Monday, July 21, 2008

Secular and Cyclical Trends

As with all businesses, the Postal Service must react to both secular and cyclical trends. Over the past two decades, the Postal Service benefited from a major secular trend in advertising that resulted in mail advertising growing faster than any media other than the Internet. More recently, a second secular trend, the switch of one-to-one and one-to-few communication from mail to the Internet has resulted in a 25% decline in single-piece First Class mail over the past nine years. These two secular trends have made the Postal Service more vulnerable to cyclical economic trends as it is much more reliant on advertising spending than ever before.

Right now marketing departments in companies that are expected to survive the economic slowdown are now being asked to reevaluate their advertising spending. A recent Advertising Age article on what some of the nations largest advertisers describes the future as the "Age of Austerity." While it has been clear for some time that traditional broadcast and print media has been hurting for some time, the decline in spending now appears to be hitting the Internet as well. (Online Ad Growth May be Losing Momentum)

On top of changes in spending from healthy companies, the Postal Service and others delivering advertising face the challenges of declines in spending from firms who are fighting for survival. In just the past few weeks Linens 'n Things, Steve & Barry's and Goody's Department Store have filed Chapter 11. Today, the Wall Street Journal reported that Merwyn's, a major department store on the west coast, may be in financial trouble as well. This is on the top of downturns in the real estate market that has reduced advertising spending from a wide range of firms from builders, to loan brokers, to real estate agents.

As with all cyclical trends, the economic cycle will end. Given that the U.S. expansion over the past few years did not see a growth in incomes, the revival of retail inflation is expected to slow the recovery. Bloomberg's survey of economists expect that economic growth will not rise above 2% until the third quarter of 2009. That is not until the 4th quarter of the Postal Service's next fiscal year.

In this next year, businesses cognizant of the pressures on consumer spending will be careful spenders of their advertising dollars. In this period, advertisers will be experimenting with the use of both traditional and Internet based media as they focus more attention on the value generated from every advertising dollar. This experimentation will have the effect of identifying new advertising approaches in using both traditional advertising and Internet media that create more value than current approaches. The Postal Service has no choice but do what it must to ensure that it remains a price and value competitive deliverer of advertising. It will do this as advertisers work to make the Postal Service's job of offering a good value proposition even more difficult. How well it manages this challenge along with the challenges of its secular trends will determine how well it recovers when the current cyclical downturn ends.

1 comment:

Austin Chu said...

I work for a company that manages and tracks gift cards, and I've been following retailers filing for bankruptcy on savvywallet.com. My advice? Go spend your gift cards, you may not know how long they will be accepting them. Don't forget The Sharper Image incident: $75m in unused gift cards.