Retailers Feed Holiday Demand for Free Shipping Increasingly, Shoppers View the Perk as a Given; Buying Enough to Qualify
by Rachel Dodes and Geoffrey A. Fowler
Online shoppers this holiday season can expect a little something extra from retailers: more offers of free shipping. Free shipping has already become standard practice for certain retailers, like footwear and apparel sites Zappos.com and Shoebuy.com.
Now, as competition heats up, free is becoming the new normal across even more sites. Target Corp. is launching its holiday free-shipping promotion on Nov. 1—two weeks earlier than last year—and applying it to twice as many items, the company says. Wal-Mart Stores Inc. is using free shipping in its holiday fight with Amazon.com Inc.: Both retailers are selling 10 popular books at a deep discount—but Wal-Mart is throwing in the shipping.
Last December, 250 stores ranging from J.C. Penney Co. to Pottery Barn participated in a "Free Shipping Day" event organized by Freeshipping.org, an ad-supported site that lists free-shipping deals. This year, the number of participating retailers for the Dec. 17 event is expected to double, with stores like Toys "R" Us joining for the first time. Retailers are jumping on the free-shipping bandwagon because it is a proven way to catch shoppers' attention.
The strategy is also an attempt to cut down on the huge number of virtual shopping carts that are abandoned at check-out. Indeed, a May survey by eBay Inc.'s PayPal found that 46% of shoppers claimed high shipping charges—more than any other reason—was why they ditched potential purchases in online shopping carts. "Free is very exciting," says Dan Ariely, a professor of behavioral economics at Duke University.
"Free shipping is not just another discount." Mr. Ariely found in an experiment that people are between four and five times as likely to spend $5 for an item if either the shipping or the item is free as they are to pay $2.50 for the same product plus $2.50 for shipping. Many new offers are likely to come around Thanksgiving and toward the middle of December. That's when retailers with extra inventory are looking for ways to liquidate it before the end of the season. Some of the deals come in limited-time specials and require special coupon codes to be entered at checkout; they are sometimes announced only to select customers via email. Others require consumers to spend a certain amount or are part of loyalty-program benefits.
But shoppers will have to keep their eyes peeled for some of the offers: Sites don't often give a lot of advance notice of their free-shipping deals. Luke Knowles, chief executive of Freeshipping.org says many stores are likely to keep mum about participating in "Free Shipping Day" until the event approaches. They "don't want people to hold off on buying today because they are waiting for free shipping," says Mr. Knowles. Bloomingdale's now gives shoppers who use its credit card and spend more than $150—and noncardholders who spend more than $300—free shipping. Many retailers lowered the bar on free shipping after the economy worsened last fall: It was a bid to woo shoppers and liquidate inventories.
A year later, many have slashed inventory levels—but most are keeping or expanding free shipping, even as the costly benefit cuts into profits. Macy's Inc.'s Bloomingdale's chain, now gives shoppers who use its credit card and spend more than $150—and noncardholders who spend more than $300—free shipping. Nordstrom is lowering its free-shipping threshold to $100 from $200 on Nov. 2 for the holiday shopping season.
Luxury retailer Saks Fifth Avenue says it has increased the frequency of its sporadic free-shipping offers since last September. "We believe, especially in this kind of economic environment, people appreciate that value even more," says Denise Incandela, president of Saks Direct. Mark Pierce, chief executive of MarketLive Inc., which develops and hosts e-commerce sites for 100 retailers, says free shipping is an important driver of e-commerce transactions because the offer "liquefies consumers' largest objection to shopping online." Free shipping and free returns ranked as the top two factors that influence shoppers' purchasing decisions online, and high shipping charges were found to be the top deterrent, according to a recent survey by MarketLive and eMarketer, a research firm. Amazon.com has won legions of new customers with a shipping program called Amazon Prime that isn't actually free but makes shoppers feel like shipping costs aren't a worry.
Subscribers to the program—which costs $79 a year—get automatic two-day shipping for many products sold on the site. A PiperJaffray survey in May estimated that the program has attracted two million members, who increase their spending by about 20% after signing on. "I have to admit, [free shipping] has spoiled me," Lucas Shaffer, a graduate student from Phenix City, Ala., says of the Prime service. The 29-year-old buys everything from books to boxers on the site, and estimates he has saved at least $400 in shipping costs in the past two years.
But free shipping can mean huge costs—and headaches—for merchants: Shipping cost Amazon.com $630 million last year. Amazon offers free "Super Saver" shipping to all customers for many purchases of more than $25. (But gift-givers have to plan ahead: "Super Saver" shipping takes five to nine business days. The cut-off for a delivery in time for Christmas is Dec. 17.)
Last year, Zappos had to cut back on the guaranteed speed of its free shipping to make sure it could meet customer expectations.
Marketing Tips posts authored by Leslie Goldstein of the USPS.