WHAT CAN WE EXPECT IN 2019?

by Stephen Lett

As we begin another new year, catalogers and direct marketers are faced with many challenges. The economy remains strong. Unemployment is low, and wages are up. Still, other factors are at play that will impact “direct” businesses.

Sales Tax Collection

The biggest challenge is Sales Tax. The recent United States Supreme Court sales tax ruling is a real blow to catalogers and on-line retailers. Direct merchants are fair game for states now. Companies are scrambling to deal with this. Since the Wayfair ruling, some states are already seeking to apply tax liabilities retroactively or serving up notice with as little as two days advance warning that companies must comply effective immediately. This is a real situation that is not going away. Software, system integration and tax reporting is expensive. The midterm elections will have a profound impact on catalog companies. House Democrats now control the House 234 vs. 201. The Democrats gained 39 seats. Republicans still control the Senate 53 to 47 for a gain of 2 seats. The Democrats now control the committees and they have oversight authority. What this means is more gridlock and very little will get done this year. The two main Sales Tax issues at the state level are the retroactive provision and the effective date for tax collection and reporting.  Some states want to make the tax retro back to January 2018. The actual collection of sales tax has already begun. We are hopeful Congress will place a ban on making sales tax collection retroactive. However, they are unlikely to deal with forcing the states to have an orderly phase-in period. This is most likely not something Congress wants to deal with. There are 90 new members of the House of Representatives and 8 new Senators. We can all make a difference by building relationships with these new members of Congress. They will be learning as they get settled into their new jobs and it’s important for them to hear from us. Your issues should become their issues.

Postage Rates

Catalog postage rates will increase approximately 2.62% on January 27. Here is a brief recap of the rate increases:

  • Marketing Mail Flats +2.621%
  • Marketing Mail Carrier Route Flats, Letters, Parcels +0.73%
  • Saturation/HD flats +3.556%
  • The First-Class stamp increases from 50 to 55 cents

This is a modest increase and less than we expected. The USPS is trying to recognize the value of catalogs in-the-mailbox. The catalog industry’s mail volume has been relatively stable compared with other classes of mail. Actually, the catalog mail growth rate has been higher than average and the USPS wants to see if they can capture more of that value.

Paper Market

Paper is a moving target. Coated papers, both Coated Free (CFS) and Coated Groundwood (CGW) remain very tight.  We still recommend budgeting for one or two increases of 5-7% for the year. SCA will follow the coated groundwood increases. Uncoated Freesheet began to moderate about the same time CFS did and we are now seeing mills looking to shore up business for 2019.  We do not expect an increase in 2019.  Freight continues to be an issue as shipping prices rise with fuel prices and demand continues to be at or above supply of available trucks and drivers. While cost is a concerning issue here, available transport capacity is the biggest concern for mills, printers and end users of printing paper.  Source: Midland Paper.

Ups and FedEx Rates

UPS and FedEx have both announced rates increases this year. The FedEx rate increase took effect on January 7. Their average increase is 4.9% for FedEx Ground and FedEx Home Delivery.  UPS increased rates an average of 4.9% on December 26, 2018.

Industry Outlook

The business climate for catalog and e-commerce companies is positive.  All indicators look good. It should be another good year for direct marketers!    

Stephen R. Lett is Founder & Chairman of Lett Direct, Inc., a catalog consulting firm specializing in digital marketing, circulation planning, forecasting and analysis since 1995. Mr. Lett spent the first 25 years of his career with leading catalog companies; both business-to-business and consumer. He is the author of a book, Strategic Catalog Marketing.  He can be reached at 302-539-7257 or by e-mail at steve@lettdirect.com.