The Challenge of Retail

The Postal Service has whittled down its Post Office closing list to around 1,000 offices. The final list represents less than 3% of all existing Post Offices. While many communities may feel relieved that the have been spared the loss of their post office, the Postal Service still faces the challenge of providing retail services that makes both business sense and serves the non-business needs of the communities the Postal Service serves.

Providing retail postal services in stand alone offices goes back to the founding of the Post Office Department when the  individual office not only sold stamps, weighed parcels and determined postage but also delivered and collected all mail at a counter. The invention of door-to-door delivery, collection boxes, carrier pick-up, and sale of postage at supermarkets and over the Internet has shrunk the frequency that postal customers use a post office. These changes suggest that a new innovative model is needed to provide retail access to the Postal Service to reflect the reality of the current methods of handling mail and to maintain the Postal Service's competitive advantages in serving retail customers of parcel and express services.

The Postal Service is not alone in finding it a challenge to serve retail customers.   Both FedEx and United Parcel Service have extensive retail networks in the United States with  well over 10,000 locations nationwide in a combination of company owned stores, franchised mail centers and counters in office supply superstores.   Even though they both use a variety of business models to provide retail access, providing such access profitably has been a challenge.   FedEx has had to revamp its FedEx Office operations to deal with its weak profit performance.   UPS franchises, and in particular smaller franchises  have had challenges making sufficient profits to justify their investments.   Both UPS and FedEx deal with the challenge of providing services to the retail market by charging higher prices to customers who require retail access and the highest prices to customers who do not ship frequently enough to take the time to get a UPS or FedEx corporate account number that is available to any business or individual who asks for one.

The challenge of retail is also one of the top challenges of foreign postal services.  In general, the approach that they took depended upon political, labor relations and business considerations and focused on solving three problems:

• The existing postal retail network is too expensive to operate.
• The existing retail network provides too few services/products to justify the network.   
• The existing postal retail network is often in the wrong location for where people now live, work, or shop.

To solve the first problems, postal operators have used technology to reduce the cost of providing the service.   For example, some have made the self-service concept that the the Postal Service has barely implement with its Automated Postal Centers into the primary option for customers needing a retail postal service.   Deutsche Post has taken this a step further in regards to parcel delivery, creating automated parcel lockers that eliminate the need for a postal employee to look for a parcel that could not be delivered.  Recipients are notified that a parcel is in a locker by e-mail or mail along with the location of the locker, the locker number and the code necessary to open the box where their parcel resides.  

To solve the second problem,  postal operators have expanded their reach into other types of retail transactions and the provision of government services.   Retail services including packaging of items for shipping, selling of office supplies, copying services, banking, and insurance.   For example the Italian Post Office entered the market for simple life insurance and savings products for individuals whose needs were too expensive for larger firms to serve and used that to turn its retail locations into profit centers.   Other Posts expanded banking operations that already existed, or in the case of La Poste in France started a whole new bank.   Some Postal services also contract with governments to provide services that require a retail counter including those relating to motor vehicles, driver licenses, etc.

To solve the third problem, postal operators have a combination of closure of traditional facilities, opening of new corporate owned facilities in better locations, and franchises within both small businesses and nationwide chains.   One of the first things that Canada Post did when it faced a similar financial crisis two decades ago was a complete revamp of its retail strategy to include franchises.  Franchises were important because Canada Post did not have the capital to revamp its retail strategy in urban and suburban areas.  Today, retail access generally is better than it was two decades earlier and in many cities and suburban areas where there are more franchised locations than corporate offices.  Canada Post still is responsible for providing retail services in small towns and rural areas which remain a financial challenge to the corporation.

Given the Postal Service's strength in the retail market, it needs to look at its problem as an opportunity and develop a real strategy for providing and pricing retail services profitably.   It needs an innovative strategy that reflects the needs of customers for easy access to services, the experience of UPS, FedEx and foreign postal operators with franchising services and the capabilities self-service technology.   A truly creative strategy would look at the non-business benefits that a post office provides to small communities and senior citizens  to see whether a model focussed on these benefits provided by the Postal Service, a private enterprise, a community organization, or municipality could include the mail services in a multi-faceted retail facility.  Only with the annoucement of a coherent retail strategy would the Postal Service have a positve message when making the neccessary changes to its retail locations and communities would see that there are private sector and community based options to meet the needs that the Postal Service cannot provide with its existing retail model.

Unfortunately one strategy may not be sufficient.   The Postal Service faces many constraints that affect its ability to implement a coherent retail strategy including the availability of cash, labor contracts, regulatory processes for modifying locations or opening new ones, and other legal constraints on retail services.   Retail strategies need to be developed that reflect the existence and removal of each of these constraints.  

As the Postal Service faces significant financial challenges that raise questions about its future, at a minimum  it needs two retail strategies, one that examines the issue without constraints on capital and one that includes the constraints that exist due to the continuing operating losses and other restrictions that affect operating flexibility.   Without developing an unconstrained strategy, management and policymakers cannot know what the full cost is of maintaining the status quo with regards to operating flexibility  or the full capital needs of creating a real future for the Postal Service's provision of retail services.