When business slows a bit at Walmart, the giant retailer typically drops prices to help get customer traffic in the stores back up. On the other hand, the U.S. Post Office has a very different strategy. When its customers go elsewhere and losses mount, the Post Office raises prices. In fact, the Post Office just announced a nearly 5% price increase to take effect in January. Which strategy is more likely to be successful–Walmart or the Post Office?
This quotation (Hat tip: Carpe Diem) from Walmart founder Sam Walton, succinctly expresses Walmart’s point of view towards its customers [emphasis added]:
"There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else." ~Sam Walton
This chart, also from Carpe Diem illustrates the strategy in use by the Post Office over the past 90 years
Source: Carpe Diem
Raise prices as fast as you can seems to be the Post Office strategy. As you can see, the price of a stamp has gone up far faster than inflation for many decades. No doubt, it will continue to do so. This year the Post Office is on track to lose $7 billion. The stamp increase will bring in a bit more revenue, but it will only accelerate the long-term decline as more and more customers gravitate to other means of communication.
Now, in all fairness to the Post Office, it operates under difficult circumstances because, among other issues, it is compelled by political pressure to maintain money-losing offices in many small towns. There are lots of other issues as well. The Post Office has made some modest efforts at getting costs in line with revenues, but that $7 billion loss indicates they have not done enough.
I’m sympathetic to the problems faced by the Post Office, but driving customers away with a big price increase is not a sound strategy for any business, at any time. Rather than engage in the hard work of figuring out what to do, the Post Office just socks us with a price increase yet again.
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Excellent chart ! ! !
I note with interest that the accelerating cost of a postage stamp, from 1970 forward, coincides with the advent of a genuiine union (the 4 weak ‘unions’ combined) for postal workers, with very few advances (if any) in productivity. By example, now that the R&D costs for this Email have long ago been depreciated, the comparative cost advantage is enormous, when contrasted with Snail Mail. Not only that, but it still takes a couple of days to deliver a letter by the USPS, while this message will be read world wide within a couple of seconds.
Your comparison to Walmart is quite appropriate. Without a union, Walmart has kept prices low. With a union and no potential nor significant productivity increases at the individual store level, should Walmart become ‘unionized’ prices will escalate at an incline similar to a postage stamp.
Gilbert hits on the problem, as you do in the article. The Post Office can’t shed employees very quickly or cheaply, so can’t respond to the longterm drop in business from email and the internet. They are also constrained politically from closing offices or eliminating money losing services mandated by the government. Given that situation, I’m not sure what else they can do. Personally, I think that they should be a bigger force in package delivery. I base that on the number of packages we get from online retailers. The UPS guy ought to be on our Christmas card list.
Your chart is bs. Why did you pick the year 1919? Why not 1970? Or in the 1980s when the US Post office was spun into the US Postal Service? Since the the 80s the post office has operated more independently and the price of stamps is up about 220% since 1985. By your chart gas is up about 300% and the CPI around 220%. So why 1919 other than to massage the numbers for your article? Try this experiment: Take three equivalent packages to FED EX, UPS, and USPS and see who is the least expensive.
The Post Office has problems no doubt. The only one you got right was the political hamstringing. Between management and congress you have enough screw-ups to bring any organization down. The only reliable people to listen too are the Postal Regulatory Commission and the Office of the Inspector General. They come up with good ideas, but are usually ignored by Congress for political reasons. The true owners of the Post Office, the citizens, are too busy watching american idol to care what happens. So management will continue to groom their fiefdom, the postmaster general will appoint more vice-presidents, they will keep the money losing post offices in 500 person towns open, and will mail junk mail at a loss because of kick-backs from big mailers.
Cheers!
What Mr. Brouward fails to omit it his article is the reason for the 7 Billion deficit the Post Office is now experiencing..It is because back when Pres. Bush was in Office in 06 the OMB put on the Post Office a pre-funding tax for our Retirees Health Care…Unlike any other organizationm we have to pre-fund each year over 7 Billion dollars to cover the Retiree Health Care cost…We have overpaid into this fund over 50 billion dollars but congress refuses to release us from this burden. I guess releasing us from this burden would increase the deficit and both sides of the isle can’t get off their rear-ends and straighten this mess out…Also at last count we process over 30% of the worlds mail, and have the cheapest postage in the world…We are also mandated to deliver to every address in the country and the USA is still growing…So I think we are doing a great job and I applaud my brothers and sisters who continue to deliver the mail…..
The problem is that our number one competitor charges nothing and does most of what we do instantaneously. I think even Mr. Walton would have trouble with competition like that.
Of course all you have to do is use a different starting point and you’ll get completely different results- in 1932 the price of gas was 17,9 cents, and a stamp was 3. Gas (@2.75) is up 15.3 times, while stamps (@42) are up 14 times. But that doesn’t fit the story, does it?
Very, VERY misleading… that chart goes back to 1920, but the modern Postal Service didn’t even exist until the 1970’s… prior to the 70’s stamps were subsidized by the federal government, but with the creation of the Postal Service there were no longer subsidies. How is that a fair comparison? Prior to 1970 you aren’t showing the TRUE price of stamps, you are showing the price the customer paid, not including the subisidized portion - so OF COURSE the price jumped after that. Has NOTHING to do with the unions (and no, I am NOT a union member)
Besides - when the Postal Service is allowed to actually work like a business & close unneeded plants, unneeded Post Offices, etc like Wal-Mart can then lets compare again.
Hmmm. Remember when gas was over $4 a gallon? So, how can the USPS SOCK you with a .02 increase, which will cost the average household .13 more a year? Half of my customers tell me to keep the change now when they hand me .50 for a .44 stamp. Yet they scream bloody murder because stamps are going up .02. Get a life people. The business model of making money by hiring only part-time and offering no benefits is what is decimating the economy. When working people can’t earn enough to buy things in the stores they work in, how can there be an economy? When businesses will not or can not give employees health insurance what do we do? Let people die because they don’t have the money for health care? There are only a few CEOs compared to the general working population. The economy cannot function when only the CEOs earn a living wage. Why is it that when other of the mailers expenses increase they don’t cry out for their suppliers to cut wages and drop benefits rather than increase their prices? Walmart does not have the obligation of universal service. How would they be doing if they were forced to open a store in every village in the US, and then not allowed to close them regardless of how much money they were losing? I suppose they could just drop there prices until they were making a profit again, right?
The Post Office has lots of older Civil Service letter carriers still on the payroll, They offord a early retirement last year,BUT if you were under 55yrs you were penelized 2% per yr!! They got only a few takers for that weak offer in a very bad economy! Civil Service are making top pay,5 weeks vacation per yr,sick leave can accumalate rapidly,9 paid holidays.Management needs to offer a NO PENALTY retirement and then hire new employees at lower wage and benefits. And then most of all there are to many supervisors standing around holding clip boards not earning their salary. Needs deep cuts in the kroonie management network!!!
Very poor analysis. Post Office operation was subsidized by tax payer money until 1982; so the price of a stamp was artificially deflated prior to that. Since 1982, 100% of their operations are funded by postage sales.
I don't think a comparison to Walmart is a fair example. Walmart lowers prices to lure more customers in; but do you actually think if the Post Office lowered prices, more people will mail, let alone enough to offset the price reduction? Furthermore, Walmart will designate a product as a loss leader to increase traffic and hopefully lure them to purchase other products. Do you think if the Post Office lowered their Priority Mail rates, the increased lobby traffic would find themselves buying an extra book of stamps?
The author did make an excellent point about the political pressure making them operate under difficult conditions. I'd bet that more than half of the nation's 36,000 post offices operate at a loss.
Let’s just get real here for a moment. The Post Office is, quite simply, becoming an ancient relic. The Pony Express and stage coaches were short lived because trains came along. Then trains were replaced with airplanes, trucks and automobiles. Whale oil was replaced with kerosene, etc., etc. etc.
The question the Post should have been asking years ago (and Walmart seems to ask everyday), is what are consumers demanding that would allow us to deliver mail while performing some other service that UPS, Federal Express and the Internet can’t?
As was mentioned, there is an excess supply of post office locations, and there is a truck fleet and trained staff of thousands already in place.
Be creative, Mr. Post Master General . . . i.e. It’s a pain to go to the cleaners, purchase liquor (now there’s one), pick up monthly supplies of medication, purchase cigaettes. To this day, I doubt anyone enjoys standing in lines at post offices to pick up a roll of stamps or mail a package . . . Make it easier for the consumer . . . not harder to spend money ! ! !
Thanks for the comments from all sides of this issue. I noticed that this post was picked up by PostalMag.com and other sites that cover issues for Post Office employees. I looked at the comments to this post on that site and they were similar to the comments here, but with less substance.
I actually worked for the Post Office briefly in the summer of ‘69 so I have a little insight into this issue. And, I am sympathetic to the constraints faced by the Post Office. Thousands of money-losing locations, Congressional interference, heavy pension costs and a product that has been adversely affected by technological change. It’s not easy. Unfortunately, I do not see a solution in sight. Maybe someone out there does. If so, I’d be happy to hear about it.
Kurt ~
In response to your question: Vote Out EVERY Congressional incumbent ! ! !
Gilbert-
Another good example of the problem. You mention several examples of things the Post Office could sell. No they can’t, Congress will not let them. They were denied becoming an internet provider in the early days ( think AOL), and more recently banking was shot down. And yet congress keeps encouraging them to behave like a private enterprise.
Another item. The PMG makes nearly 800,000 dollars in pay and bonuses and has a retirement into the millions when the law is clearly written that he is not to make more than the Vice President. The auditors are asleep at the switch. I guess they are figuring out how to operate like private industry….
First….don’t blame George Bush for any of this. That’s total BS. The annointed one has been in office heading towards 2 years and it just keeps getting worse! The pre-funding of pension does need to mirror private business so change that….but so do wages and benefits! That an employee is almost to max pay in only 7 years is rediculous….especially when these raises are not based on preformance but are called “step increases” plus constant cost of living increases that we in the private sector do not receive. Add to that sick pay and vacation pay carries over year to year so that at retirement a substancial check needs to be written and we have a money losing situation. There is less and less need for the PO everyday. Thousands of old PO branches need to be closed…..Saturday delivery eliminated…..merit raises introduced to increase productivity as well as a more moderate pay scale…..using sick/vacation pay in the year received and the change in funding od pensions would be a good start to fix the taxpayers post office.
Some stamp increases over the years have been nothing more than a back door tax increase for the government’s general fund. there were years when the p.o. made billinos of dollars of profits only to be siphoned into the general fund. As i write, there is up to 75 billion dollars in csrs retirement overpayments sitting on the shelf.
This is apple and oranges it drives me crazy! Wal-mart would never offer products and service like the postal service is mandated to. Let congress run Wal-mart and see what happens! Terribly misleading not to mention the prefunding burden passed by congress. By gosh we sure need more jobs like Wal-mart
Let’s see how long do you think Wallmart would survive if law required it had to NOT make a profit. From which it can make cuts.
Or the pickle company they closed down when it could not make a profit and sell at Walmart prices.
Or the state medicaid that had to pay for Walmart employees health care.
Glad I have not read you before.
The reason the post office is sinking is because thry still live in the past. It!s like standing on the corner and selling 8 track tapes for 5 dollars or selling cd!s for 10 dollars. Who wants the 8 track. I retired from the post office in May of 09. I took the early out because I was tired of being the only person working the window and customers complaining about the line out the door all the time. Lazy ass management were never to be found. We changed to the 911 system last year and rural customers were furious that mail was cintinually sent as no such address. Whenever I could find the supervisor to take a complaint she was very nice to the person she was talking to and gave them the line that she would look into it. About 99 percent of the time she threw the paper away with the customers info. It!s been 14 months since I left that nightmare and I have not bought 1 book of stamps or mailed 1 package since I left . Let it sink.
Kurt Brouwer is a fee-only financial advisor with three decades of experience. He is the chairman and co-founder of Brouwer & Janachowski, LLC. Kurt has written books, articles and hundreds of blog posts on mutual funds, ETFs and other investment topics. E-mail: kurt.brouwer *at* gmail.com.
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