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Catalog Industry Update

Tom FotiDavid Mastervich

April 14, 2010

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Agenda Background Product Challenges 2010-2011 Initiatives

Catalog Industry Update

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Product Performance $5.1 Billion Std. Flats/Carrier Route (~60% catalogs) 31% decline in volume since 2007

2006/2007 price increase Ongoing economic recession Accelerated migration to web

2010 YTD Still in decline Slightly below plan 12% below SPLY

2007 2008 2009 2010

Background

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Recent Activities USPS & Industry Collaboration

Dedicated Catalog business team Operational and Cost Containment Activity Product Development Activity

Growth Opportunities 2009 Summer Sale

Background

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No identification of catalogs Cost coverage challenges

Standard Flats = 82% Carrier Route = 145% Standard Flats & Carrier Route = 102%

Product Elasticity Competing market forces:

Customer need to control price USPS need for revenue USPS need (& regulatory requirement) to cover costs

Product Challenges

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USPS Catalog Priorities

Identify and manage catalogs as single product 2011 price change strategy Operational cost saving initiatives Incentive programs Marketing opportunities 2012 and beyond pricing and product strategies

2010 – 2011 Initiatives

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Identify and manage product as single product

Finalize definition of catalog Build capability to identify catalog on mailing

statement and in PostalOne Combine Standard Flats and Carrier Route

products Creates more accurate representation of the product and

use of product Maintain existing price structures Maintain existing makeup requirements Aligns products with future FSS optional preparation

2010 – 2011 Initiatives

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2011 Price Change Strategy

Recognize immediate financial organizational need to generate revenue

Working with industry to gain better understanding of product price elasticity

Strategy to address cost coverage issue with Standard Flats

2010 – 2011 Initiatives

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Operational Cost Savings Initiatives

FSS Implementation Operational FSS Mail Preparation Distribution productivity improvements

Implementation of mixed-class comail Identify and implement other preparation and

process improvements

2010 – 2011 Initiatives

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Incentive Programs

2010 Summer Sale 5-Month program: June – October 2010

Sale period: July – Sept Control months: June & October

Discount on incremental Standard Mail letters and flats volume above threshold Customer threshold = SPLY volume + 5% Discount = 30% Downward adjustment if June & October volume is below

threshold

2010 – 2011 Initiatives

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Incentive Programs

Proposed Weight Based Catalog Incentive Discount available only to those who meet/exceed volume

threshold Enables catalogers to increase page count without

increasing postage More pages => more sales = > better ROI and new customer

names Larger books are attractive to titles who need to feature a wider

breadth of assortment Catalogers indicate that merchandise assortment and relative

space should drive page counts Limited increased USPS operational costs

2010 – 2011 Initiatives

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Incentive Programs

Catalog Weight Based Incentive example:

2010 – 2011 Initiatives

Customer xyz Year 0 Year 1Carrier Route & Standard Flats Volume 1,000 1,000 Carrier Route & Standard Flats Weight (lbs) 250 350Avg Weight Per Piece (oz) 4.00 5.6Rebate CalculationsAvg Weight Per Piece Increase (oz) 1.60Avg Price for Add'l Weight 0.030$ Catalog Volume >3.3 oz 900Rebate Amount 27$

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Incentive Programs

Evaluate Potential Future Incentives Volume growth Volume commitment Prospecting Fulfillment Total customer value

2010 – 2011 Initiatives

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Marketing Opportunities

Catalogs and E-tailing…reaching customers beyond the web Target 35,000 pure-plays e-tailers (revenues > $3 million) Business has grown without benefit of the mail

Many have “hit a wall” Hungry for new growth solutions

Multi-channel strategy for multi-channel world Ultimately adds names to the 12-month file

Develop strategies to use usps.com to promote catalogs

2010 – 2011 Initiatives

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2012 and beyond product and pricing strategies

FSS Impacts Pricing and preparation in FSS zones Pricing and preparation in non-FSS zones

Catalog product Mixed product opportunities Product cost coverage strategy

2010 – 2011 Initiatives

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Questions?