Did E-Commerce Shoot Itself in the Foot?

The overall holiday season for conventional retailers may have been less than stellar, but free shipping promotions helped to propel 2002 online holiday retail sales to an estimated 17 percent gain over the 2001 holiday period.

In fact, research and analysis firm Jupiter Research says that online sales from Nov. 1 to Dec. 31 are expected to exceed its original forecast of $13.1 billion.

That’s good news for e-tailers, but has e-commerce created unrealistic expectations on the part of consumers who may now routinely expect free shipping?

“Widespread free shipping promotions are the primary reason that the 2002 holiday season was such a good one,” said Ken Cassar, senior analyst with New York City-based Jupiter Research. However, Cassar warned that “online retailers may have created the expectation among consumers that free shipping and handling are now the norm, which puts a lot of pressure on retailers to run free shipping promotions into perpetuity.”

“A couple years ago, there were freebies and huge discounts. This year the value was free shipping; you didn’t see as many free giveaways,” NetRatings’ chief e-commerce analyst, Lisa Strand, has been quoted as saying.

Indeed, free shipping offers are rapidly becoming almost a sine qua non in online retailing as customers, and rightly so, tend to look at their overall cost, not just the cost of the goods they are buying.

Jupiter Research said it is advising merchants that rather than fighting consumers on the shipping cost issue, retailers should focus on improving operational efficiencies in their warehouses and exploring more cost effective means of delivering goods.

Cassar said that retailers that do not have to match prices in their own brick-and-mortar stores should consider gradually and subtly raising prices online to cover lost shipping and handling revenue.”

Merchants, especially smaller e-commerce operations, know that shipping costs can often run to 10 percent or more of the price of an item, depending on weight, bulkiness and shipping distance. That’s why Amazon.com, for instance, has warehouses strategically located around the country.

“There are opportunities for mom and pops to focus on product niches that are ignored by the large mass market retailers,” Cassar said. “The great thing about product niches is that, while small, they tend to allow for higher margins.”

Meanwhile, it’s anybody’s guess what the Net’s largest e-tailer, Amazon.com
, will do about shipping. The company, which has been offering free ground shipping (it’s low and slow, but free is free) on orders of $25 or more, said recently that this was its busiest holiday season ever with more than 56 million items ordered worldwide from Nov. 1 to Dec. 23.

“I would be very surprised if Amazon eliminated its free shipping offer, although I would advise the company to consider increasing the minimum threshold in order to improve margins,” Cassar said. “Based upon the data that we’ve collected I believe that Amazon would be able to increase its minimum order threshold to $30 to $40 without sacrificing an awful lot of demand.”

Jupiter Research is a unit of Darien, Conn.-based Jupitermedia Corp. , publisher of internetnews.com. The research unit expects to release final 2002 holiday sales figures in March pending release of actual sales results from retailers and results of a post-holiday consumer survey.

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