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Tuesday, October 6, 2015

The Face Value Follies - 5 Reasons Why Treating Modern Stamps as Discount Postage is Damaging to the Hobby

Today's post is about a development within the hobby that I have found to be very damaging to the hobby in general and damaging to the long-term ability of dealers to service their collector market. That development has been the tendency by dealers and collectors to perceive modern stamps issued after 1945 as mere postage and to take the position that it is worth less than its face value.

It is hard to be certain where it started, but I have a fairly strong hunch that it was started by dealers back in the day of brick-and-mortar retail stores. I can certainly understand why dealers at this time saw no harm in this practice: in their collective minds, they could not envision a time when demand would be sufficient to absorb the then colossal supply of mint stamps. Back in the 1970's and most of the 1980's, most of the industrialized countries in the world were issuing upwards of 30-50 million of each commemorative stamp, so the supply seemed endless. At the same time, most dealers were wholly reliant on foot traffic into their shops and the occasional want list to sell their stamps. Consequently, the quantity that many dealers considered adequate for stock was very low: 5-10 sets. Anything above that was seen as overstock. So dealers were confident that they could start offering less than face value for these stamps and could thus start using them on their mail, thus saving on their mailing costs, which have always been considerable in the stamp business.

But as with many well practices grounded in good intentions, there are a number of things that I don't believe were considered by dealers as a whole before they all jumped on this bandwagon. These things are all the reasons why I believe this practice has damaged the hobby, and with it the long-term viability of many stamp businesses:

1. It lowers collector confidence in the modern stamp issues.
2. It alienates collectors that actually prefer modern material over classic stamps.
3. It has resulted in collective ignorance about the modern stamp issues.
4. It has effectively removed a large quantity of otherwise collectible material from the marketplace.
5. It has made it difficult for many dealers to survive.

I will not explain these reasons in more detail.

Lowering of Collector Confidence

Even though most philatelists collect for pleasure, there is a very strong concern by collectors for the ultimate monetary value of the stamps in their collection. Most collectors spend a lot of money on their hobby during their lifetimes. It makes them feel better if they believe that they can dispose of their collections when the time comes for a reasonable price. I think most seasoned collectors know that it is not realistic to expect to make a profit unless they have specialized in an obscure area for a long time and the popularity for their collecting area has grown since they started. However, I do believe that most collectors expect to receive at least 30-40% of their money back when they sell.

Thus their decision as to whether to collect a particular type of stamp issue or country will be influenced by their perception as to whether they can sell their stamps at a reasonable price. If they see a situation where they are only receiving 10-30% of their investment, then I believe that they will avoid collecting that area and will move to areas where they see more upward potential.

Indeed this is exactly what we have seen in recent years. There has been a huge amount of upward pressure on the prices of scarce pre-1945 material, while most material issued after 1945 has languished. This has not always been the case: when I was a boy, there was still a lot of demand for modern material. Plate block and First Day Cover collecting was still very popular.

The problem that dealers have created for collectors is one of value perception, which I will illustrate by way of an analogy:

Practically everyone is aware of the value of high-end brand name products like Prada glasses, Rolex watches and Louis Vuitton bags. Most people are willing to pay thousands of dollars for these items because the believe them to be better than their non-brand name counterparts. Most people though, if they really think about it, probably suspect that these items are not really handmade by some craftsman sitting at a workbench somewhere in Geneva, but are probably mass produced on some factory floor, just like every other product out there. But as long as most people don't know this for a fact, they are happy to continue buying it in the perception that it really is handmade and therefore different from the goods that the rest of us buy.

Now imagine a situation where you purchase a Louis Vuitton purse and inside that purse is photograph of a factory floor with a pile of what looks like a million bags just like yours. How would you feel about the bag you just bought? Would you still see it as a valuable item? Probably not.

You might be asking yourself, "what does this have to do with the stamp business and the hobby? stamps are not consumer goods. The makers of Rolex watches have never bought back watches from their customers.". That is certainly true, but for decades now, dealers have been using old stamps on their mail which is being sent to their customers! They are not using contemporary stamps, but stamps that are as old as 50-60 years, although due to the labour intensive nature of using the early stamps, they are mixed ages. By doing this they are telling their customers that modern stamps have essentially no value beyond postage. That is the message that has continuously been broadcast to collectors as a whole for the last 30 years at least. In the old days prior to this, you would see occasional use of old stamps by a dealer, but usually it was because the stamps were damaged in some way. You didn't see dealers using perfectly good, mint never hinged stamps from decades before on their mail. At the same time, demand for modern issues 30 years ago and 40 years ago was quite strong.

Dealers did not want to maintain large quantities of what they saw as overstock, and they saw an opportunity to save on postage costs, so they started offering less than face value for stamps that collectors were bringing them. When I first saw this happening, the discount was 10-20% below face. But as postage rates have gone up and the early stamps become more labour intensive to use, the discounts have gotten as large as 40-50% under face value.

What this has done is created an entire generation of collectors who think that modern stamps are essentially not worth collecting because no dealer will ever pay them more than a percentage for face value for their collections, including situations in which they have formed specialized studies. Even in situations where a collector wants to collect these issues, they don't see it as a good investment of their resources.

I wrote in an earlier post about how dealers essentially make the resale market for stamps. Thus collector confidence in modern stamps would be much higher if dealers collectively would be willing to pay reasonable prices for these stamps as they would with earlier material and were prepared to market them as collectible stamps. Once the price of something becomes depressed in the marketplace it is very difficult to get prices back up again.

The sad part of all this is that issue quantities of really modern stamps after the mid-80's have decreased significantly with under 1 million being a very common quantity for the same types of material that was produced in quantities of 30-50 million just years before. For example, the souvenir sheet shown at the beginning of this post had an issue quantity of just 700,000. When you consider the popularity of this hobby in countries like India and China, as well as other populous countries in the developing world, these are not large quantities at all. It would not take much demand from each of these developing markets to exhaust supplies and make them very scarce. Despite this scarcity, the perception that all modern stamps are postage is so deeply entrenched among collectors and dealers alike that these issues too are languishing.

Alienating Collectors Who Are Interested in Modern Material

Believe it or not, some collectors prefer modern stamps over older ones. For one thing, there are many more beautiful colours to see on modern stamps, where modern mixing technology has created a much wider spectrum of colour. The range of subject matter depicted is greater. Lots of people like thematics like birds, flowers and art. The whole area of ink and paper fluorescence is fascinating to many collectors and has provided a very fertile field of study for these philatelists. Not having to worry about forgeries, repairs and poor condition is a relief for a lot of collectors because they are then free to appreciate the subject matter on the stamps.

But is is very off-putting and frustrating to go a dealer and say "I'm looking for the Leigh-Mardon printing of the 1985 parliament definitive", or "I'm looking for the Helecon paper varieties of the 1960's Australian definitives" and have the dealer dismiss you with a wave of his hand and "aaah I can't be bothered with that stuff". It is even worse when you are in their shop and five minutes later you see them fawning over some customer who collects a classic area like Large Queens. You think to yourself "my stamps are just as good as his. My area deserves some respect too."

After a while, if you can't secure the supply as a collector; if the only way you can get material is to buy bulk auction lots, then eventually you might wind up abandoning the area even though you really like it in favour of a collecting area where you can actually obtain the stamps you want.

The collective perception among dealers that there is not enough demand for modern material is obviously the reason why many of them take this position. But what they don't realize is that over the long term, they are the ones in the strongest position to influence collectors and therefore demand. If they can't be bothered to learn about it and supply it, then demand will never be strong.

Collective Ignorance About Modern Stamp Issues

Dealers used to have extensive knowledge about all the stamps they sold. I remember as a kid going into my stamp shop and verbally describing to the dealer's wife the 3c and 4c Caricature designs of Borden and Mackenzie King and she knew right away what stamps I was talking about. My descriptions as a 6 year old kid new to the hobby did not include the proper name of the issue, but were along the lines of "Two stamps with sketches of two old guys on them. One was black and the other was brown." I doubt that would happen today unless the I was talking about a Canadian issue. If it was any other country forget it. Most dealers that I have dealt with don't seem to have any detailed knowledge of modern stamps issued in the past 30 years.

A large part of this is because of the sheer volume of new issues that have come out during this time and the fact that countries have issued exponentially more sets than they used to. For example the number of Scott numbers for Canadian stamps at the beginning of 1980 stood at 846. As of mid 2013 it stood at 2,651! However, I do not see the collective desire among dealers to know and understand  this material either and to meet the large volume of it as a challenge deserving of their collective effort and attention.

The reason of course lies in the fact that there is now no large market for this material that will make it worthwhile for dealers to spend the time acquiring this knowledge.

Removal of Collectible Stamps From the Marketplace

Using old stamps on mail reduces the number of mint examples in existence. Over time, the number of mint stamps available for material issued between 1945 to the end of the 1970's has been reduced significantly. It is hard to estimate the percentage, but it can be seen quite readily when you look at the bulk postage lots available for sale today. When I first noticed postage lots back in the late 1980's, it was commonplace to find 1950's Canadian issues, including the high value definitives. It was also common to see the 1967 Centennial Issue and the 1972-77 Caricature and Landscape Issue. I can't remember the last time I saw a postage lot that had any of this material present in large quantity.  One might argue that there are still more than enough mint stamps to supply every collector who may want one. But I would counter with the point that you don't know what demand will be in the future. Another point that people might make is that this reduction in supply is good because it will result in higher prices for those that have the remaining stamps.

While that is indeed true, I think it is preferable to achieve those kinds of increases by increasing the number of collectors in the hobby. It certainly will be better for the health of the hobby over the long term. I don't believe that having a small number of very wealthy collectors controlling an even smaller supply of collectible material is good for the hobby in the long run. Those collectors have to be replaced eventually, and accessibility to the hobby is the key to attracting more entrants. We live in a time where every form of entertainment is expensive:

1. It costs $3 to download a movie online for 48 hours.
2. It can cost $100 for a family of four to go to a movie.
3. Going out for dinner can cost $50-$200 at somewhere that isn't even fancy.
4. Going out to a club and having drinks can cost $100 easy.

So stamp collecting should be a very viable hobby choice for more and more people now because compared to the above it is actually quite inexpensive. But people aren't going to consider it as a possibility if it is way more expensive to get started than all the other alternatives open to them.

Using the old stamps on mail does create used stamps, but not stamps properly used in period, which is what most collectors of used stamps want. Covers bearing mixed frankings of 1940's to 1980's stamps are not desirable to collectors of postal history either. So by using the older stamps on mail, dealers are essentially removing it from the real of collectible material completely: it is no longer mint, and it is not contemporary used either.

Threatening Dealer Survival

One trend that I have witnessed in my lifetime is the growth of auction houses while many bricks and mortar dealers are going out of business. I, along with maybe 2 or 3  other dealers that I know of, are the entire population for full time stamp dealers in Toronto - a city with over 2 million people. Why has this happened?

The reason why I think it has happened is because the only markets that have grown over the past 30 years are the rare stamps. While dealers can sell this material just as well as the auction houses can, it is very hard to maintain a stock of this kind of material, precisely because it is so scarce. There is only so much of it to go around so as collectors lose interest in modern material and gravitate towards the scarcer early material the prices increase and a climate is created in which a dealer simply cannot supply this material in a cost effective manner. For example, I had a customer tell me that he thought my $1 Jubilee stamps were overpriced because he said he could buy them at auction for less.

So I have to compete with him at the same auction for the same stamps, how can I possibly supply those stamps to my customers? I can't. If  my customers aren't interested in modern material, then my opportunity as a dealer to earn a living by supplying my customers with stamps starts to dwindle.

I have already posted before about the value that a good dealer brings to the hobby and I have pointed out that while auctions have their place, they do not offer the same ongoing service to their customers that a good dealer does. However, most customers aren't seeing this value now, and are quite happy to buy their stamps at auction if it means they can save money. In the long run, I believe that this will effectively kill the market for mid-range and low range material. The only markets that will continue to grow and prosper under this model are rare stamps.

But as I pointed out above, people don't usually take up hobbies by starting with the most expensive items. Golfers start with cheap clubs before they eventually splurge on expensive ones. In the same vein, if we as dealers want to attract people to this hobby, we have to be able to offer them affordable and collectible stamps, as well as the piece of mind that comes with knowing that we will gladly buy them back when the time comes for a reasonable price.

What is your opinion on all of this?

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