Triply Whammy – rate hikes from all three major carriers

DIRECT MARKETERS are taking a real hit: rate hikes from all three major
carriers within 29 days.

After absorbing the U.S. Postal Service average increase of 4.6% on Jan. 7,
mailers face a 4.9% hike from FedEx and a 3.7% hit from United Parcel Service
during the first few days of February.

Going UP…

CARRIER RATE INCREASE WHEN

UPS Feb. 5

* Next Day Air 3.7%
* Next Day Air 3.7%
* 2nd Day Air 3.7%
* 3 Day Select 3.7%
* Commercial 3.1%
Ground
* International 2.9%

FedEx Feb. 1

* Domestic 4.9%
* International 2.9%

USPS 4.6% average Jan. 7

Catalogers especially have been slammed, since the USPS rates for them are
going up 9.5%, and for books weighing more than 9 ounces, it's 17.6%.

Marketers aren't happy, of course, but they say they are taking events in
stride, biding their time before making any sudden changes in their plans for
the year.

"These seem to be fairly normal increases as much as we hate to see them,"
says Charlotte LaComb, director of investor relations at Lands' End.

The Dodgeville, WI cataloger, which mailed about 259 million books worldwide
last year, will not reduce its package volume. The company will actually
experience the hike as a 3% to 4% increase. "Because of our size, we can take
advantage of a lot of work-stream arrangements with the postal service" to cut
costs, LaComb notes.

Publishers Clearing House, which mails hundreds of millions of pieces a year,
saves money by assuming work-sharing arrangements, such as drop shipping and
barcoding, to help save money. The Port Washington, NY company will experience
a 6% increase overall because it sends out a mixture of first class and
standard mail and parcels.

In addition, "There are plans to manufacture our mail pieces more
efficiently," says James Bowler, executive director of postal affairs at
Publishers Clearing House. "We try to cut costs wherever we can, but we
certainly don't want to cut volume."

Omaha Steaks will not reduce mail volume and has no plans to change its
current marketing plans, says spokeswoman Sharon Bargas. But, like Publishers
Clearing House, the Omaha, NE cataloger will do some budget trimming at the
back end.

"We're looking at creative ways to reduce the dollar amount spent," Bargas
admits. "We're evaluating our creative and looking at how we can make our
printing more costefficient. We're asking, 'How can we choose artwork and
paperwork that would allow us to stay within a budget?'"

Arnold Zaslow, executive vice president of Wyncote, PA-based ATD-American Co.,
admits his business-to-business catalog will become "more particular in its
prospecting. If we have 10 levels of acceptability in our segmentation
process, when rates are increased, we'd say, 'Let's only mail the top six
levels of acceptability.' So response rates are higher even though you're not
mailing to everybody."

UPS' new rates go into effect Feb. 5. Next Day Air, 2nd Day Air and 3 Day
Select will increase 3.7%. Commercial ground services will rise 3.1% across
all weights and zones. UPS International export rates are up 2.9%.

The FedEx hike, which begins Feb. 1, amounts to an average of 4.9% for
domestic shipments and 2.9% for international.

None of the marketers interviewed planned to charge their customers more for
shipping. One reason is that big companies, such as Lands' End, have long-term
contracts with the shippers, and the new rates won't yet affect them. Firms
without contracts can expect to pay nearly $3 more to send out a single
2-pound package.

All Lands' End packages are sent UPS so that orders generally arrive two days
after they've been placed. The cataloger's contract comes up for renewal in
the summer. But because the company upped its shipping costs in mid-2000, it's
unlikely it will raise them again, says LaComb.

ATD's Zaslow, whose business sends out approximately 5 million books a year,
offers a realistic long-term assessment: "Eventually, the increase will get
passed on to the consumer."

Faced with these terrestrial hikes, are DMers increasingly turning to Web
marketing for prospecting and customer contact? "It's too early to spot any
trends, but just in talking to the major direct marketers, they're certainly
feeling the effects of the postal increase," indicates Mike Mayer, vice
president of sales for e-mail list company NetCreations, New York. "We're
seeing more traditional marketers get into e-mail."

They have an incentive. Mayer says e-mail prices have gone down 10% to 25% for
consumer lists.

A Web presence can help a company save money through online ordering and
customer communications. Lands' End's site (www.landsend.com) represents 15%
of sales so far this year, up from 10% last year.

But companies still must ship out the products, even if it costs more to do
so. "It's the nature of the beast," asserts Omaha Steaks' Bargas. "You just
roll with the punches and work with it."

And get ready for next year. This summer the postal service is expected to
file for a new rate increase of between 4% and 6% for implementation sometime
in 2002.