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Are free shipping expectations crushing smaller retailers?

Written by Tom Ryan
Described as "the e-tailing equivalent of selling milk below cost to increase grocery-store traffic," a Wall Street Journal article last week detailed how free shipping has become e-commerce's loss leader. Worst affected, perhaps, are smaller e-commerce players that can't absorb the shipping costs. The bigger players, including Amazon, Target and Walmart, can secure significant volume-driven discounts with the major carriers. The report cited a Shipware survey of about 560 shippers that showed some who spent in the range of $100 million annually on shipping that qualified for savings of more than 80 percent on overnight shipments and up to 60 on residential ground delivery. A survey last fall from Pitney Bowes found 88 percent of consumers preferred free shipping with a five- to seven-day delivery window rather than paying a fee for one- to two-day delivery. But the popularity of Amazon Prime is particularly raising consumer expectations around free shipping. Among the websites offering free shipping without purchase minimums are Coach, Dell, Kate Spade, HHGregg, L.L.Bean, Neiman Marcus, Nordstrom, Sunglass Hut and Zappos. Last September, Toys "R" Us reduced its minimum price for free shipping to $19 from $49 while both Target and Best Buy introduced free shipping without minimums over the holidays. "Without free shipping, you lose a lot of customers," Brian Yarbrough, an analyst at Edward Jones & Co., told Bloomberg following the holiday moves by Target and Best Buy. "Retailers have been finding that the time when most people abandon their order online is when it shows the shipping charges at the end. That's when they are most likely to just say, 'I'm out.'" The Journal's report homed in on the challenges facing smaller e-commerce sellers. Comfort House, a home and garden products e-tailer, reportedly spends about $15 to $20 per order on shipping, or about 12 percent of revenues. "We are absorbing more and more of it because we can't pass along the costs to consumers, because of Amazon," Jeff Gornstein, president, told the Journal.

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