E-Retailers Offered More Free Shipping Last Year, But Can it Continue?
This holiday season saw a record number of retailers offering free shipping, often with no minimums, and shoppers responded by placing orders with free shipping in equivalent record numbers. But as this service shifts from a perk to an expectation, will retailers be able to maintain it? Or will consumers end up paying another way?
Free Shipping: Consumers Save, Retailers Lose (Billions)
Reuters reported this week that "online purchases in the United States with free delivery hit a high of 68% in the third quarter of 2014, according to industry-data tracker comScore, up from 44% the previous year." And e-retail juggernaut Amazon claimed "it saved customers $2 billion in shipping fees over the holidays."
Of course, free shipping isn't really "free;" someone, somewhere is paying for it. So a large part of that $2 billion was swallowed by Amazon itself. A majority of those savings went to Amazon Prime members, who pay $99 a year in exchange for perks including free two-day shipping on all orders; that fee would help offset shipping costs a bit for Amazon, not to mention that studies have shown Prime members buy significantly more than non-members.
This means increased revenues for Amazon, but also increased shipping costs. All in all, tech data firm Forrester Research estimates "that Amazon loses $1 billion to $2 billion a year on U.S. Prime shipments." And if that's what it means for Amazon, imagine how smaller companies are struggling to keep up with demand for free shipping.
Retailers Likely to Raise Minimums, Offer Alternatives
In response, retailers are often simultaneously expanding free shipping in some ways, while restricting (or de-incentivizing) it in others. Back in October, the Wall Street Journal noted that minimums for free shipping were rising across many major retailers: Amazon increased its minimum from $25 to $35, as well as increasing Prime memberships from $79 to $99 a year. Overall, a study of 113 major retailers found that free shipping minimums had increased a whopping $76 in just a year. Other culprits included Best Buy and Gap.
Not only does it help offset shipping costs, but retailers have found that shoppers routinely buy more to meet shipping minimums. Amazon has tried something different, offering credits on video rentals and books for Prime members who forgo their free two-day shipping in exchange for slower options. And bucking the trend entirely, some websites have initiated flat shipping fees on all orders, finding once again that it encourages shoppers to buy more.
Another route is to avoid shipping entirely: Expect to see more offers of free same-day in-store pickup.
What do you think, readers? Will you drop certain websites if they drop free shipping or raise minimums, or will you just spend more? Let us know in the comments below.