Will totally free shipping make a difference for Target’s holiday results?

New Target CEO Brian Cornell is looking to establish a difference in the minds of consumers between his company and all the other competitors in the marketplace. Part of that approach will include free standard ground shipping on all target.com orders for the holiday season, with no minimum purchase required.

According to a Target press release, sales through the company’s digital channels are up 40 percent this year. The free shipping offer, which started yesterday, will remain in effect through Dec. 20. Roughly two-thirds of target.com orders, according to a Wall Street Journal report, currently ship free either because they are purchased using the retailer’s REDcard or meet its usual $50 minimum.

"Target will be spending a lot of money on shipping, but to some extent it’s advertising," Amy Koo, an analyst with Kantar Retail, told the Star Tribune of Minneapolis. "They’re really reaching out and trying to at least play evenly with Amazon this holiday period, particularly as they’re trying to regain those less affluent or more occasional guests" following last year’s data breach.

More than half of American consumers plan to make at least one purchase online for the holiday season, according to the eHoliday 2014 Pre-Holiday Retailer and Consumer Study conducted by Prosper Insights & Analytics for Shop.org. Online shoppers will spend an average of 16 percent more this holiday season than all other shoppers, according to the research.

target free shipping

Free shipping is just part of Target’s plan to differentiate for the holiday season and beyond.

"We’ve been building capabilities that put us in a strong starting position, including the right digital tools and a broad assortment of unique, on-trend merchandise. Our value proposition will be unrivaled, with compelling promotions and an exceptional shopping experience online and in our stores," said Mr. Cornell in a statement. "It’s about delivering on our promise of ‘Expect More. Pay Less,’ and when we do that, Target is impossible to beat."

BrainTrust

Discussion Questions

Do you expect Target to strongly rebound during the upcoming holiday season? How important will Target’s free shipping offer be in its efforts to differentiate from the retail competition?

Poll

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Max Goldberg
Max Goldberg
9 years ago

Free shipping will make a difference for Target, but not a big one. I expect most merchants to offer free shipping during the holidays. Consumers have come to expect it as a part of doing business.

Unfortunately, as usual, Target is a day late, and as such this offer will not be a big differentiator.

Frank Riso
Frank Riso
9 years ago

It is a great move for Target and they will set the pace for the rest of the industry to do the same. If others do not follow it will be a true advantage for Target. It will help Target get back on the good side of most consumers. Consumers are starting to see breaches as something that happens to almost all retailers. Not that it is a good thing, but a part of doing business for large organizations.

Dick Seesel
Dick Seesel
9 years ago

This tactical move will come at a cost, but the gamble is that the expenses are offset by market share gains—especially versus soft 2013 comps. It’s also likely that Target will see more transactions but smaller “market baskets,” since shipping is free even below the $50 threshold.

It would not be surprising to see competitors (Walmart and Amazon in particular) respond aggressively. As I said, this is a short-term tactical step that needs to be followed by the kind of re-branding and re-merchandising that Mr. Cornell has promised.

Chris Petersen, PhD
Chris Petersen, PhD
9 years ago

Consumer safety for their identity and credit is a sacred thing. That trust must be restored. Almost all online sales involve a credit transaction.

In terms of free shipping, it will likely make a difference for some shoppers—particularly those interested in smaller-price items or those that don’t meet the free shipping criteria on Amazon.

Far better to invest in free shipping to create traffic and conversion online versus the shotgun approach of just lowering prices.

The key to Target’s success will be winning back Target’s core, women customers. The key will be delivering upon Mr. Cornell’s promise: ” … exceptional shopping experience online and in our stores.”

Lee Peterson
Lee Peterson
9 years ago

Well, right now Walmart’s running ads every five minutes during the World Series saying the same thing, so I wouldn’t call free shipping a differentiation. More like, keeping up with the Joneses.

Walmart is also kicking some tail with their BOPIS (Buy Online Pick-up In-Store) campaign, which they mention in their ads as well. Plus, their new c-store in Bentonville acts as a pick-up center for goods bought online—good idea. And, their smaller store formats are working in multiples.

All the above add up, and are so far giving Mr. Cornell a run for his money in terms of just keeping even, let alone getting ahead. Don’t forget, most big box stores are right in the center of the Amazon’s bulls-eye and being innovative in terms of order fulfillment and in-store experience are paramount. Seems Blue gets that a little more than Red does at the moment. At least in terms of speed to market.

Cathy Hotka
Cathy Hotka
9 years ago

The reptile portion of our brain is hard-wired to LOVE free shipping. Target has weighed the extra costs against the perceived upside of spur-of-the-moment purchases. They’ve gotten a ton of free publicity as a result, and it’s refreshing to see that once again Target is the big story of the holiday season, but for a good reason.

Richard J. George, Ph.D.
Richard J. George, Ph.D.
9 years ago

Free is always a huge consumer draw. Given Target’s recent woes this may be the incentive for disenfranchised customers to give them another chance.

Regarding differentiation, first, this is an expense that needs to be covered either in the CGS or in reduced profit. This is particularly relevant for the one third of purchases under $50. Second, I expect Amazon and others to respond if volume losses to Target occur. The residual impact may be smaller profit margins for the major players this holiday season.

Steve Montgomery
Steve Montgomery
9 years ago

The issue is the interpretation of the words “strongly rebound.” Given the impact the credit card issues had last year on Target’s sales a strong rebound could be just getting back to 2012 sales levels.

Two thirds of Target’s internet sales currently ship free because they are above the $50 threshold. One of the unintended consequences of their totally free policy is a likely decrease in the average internet sales as customers no longer have to meet that threshold.

I would expect this will force Target’s competitors to review their free shipping strategy. However, I would also expect that some caution will rule the day and they might just wait and see what impact on Target the shipping costs have.

Gajendra Ratnavel
Gajendra Ratnavel
9 years ago

Free shipping is certainly a draw for Target’s target market and it will impact their sales positively. It seems they are also looking at this from a marketing perspective and not purely sales which is great.

Is it differentiating them from other online retailers? No. A lot of online retailers offer free shipping for purchases over a certain amount year round and many offer free shipping on all purchases during holidays, so people are used to “free shipping” offers.

With a little more data from Target, like what is their average cart size during the holiday season, this would be easier to predict. I am guessing it will meet the threshold for free shipping regardless.

What will make a difference, and really differentiate Target, is improving online shopping experience, ability to share shopping cart with peers, live share/feedback through social circles. Make shopping more fun. No one likes the parking lot during the holiday season, capitalize on it! They will also need to run a massive holiday marketing campaign on the improved experience along with offers like free shipping and discounts on companion purchases.

David Biernbaum
David Biernbaum
9 years ago

I agree that it’s basically an “advertising” strategy, however CEO Brian Cornell is doing the right thing to announce free ground shipping for Target. Why? Because the overall perception of consumers is that there will be shipping fees with most orders not placed on sites best known for free shipping on qualifying orders, and in particular Amazon.com. So many of Amazon’s shoppers get routinely free shipping due to Amazon Prime. Retailers like Target need to get the word out that shipping can be free on its site, as well. Good move. I like it.

W. Frank Dell II, CMC
W. Frank Dell II, CMC
9 years ago

We learned over 10 years ago that free shipping was a requirement for online sales. When the click out rate during ordering approached 90 percent, the world changed. Through the years online retailers have used minimum order size, paid membership and past ordering volume to offer free shipping. Last Christmas it was not free shipping, but shipping failure that caused the problem. Target should expect the same overall online sales increase as prior years. Free shipping sounds good, but with the majority of online shoppers already getting free shipping it will only make a small difference. I would expect to see an increase in forgotten items being ordered. The order was placed and the shopper later remembers an item they meant to order from this retailers. This will increase sales but not profits.

Mark Burr
Mark Burr
9 years ago

Free shipping will be part of the offer for most major retailers for the holiday season even if some will require a minimum purchase, albeit a lower one, for the holidays.

That’s really not the point of the phenomenon here. Take a stronger note from the article that 50 percent of consumers will make at least one online purchase for the season. Also, take note of Target’s digital segment being up 40 percent this year. Those results alone are remarkable considering their breach of credit/debit card data. Does the consumer feel their data is safer in the digital segment? Or is this just plain good solid growth? Either way it shows that their customers still like Target and are willing to continue in spite of a disappointment. How many retailers have that level of brand integrity?

Compound the free offering and the growth in the segment with UPS and FedEx’s substantial commitments to dramatically increase staffing this year to avoid the outcome of the last: It is a large win stacking up for Target.

Bill Davis
Bill Davis
9 years ago

We’ll see, as I have seen research that consumers are hesitant to shop at stores where there’s been a point of sale (PoS) system breach. Free shipping may generate some good will in the short term, but it disappears on December 20 and per the story, about two thirds of the orders already qualify for free shipping because it beats the $50 maximum order size or was made with the REDcard.

Target is making progress, but the next two months aren’t going to make everyone forget about previous missteps.

Jason Goldberg
Jason Goldberg
9 years ago

100 percent free shipping is a smart play for Target.

Consumers are hard-wired to not be willing to pay for shipping (free shipping must have been an important survival instinct during our evolution). Target has historically been behind on shipping charges.

For Q2 of 2014, 59 percent of all U.S. e-commerce orders included free shipping (via Comscore data). Top e-commerce sites (first-party Amazon sales, Apple, Staples, Nordstrom, Zappos, etc.) offered free shipping on 99 percent of orders, but Target offered free shipping on only 64 percent of orders. So in June we saw Target drop its free shipping threshold to $50 to close this gap (which basically put them at parity with many other retailers). Now we’re seeing Target get proactive and move ahead of the market.

Last year we jumped from 51 percent free shipping in Q2 2013 to 67 percent free shipping in Q4 2013. This year we’ll go from 59 percent free shipping in Q2 2014 to something like 75 percent free shipping for the holiday. So by coming out now with a clear free holiday shipping offer, Target gets to win extra mindshare (and earn extra visits) from a free shipping cost structure that competitive pressures would have forced them into anyway. And it strongly combats a market perception that Target is an online retailer with expensive shipping.

The magic question is, will the extra visits compensate for the loss in AOV from shoppers that don’t have to pad their carts to hit the free shipping threshold? For holiday, I suspect the answer is yes.

Gordon Arnold
Gordon Arnold
9 years ago

The advertisement is indeed a strong message to lure an interest or look from e-shoppers. The limitations imposed to keep from shipping a pack of gum will be discovered and commented on in a short time. This is the consumer groundwork and reporting that will make or break the electronic cattle call for holiday shoppers.

Jeff Hall
Jeff Hall
9 years ago

Consumers expect free shipping, especially during the holiday season.

Other than Target getting out front first with this offer, and perhaps enjoying some short-term benefit from the visibility and media coverage, most others will be doing the same. It won’t be much of a differentiator.

Ed Dennis
Ed Dennis
9 years ago

I believe that Target will do very well if it reaches pre-security breach sales and profit levels. Free shipping only makes them competitive and really doesn’t convey an advantage over e-commerce. Many consumers aren’t convinced that Target delivers the value it once did. Personally, I use an app to check every price on anything of interest in Target and find better value about 60 percent of the time. This effort is to be commended, as it shows a recognition that Target needs to work on its value proposition!

Shep Hyken
Shep Hyken
9 years ago

I can’t predict Target’s success for the upcoming holiday season. They do a great job of creating brand awareness. More and more people are shopping online. It is definitely more convenient. It will be interesting to see how online impacts on-premise.

The concept of free shipping is a great way to compete with Amazon’s Prime program. Isn’t that who all companies are really trying to play against?

Ed Stevens
Ed Stevens
9 years ago

This is a great move for Target. Nothing helps a customer forget about the past better than a great deal or, even better, FREE. Wanting to put its brand forward and gain the advantage, Target does what it needs to do with this free shipping move. It’s going to put a lot of pressure on other retailers at a similar price point, at least.

Dan Raftery
Dan Raftery
9 years ago

So, Target wants to “play evenly with Amazon?” Is this the Amazon that is expected to report a loss of 75 cents per share after hours today? Hmmmm.

Ed Rosenbaum
Ed Rosenbaum
9 years ago

Target ‘s free shipping announcement sounds great. But Walmart is doing the same thing and others will follow. I do not see this as a big difference maker when all the big retailers will be doing the same thing. But it was a good try to create a difference maker.

Larry Negrich
Larry Negrich
9 years ago

Free shipping will certainly help Target’s gross sales, but the added shipping cost on small orders may adversely affect the margins of online sales. Being a free shipping “early mover” this year will help Target get some press and a bit more mindshare from the consumers looking for holiday deals.