Will free or low-cost shipping charges be the key to taking e-commerce
mainstream? Or is shipping just a gimmick for the big players, designed to
win customers away from the little guys in the short term, but not
sustainable over the long haul?
This week Seattle-based Amazon.com cut its free
shipping threshold from $99 to $49 and privately held Buy.com, based in
Aliso Viejo, Calif., turned around a day later and one-upped the retail giant by offering free
shipping on everything, regardless of price.
Shipping charges have long been one of e-commerce’s bugaboos and some
analysts have said that online sales growth will never reach its full
potential until shipping is universally free, or nearly free.
Forrester Research said two years ago that once retailers start down the free
shipping path, they will have
a tough time turning back. In fact, Forrester found that 82 percent of
consumers said that shipping costs really matter.
Which, of course, makes free shipping a great marketing tool.
“There is no single better tactic to bolster sales and conversion rates than
free shipping,” said Geoff Wissman, vice president of Columbus, Ohio-based Retail Forward, a consulting and
market research company.
Nevertheless, it’s unlikely that free shipping will become ubiquitous, said
James Crawford, a retail analyst at Forrester Research. “It absolutely won’t
become the norm,” he told InternetNews.com
There is definitely an effort on Amazon’s part to raise order size, Crawford
said, adding that he might be more inclined to buy heavier and bulkier items
if shipping is free.
But, “We’ll have no return to the salad days of e-commerce,” when online
merchants were spending wildly to attract customers, Crawford said.
“Retailers need to make and recover the cost of their shipping, or make it a
cost of doing business.”
As for Buy.com, he said that its cost of shipping tends to be less because
they are selling smaller items that are less costly to ship. The bottom line,
he said is that the announcement of free shipping on everything is “better PR
than it is reality.”
E-shopping is still a chore, however, so knowing that a site has free or
cut-rate shipping — at least for now — will certainly help to predispose
some shoppers to visit.
How much of a chore? Consider this: a recent visit to price-comparison site DealTime for a check on digital cameras
found one popular model on sale at 31 different online stores, not including
Amazon or Buy.com, with price differentials ranging as high as $200. To find
out which is ultimately cheapest, a consumer would have to visit a half dozen
sites or more and probe deeply to search out the shipping policies.
Another potential problem with shipping charge reductions is what happens if
and when the candy is taken away? Could there be a consumer backlash? Both
Amazon and Buy.com put limits on their offers, just in case things don’t work
out as planned on the bottom line, although Amazon CEO Jeff Bezos said the
company “hopes to be able to make it permanent.”
Amazon said its offer was a six-month trial, and added other restrictions to
exclude toys, video games and accessories, baby products and goods offered
through its partnership with Target. Buy.com said “this offer is for a
limited time only. Buy.com reserves the right to end or change this free
shipping offer at any time.”
Amazon reportedly took in about $89 million from shipping charges in the
first quarter, up from $82 million in the year-ago quarter, and it still lost
$1 million on shipping. So further reducing shipping is simply a bet that
volume will make up for the loss. And it has the added advantage of putting
pressure on rival e-tailers.
“Recent movements by the major players, with Amazon.com dictating the pace
and Buy.com upping the ante, indicate that e-retailers classify shipping and
handling as a competitive factor as much if not more than a marketing or
promotion tactic,” said Wissman of Retail Forward in an e-mail interview.
“While it’s feasible to make money with an average order size approaching
three figures, the challenges increase significantly as that metric is
ratcheted downward, particularly below the $50 level, even though this varies
by product category.,” he told InternetNews.com. “For this reason, the recent
movements have not been described as permanent, and I would expect Buy.com’s
“no minimum purchase” free shipping promotion to be short-lived.”
The shipping charge reductions certainly didn’t faze the financial markets,
where investors have seen Amazon’s stock climb from $10 a share into the
$18-plus range over the past six months.
In fact, a day after Amazon cut shipping charges, Zacks.com issued a “buy”
rating on Amazon stock.
What are other e-tailers doing?
Amazon’s rival bookseller Barnes & Noble.com offers
free shipping to a single U.S. address if you buy two or more items.
K mart’s BlueLight.com (just renamed
and relaunched) appears to charge the customer to ship everything, but offers
in-store pickup.
“BlueLight.com has offered both free shipping and dollars-off promotions in
the past,” said Dave Karraker, vice president of communications, told
InternetNews.com. “In fact, we are currently offering 10 percent off any
order over $99 as part of our site re-launch this week
“We prefer to offer the best value on products across the site, rather than
raising costs on some items to cover the cost of an ongoing promotion, such
as free shipping,” he said. “Consumers should be aware that never-ending
promotions such as these have to be paid for somehow. Companies are not
sacrificing margins to keep these running indefinitely.”
Walmart.com (look out, Expedia, today they were pitching vacation
getaways) charges to ship everything, and says that “for each item, there is
a fixed charge plus a per-item charge.” Interestingly, in-store pickup is not
an option.
As for Buy.com, the so-called Internet Superstore that was taken private last year, founder and CEO Scott Blum is nothing if not in-your-face.
“Once again, Buy.com is improving the way the world shops online …
(setting) the new standard for other retailers to follow,” he said.
Blum was quoted recently as saying that Buy.com was able to turn a profit
from about $80 million in sales generated in the first quarter of 2001 and
can afford to pay for the free shipping, which runs about 2.5 percent of
sales. But whether smaller online retailers can take that kind of a hit and
remain in business remains to be seen.
