Street) – but contends those did not cause an appreciable increase in bad addresses.

“A more plausible explanation is the upsurge of unemployment, bankruptcies, foreclosures and mortgage defaults that occurred in SCE's service area during that period,” the appeal states. USPS also objected to SCE manually overriding the Postal Service’s address-correction database – even though those overrides were based on customer communications indicating that the USPS data were out of date, the company contends.

“The Postal Service ordered SCE to refund to the Postal Service the entire $7.6 million in discounts that SCE earned for its mail preparation work on the 82 million pieces of presorted First-Class Mail that SCE mailed between May 14, 2007 and November 26, 2008.”

Loss of all discounts
Sears, like SCE, notes that its postal penalties exceed by many times the Postal Service’s estimated costs resulting from the alleged violations. (Generally speaking, the penalty for violating mailing standards is indeed the loss of discounts on the entire mailing and not based on USPS’s actual costs or on the portion of the mailing that was problematic.)

Sears ran into trouble with the USPS over the placement and type of seals on 6.3 million folded Standard Class self-mailers it sent for two 2009 promotions. Such mailers are sometimes called “fletters” because they have the dimensions of flat (e.g. catalog) mail but are folded and sealed so they can go through USPS’s letter-sorting equipment and mail at the lower letter rates.

Sears contends the mailings met postal regulations or were specifically approved by postal officials because they were designed not to jam letter-sorting machinery. But USPS ended up determining that the pieces needed an additional adhesive tab and that some were improperly sealed with glue instead of tabs.

“The Postal Service, after extensive empirical testing and analysis of alternative seal designs, soon afterwards adopted rule changes that explicitly authorized the same design features soon after the mailings occurred,” the Sears lawsuit contends.

Discussions and arguments over fletter mail were frequent a few years ago, partly because mailers and postal employees struggled to understand the regulations. That was complicated by frequent tweaks to the rules when USPS discovered that some mail pieces that met the standards were still gumming up the works.

Related articles:

• Intelisent's insightful commentary on this article includes this gem: "I am sure this gives companies like SCE and Sears a lot to think about – as far as how they can fast track diverting their communications out of  the mail stream – permanently."
• New Postal Hires Mean More 'Return To Sender' Mail 
• It's curtains for the window envelope 
• The Scoop on Droop: Bad News for Mailers

 

Bare Shelves in the Magazine Aisle

There's nothing "OK!" about these magazine racks.

Here’s how a store’s checkout racks and magazine aisle look after going weeks without delivery of magazines.

Magazines strike out at checkout.

While most grocery and book stores this week were sporting July issues, this CVS store on the East Coast was stuck with May and June copies of monthlies and and a few early-May issues of weekly magazines. Thank God for bookazines, which stay on sale at least a couple of months, or else the entire magazine section would have looked even more barren.

CVS had the misfortune (or poor judgment) less than a year ago to go all in on magazine distribution with Source Interlink, which collapsed last month and Monday went Chapter 22 (its second trip through Chapter 11 bankruptcy reorganization).

Bookazines fill the void.

Any solution for Source-tied retailers like CVS will inevitably involve the country’s largest wholesaler, TNG. But it will take weeks for TNG to bulk up its distribution network to handle the majority of Source’s former customers.

Complicating the move is that TNG is demanding that publishers sign off on new terms, which include new fees and a transition to “pay on scan.” Source and TNG both apparently ran into trouble by grabbing market share with agreements to pay retailers based on the number of copies rung up at cash registers, not the number that were distributed but never returned.

Empty slots and out-of-date issues

Without reciprocal agreements from publishers, the two big wholesalers have been squeezed by the “shrink” – copies that are stolen, lost, or damaged. TNG now seems to have the power to impose pay-on-scan for publishers, including compensation to publishers for estimated shrink.

Meanwhile, the magazine racks at many stores, especially in former Source strongholds in the Midwest, are being depleted. Will they remain empty until the industry is ready to deliver its product once again, or will impatient retailers just turn the space over to other products that are probably less profitable but also more reliable?

Related articles:

• A Glimmer of Hope Amidst the Newsstand’s Gloom 
• Publishers Hope Threesome Will Perk Up Newsstand Sales 
• Shootout at the Newsstand

Publishers Hope Threesome Will Perk Up Newsstand Sales

Here’s proof that tough times make for strange bedfellows: Three major magazine publishers are teaming up to peddle newsstand copies of their top fashion magazines.

The unprecedented promotion for Conde Nast’s Vogue, Time Inc.’s InStyle, and Hearst’s Elle will appear this autumn in Target stores during fall fashion season, the publishers revealed at last week’s Retail Marketplace 2014 conference. “The offer: Buy any two of the fashion titles and get a $5 Target gift card as you check out,” according to a write-up from the event.

Along with in-store displays, the promotion will be boosted by 50 fashion bloggers, said Will Michalopoulos, Hearst’s senior director, retail sales.

“This is an example of competing titles coming together to drive sales for some of their biggest brands, and to drive traffic for a retailer,” he said. News of such innovations was welcomed by beleaguered newsstand executives, who are still reeling from the collapse of the country’s second-largest wholesaler, Source Interlink, not to mention continuing declines in newsstand sales.

A Meredith 2-for-1 promotion

Hearst and Meredith are among the publishers who have polybagged pairs of related titles to offer two-for-the-price-of-one deals at retail.

“In almost every case, these have gained incremental distribution, and in one case, we calculate that this program will double the overall retail business in one of the chains in which it’s been introduced," Michalopoulos said.

With publishers talking more than ever about cooperating to bolster retail sales, the three-way Vogue-InStyle-Elle tie-up is a logical next step. There was also talk of other joint ventures at the conference, such as creating an industry-wide mobile app to promote sales of magazines.

“Our competition is not other magazines; it’s all of the things that readers are doing when they’re not looking at magazines,” preached Joe Ripp, Time Inc.’s chairman and CEO.

“There’s no going back, so we’ve got to work together to survive in this brave new world,” agreed British media consultant Jim Bilton.

While the magazine industry’s newsstand leaders were having their Kumbaya moment at the conference, the nation’s largest magazine wholesaler sent them a message demanding that they sign a legal agreement if they wanted to continue selling magazines in Walmart and many other stores. The document, which spells out the terms under which TNG will take over most of the magazine distribution that Source Interlink left hanging, is highlighted by a convoluted 191-word Lawyerspeak sentence covering indemnification.

“I still can’t make heads or tails of that sentence,” commented one magazine executive, “but I think it means that if Source ever sues TNG or anyone who works there, I have to give up my first-born child.”

Related articles:

• A Glimmer of Growth Amidst the Newsstand's Gloom  
• A Renaissance for Print, Or Is Flat Just the New "Up"?
• Shootout at the Newsstand

Old News Is Good News for Businessweek

Bloomberg Businessweek is using five-year-old news to sell subscriptions. The practice isn’t as crazy as it sounds and provides insights into direct-mail marketing and how consumers think about magazines.

“When we recently announced that Bloomberg L.P. had purchased Businessweek the business world was taken by surprise,” begins a flyer headlined “The business magazine, reinvented” that was distributed last month. “NEW: Behind the merger of Bloomberg, L.P. and BusinessWeek” proclaims the flyer’s other side.

“Recent” in this case means October 2009. The piece I saw was inserted into an envelope with a subscription offer, which was polybagged with the May 12-18, 2014 issue of the magazine. Did someone mistakenly use an out-of-date insert? I don’t think so.

Sophisticated, high-volume direct mailers are constantly testing – trying, for example, an additional insert, a different envelope size, new copy, or even revised color schemes. But they always compare the results to those of their “control” – the direct-mail piece that has recently had the best response.

Logic says that “The business magazine, reinvented” piece should be replaced by something more up to date. And in fact some people may have received BBW’s May 12-18 issue polybagged with a different message.

But direct marketers care about data, not logic. As long as the control gets better response than the test packages, you can be sure Bloomberg Businessweek will continue using it, no matter how dated it seems.

Perhaps the piece works because consumers aren’t aware of, or forgot, how long ago Bloomberg bought the magazine. Or perhaps they don’t care. Maybe what really resonates with them is that Bloomberg Businessweek has a deep-pocketed owner with a demonstrated willingness to invest in reviving the once-struggling magazine.

Consumers, after all, have this nasty habit of defying both logic and expectations.

Related articles -- in this case, other Dead Tree Edition attempts to probe the thinking of magazine circulation departments, even though some of my production colleagues claim that any phrase involving “thinking” and “circulation department” is an oxymoron -- include:

• Is Ratebase the Magazine Industry's Crack Cocaine? 
• Why Has Magazine Circulation Declined? Blame Advertising 
• What Magazine Publishers Can Learn From "The Da Vinci Code" Giveaway