Will DM pay high price for post sale?

Tell most people you think it’s a good idea for the Government to sell-off Royal Mail and you are likely get a slap in the face. So the fact that the industry’s trade body, the DMA, has been the lone voice in backing the move could be seen by some as evidence that direct marketers are out of step with public opinion.
No change there then, you may argue. After all, according to some sections of society, the industry is responsible for the bulging mail sacks which poor old posties have to lug around the streets, delivering ‘junk mail’ to consumers who have never asked for it, don’t want it and end up just chucking it in the bin.
Of course, the DMA is in a slightly difficult position, and its assertion that direct marketing needs a strong Royal Mail is a sound one. It will no doubt be hoping that the sell-off leads to increased competition, more innovation and better service.
To be fair, Royal Mail has already embarked on a massive investment programme backed by Government funds, so, once it gets its sticky mitts on City cash, the possibilities are endless.
But most protests – from the unions, the man on the street, and, rather less voraciously, the Labour Party – have centred on the potential threat to jobs and the Universal Service and not business customers, who after all, are the ones who pay for it all to tick.
And this obsession with the Universal Service threatens to mask the main issues which could make or break the long-term success of Royal Mail’s privatisation.
The first is the company’s exemption from VAT. In one fell swoop this gives it a 20% price advantage over rivals; a fact that TNT chief executive Nick Wells maintains is “outrageous”. TNT has been shot down in its previous attempt to get this overturned, but is now going back to the High Court to seek a judicial review. It remains to be seen how City investors would react to a long legal battle – or even the loss of this exemption – but you can wager it will not be pretty.
The second issue is whether Royal Mail will be able to manage the long-term decline in letter volumes. So far, the rise in Internet shopping has given it a much-needed shot in the arm, with parcel deliveries booming, but when this starts to plateau, as many predict it will, that’s when the problems will arise.
As many public companies have found, there’s usually only one way for them to balance the books, and that is to cut costs out of the business.
If this leads to price hikes and a poorer service, business customers will be severely affected and the move to digital media will accelerate. Royal Mail will no longer be able to go cap in hand to the Government.
Playing the City is a very dangerous game and usually involves putting your head – or in Royal Mail’s case, the Queen’s head – on the block. Business mail customers are the lifeblood of the service, let’s just hope this isn’t forgotten in the stampede to pay City dividends.

Charlie McKelvey is publishing editor of DecisionMarketing

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