OK just a few things here:
First, there's no way that should have been stuck in an envelope like that. I see it was sent priority mail, which means flat rate, and also free packaging materials. Vendor could have used a box instead of that envelope. Hopefully they will make this right but like someone else said, that was poorly packaged.
Second, call your bank and file a claim. I'm a fraud investigator for a major bank and can tell you it's irrelevant if the money has been taken from your account or not. While this is not a case of fraud, it doesn't mean the money is gone forever. Your bank can reverse the transaction (it's called a chargeback). This applies to credit and debit cards. The timeframe for you to file a dispute may vary depending on the card issuer (Visa, MC, AmEx) but it's normally around 120 days. There is a system in place to protect you from stuff like this - if there weren't, you'd see a rash of people getting empty envelopes.
What your bank will need:
Your order confirmation email, showing what was ordered, what was paid, etc
The pic you posted here, showing how the item arrived
Details of your attempt to resolve with merchant. When you contacted them, what they said, who you talked to, etc. Save any emails from them regarding this. The more you have to support your case, the better off you'll be.
In the end, the merchant loses on this deal because the transaction will be reversed and they will have lost the product, the money, and possibly a customer. At the same time, it's on them to pack and ship in such a way that it's reasonable to assume it would make it to wherever it's going. In this case, your stuff was stuck in an envelope rather than using a box (that is free) and this whole mess could have been avoided
Looking at their reputation, I really don't think you'll have a problem. I'd be willing to bet that they will make this right. Wait to hear what they're willing to do, then file a claim with your bank if need be