Mail Order Business Law & Legal Definition


A mail-order business is one that receives and fulfills orders for merchandise through the mail. The terms "mail-order," "direct mail," and "direct marketing" are sometimes used interchangeably; in fact the mail-order category is a subset of the two other categories which include any and all kinds of solicitation by mail, be it of sales or contributions to causes. Prior to the introduction to the official North American Industrial Classification System (NAICS), the Bureau of the Census classified mail-order as "Catalog and Mail-Order Houses" with the Standard Industrial Classification (SIC) code of 5961. As a sign of the times, beginning in 1997 the Bureau began using NAICS code 45411 and calling these businesses "Electronic Shopping and Mail-Order Houses." Since that time both in governmental classification as well as in common reference, "catalog sales" are treated as a single category regardless of what form the catalog takes. Within the industry as well, many participating companies use both print and electronic catalogs to sell their products.

BY THE NUMBERS

Sales

Data from the Bureau of the Census for 2003 (the most current in 2006), indicated an industry with sales of $131,173 million that year. Of this total $90,794 million were traditional catalog sales (using printed media) and $40,379 million were e-commerce distribution (30.8 percent). The industry as a whole increased its sales by 7 percent over 2002, the print folks by 1.2 percent, the electronics people by 20.6 percent. Similar patterns of difference—e-commerce growing dramatically, traditional sales less energetically—were observable for retail sales as a whole. The chief difference was that in 2003 total electronic retail was around 2 percent of total retail but in the catalog category the e-share was ten times higher. This indicates that the "catalog shopping" mindset is more easily satisfied online than the "shopping" mindset generally.

Companies

In 2003 the industry had 15,172 participating companies. The industry was predominantly populated by small businesses. Firms with 1 to 99 employees numbered 12,688, and the majority of these had 5 employees or fewer (9,324). To these must be added 1,856 companies without any employees at all, the owners doing all the work—for a total small business participation of 14,544 companies.

Employment

The industry employed just under 265,000 people. Average earnings of employees were $24,800 in firms with 1-4 employees, $27,700 in firms with 5-9, $30,300 in firms with 10-19, and $33,000 in firms with 20-99 employees. The earnings of owners without employees were $77,000 per company. The largest employer category (2,500 employees or more) paid its employees $44,100 a year.

Products

In the catalog business as a whole, the top-ranking product category was drugs, health, and beauty aids ($27.2 billion). In rank order the next four categories were computer hardware ($23.7 billion), clothing and accessories, including footwear ($15.1 billion), furniture and home furnishings ($8.3 billion), and office equipment and supplies ($6.96 billion). In the electronic component of this business rankings were slightly different and the volume, of course, lower. Top rank went to computer hardware ($6.7 billion) followed by clothing and related ($5.5 billion), office and related ($3.47 billion), the furniture category ($3.4 billion), and electronics and appliances ($2.9 billion).

PERENNIAL MOTIVE: CONVENIENCE

Mail-order businesses date back to pre-Revolutionary War days when gardeners and farmers ordered seeds through catalogs. Early catalog sales of general merchandise drew their support from a predominantly rural population for which shopping usually meant a day-long absence from the farm; but the retail stores the isolated farmers visited in nearby towns usually stocked only necessities/commodities with but a rare item of luxury now and then. In the 19th century catalog sales filled a vacuum, the catalogs always at hand, Montgomery Ward being the early dominant merchant, soon yielding market share to Sears Roebuck and Company. Until the late 20th century and the rise of the Internet, catalogs were always on paper but transformed themselves by using color photography. Both the solicitation and the ordering were at first by mail but, as telephone service became universal, telephone ordering from a printed catalog became an alternative. Since the 1990s, catalogs have appeared on the Web. The same catalog may be accessible both in printed and in online formats. And ordering in the mid-2000s took place by mail, by phone, and by the mouse-click.

The driving force behind "distance sales," as this field is sometimes characterized, has always been convenience—in rural times isolation made the catalog handy; in modern times very busy lifestyles (not least high and increasing female work-force participation), have motivated shoppers. Catalog shopping has always shown peaks in busy holiday seasons. In addition to the perennial motivation of convenience, catalog sales have always also offered customers a greater variety of choices than those available in brick-and-mortar establishments—as evidenced by catalog sales counters inside large department stores.

A VARIETY OF CATALOGS

Catalogs come in three major categories: business-to-business, consumer catalogs, and catalog showrooms. Business-to-business catalogs provide merchandise to be used in the course of business, including everything from office supplies to computers. In industrial settings, business-to-business catalogs are used to sell everything from heavy machinery to hand tools. Business-to-business catalogs are mailed to individuals at their place of business, with most purchases being made on behalf of the business.

Consumer catalogs are mailed to consumers at home and come in a variety of forms: independent catalog houses sell only from a catalog; retailers use catalog to generate store traffic, to sell goods directly, and catalogs intended to do both. Manufacturers' catalogs feature only products by a single producer. Catalogs distributed by museums or in the context of a major exhibition are a variant. Some catalogs are used by credit card companies to stimulate credit purchasing.

Catalog showrooms combine retail and with catalog marketing. A catalog showroom is essentially a retail outlet. The catalog, usually quite large, serves primarily to build traffic in the showroom. The trend in catalog showrooms has been to de-emphasize the mail order aspect of the catalog and present the showroom as a retail outlet with the added benefit of being able to place catalog orders from the showroom.

ISSUES OF STARTING A CATALOG BUSINESS

It might be said of mail-order and catalog sales is that "the product is the message," but paradoxically, the reverse is true as well: "the message is the product." In other words a catalog business must be some kind of innovative fusion between uniqueness of the products offered and the manner in which they are presented. Quite successful catalog ventures have been launched largely on message alone: the catalog has a mode of presentation that a segment of the buying public finds irresistible. Many gardening and seed catalogs, many clothing catalogs, have such an aura. The pleasure of using the catalog and contemplating what it offers is part of the experience. It draws the prospective buyer in. Prolonged attention to the catalog produces sales. Conversely, if the product line is genuinely unique featuring desirable but hard-to-get items, the presentation is much less important. A good example of such products are difficult-to-find electronic components or out-of-print and rare books. Uniqueness is sometimes achieved by having an incredible variety of all manner of products: the sheer wealth draws people in and holds the attention. In other cases the uniqueness arises from the source of the products or their unusual context—a feature of museum catalogs.

Another important consideration before startup is the cost of this particular channel of distribution. Catalogs are quite expensive to print and mail. A careful study of the costs and mechanics of mail- or web-based marketing should be undertaken. Aside from high catalog costs, catalog sales are a form of direct marketing which require the acquisition of mailing lists (usually priced for one-time use only), purchasing mailing services from letter shops, and the payment of postage based on weight. Response rates tend to be low (around 1 percent) and/or are proportional to the cost of the item sent out. A catalog likely to be studied for an hour because it is very attractive will produce a higher response—but will also cost a good deal more to make. The business may need sufficient funding to survive quite some time while the sales build.

The prospective mail-order business may wish to sell its own product or be a merchant for others. In the latter case the business should make every effort to purchase the goods directly from the manufacturers themselves in order to avoid intermediate transfer commissions. But experts note that in some instances—such as scenarios where an offered product dramatically exceeds estimated sales—it may be necessary to deal with secondary sources in order to meet customer orders.

Some mail-order businesses arrange for their suppliers to ship the goods themselves. Under this system, mail-order outfits accept paid orders on behalf of the manufacturer then pay the manufacturer to mail the product directly to the customer. Some mail-order houses shy from this arrangement; such systems eliminate most inventory costs, they also compromise the independence of the mail-order house and its ability to ensure quality service. If a manufacturer proves incompetent or engages in questionable business tactics—such as using the addresses supplied by the mail-order business to compile its own mailing list, thus cutting the mail-order house out of the action down the road—a mail-order enterprise can find its very existence threatened.

REGULATIONS

A mail-order or other type of catalog business must comply with the regulations of the Federal Trade Commission (FTC) and the U.S. Postal Service (USPS). The business may also be subject to applicable state laws, especially concerning the collection of sales tax.

The FTC has issued several directives, guidelines, and advisory opinions concerning mail-order businesses. These and other relevant regulations are published in the Code of Federal Regulations (CFR), Title 16, Chapters 1 and 2, which is available in most large libraries or directly from the FTC. Among the most important of these FTC rules is the Mail-Order Merchandise Rule. This regulation, also known as the 30-Day Rule, is designed to protect consumers from unexpected delays in receiving merchandise ordered through the mail. It allows the customer to cancel any order not received within the time period advertised or, if none is stated, 30 days of order. According to the rule, in those instances in which shipment of goods is delayed, a customer must be notified within 15 days of placing his or her order. Moreover, if shipment is delayed past the agreed-upon delivery date (or 30 days), then the business must send a postage-paid return notice notifying the buyer that he or she may terminate the order for a full refund, which must be received within seven business days.

Another FTC rule requires all mail-order advertising to indicate the country of origin of the product being advertised if the product has a fabric as part of its content. This rule was designed to protect domestic textile and wool producers. Mail-order businesses are also subject to FTC guidelines concerning product guarantees and warranties that apply to all businesses.

Mail-order advertising frequently contains endorsements or testimonials. Under FTC guidelines, any endorsement must reflect the views of the endorser, and must not be reworded or taken out of context. In addition, the endorser must be a genuine user of the product. If the endorser has been paid, the ad must disclose that fact, unless they are celebrities or experts. Additional FTC rules apply specifically to endorsements by average consumers and expert endorsements.

The FTC has also issued guidelines to curb deceptive pricing by some mail-order businesses. These rules affect two-for-one offers, price comparisons, and other issues. The practice of advertising products that have yet to be manufactured, while legal, is subject to FTC requirements as well. FTC regulations call for this advertising practice, also called dry testing, to clearly state that sale of the product is only planned and that it is possible that consumers who order the product may not receive it. In addition, if the product is not manufactured, consumers who ordered it must be notified within four months of the original ad or mailing, and they must be given the opportunity to cancel their order without obligation.

In addition to FTC regulations, mail-order businesses must also be aware of USPS regulations. Lotteries, for example, are illegal under USPS regulations. As defined by the USPS, a lottery includes the element of chance, consideration—a term that means that one must make a purchase to enter—and a prize. In recognition of this definition, mail-order businesses instead organize sweepstakes that do not require any consideration, payment, or purchase on the part of the consumer. While sweepstakes have proved to be an effective method of advertising mail-order merchandise, many states have laws affecting their use.

Post office operations can impact on a mail-order enterprise in other ways as well. A mail-order house that presorts direct mailings by zip code can sometimes lower its postage costs, for example, while business-reply cards are subject to the approval of your postmaster. For complete information on postal rates, regulations, and requirements that could potentially impact a mail-order (or any other) business, contact your local post office or the Customer Programs Division of the U.S. Postal Service, Washington, DC 20260.

BIBLIOGRAPHY

Caplan, Jeremy. "Paper War: Environmentalists Take on Victoria's Secret for Mailing More than 1 Million Catalogs a Day." Time. 19 December 2005.

Entrepreneur Magazine. Start Your Own Mail Order Business. Entrepreneur Press, 1 December 2003.

Magill, Ken. "How to Boost Online Catalog Sales." Direct. 1 November 2005.

Retzlaff, Heather. "Cleaning Up Catalog Spoilage." Multichannel Merchant. 1 April 2006.

Schmidt, Jack. Creating a Profitable Catalog: Everything You Need to Know to Create a Catalog That Sells. McGraw-Hill, 1 April 2000.

Schultz, Ray. "For Catalogers, Print Rules." Direct. 1 July 2005.

Sloan, Carole. "Direct Retailing Outpaces Other Channels." Textiles Today. 20 January 2006.

Tierney, Jim. "The Paper Chase." Multichannel Merchant. 1 March 2006.

U.S. Bureau of the Census. 2003 Annual Retail Trade Survey. Available from http://www.census.gov/svsd/retlann/pdf/artse-comml.pdf. Retrieved on 13 April 2006.

                              Hillstrom, Northern Lights

                                updated by Magee, ECDI