With the holiday shopping season fast approaching, retailers are lining up in droves to offer “free” shipping to consumers as a promotional tool to drive sales.
Target started this year’s land rush, announcing Oct. 21 that it was offering free shipping on all online orders between Oct. 22 and Dec. 20 – with some caveats that Debra Ellis, founder of Wilson and Ellis Consulting, points out in her blog post. Exceptions include orders that exceed standard sizes which get handling fees, and orders from Hawaii and Alaska. Also, free shipping is not fast – it comes with standard delivery of 3-5 days, plus 1-2 days of processing time.
Soon thereafter, many other retailers announced free shipping offers without order minimum requirements. Kyle James, author of the Rather Be Shopping blog, lists 45 retailers that jumped on the bandwagon, including top brands like Barney’s New York, L.L. Bean, Kate Spade, Neiman Marcus and Reebok.
When you add in companies offering free shipping on orders of $50 or less, the list swells to 94, including brands like Old Navy, Toys R Us, Under Armor, Land’s End and Petco, according to James’ site.
The question naturally arises – how free is free? The answer – not as free as one might think. According to July data from StellaService, the average a customer has to spend to qualify for free shipping increased from $76 in 2013 to $82 in 2014.
Ty McMahan, senior director of content for StellaService, said while there is some fluctuation month to month in spending thresholds for free shipping, “it is trending upward, as retailers try to figure out how to pay for free shipping promotions and make the economics work.”
“There’s a lot of pressure from the industry, as everyone talks about the pressure from Amazon Prime, and the expectations of customers,” McMahan said. “Retailers need to find a way to provide the service in a way that makes fiscal sense for them.”
A key factor in this calculus, McMahan said, are substantial pricing increases from FedEx and UPS, including changes to dimensional weight pricing as well as annual hikes coming online in 2015. Combining the two, rates from the major carriers may increase between 15% and 17% on average next year for many shippers, according to Rob Martinez, president and CEO of Shipware LLC.
“This is probably a heavy time of experimentation for retailers, as they dial in the numbers the best they can in preparation for what will be very meaningful costs increases for them,” McMahan said.