1 Catalog Industry Update Tom Foti David Mastervich April 14, 2010

2 Agenda  Background  Product Challenges  Initiatives Catalog Industry Update

3 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 Background

4 Recent Activities  USPS & Industry Collaboration  Dedicated Catalog business team  Operational and Cost Containment Activity  Product Development Activity  Growth Opportunities  2009 Summer Sale Background

5  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

6 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

7 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

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

9 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

10 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

11 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

12 Incentive Programs  Catalog Weight Based Incentive example: 2010 – 2011 Initiatives

13 Incentive Programs  Evaluate Potential Future Incentives  Volume growth  Volume commitment  Prospecting  Fulfillment  Total customer value 2010 – 2011 Initiatives

14 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

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

16 Questions?