Customers love free shipping, but retailers do not. Well, that’s not quite true: retailers love the sales that the availability of free shipping drives, but it isn’t very good for their profit margins. While customers have become used to free shipping and view it as the default for shopping online, retailers still haven’t been able to figure out how to provide free shipping without losing a lot of money.
According to Reuters, a ComScore analysis of online purchases showed that 68% of online purchases made in the third quarter of 2014 (the summer and fall) included free shipping. That number is sure to go up in the fourth quarter, which includes the holiday season.
While Amazon brags that its free shipping for orders over $35 and Prime program saved customers $2 billion, outside analysts estimate that Amazon loses somewhere between $1 billion and $2 billion from providing free shipping. Other retailers say that providing free shipping with purchase is hurting their margins. Even Walmart hasn’t been able to make it work yet. Cutting down on the need for e-commerce warehouses by shipping orders from stores has been helpful, and encouraging in-store pickup has been good for stores, even if it isn’t much of a time-saver for consumers.
How much will this free shipping frenzy hurt retailers’ profits? We’ll find out in the coming weeks when they report their fourth-quarter results.
Free delivery creates holiday boon for U.S. consumers at high cost [Reuters]
by Laura Northrup via Consumerist
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