Free Shipping Becomes a Blessing and Curse at Amazon and Target

Amazon.com Inc. and Target Corp. have opened the floodgates on free shipping. Web orders with the free service have increased 13% in 2018. Offer can boosts sales but wreaks havoc with profit margins.

Recent moves by the two retailers to eliminate minimum-purchase amounts for free shipping have boosted the share of online orders that get delivered gratis, according to data from retail analytics company DynamicAction. Orders with the free service included have risen 13 percent so far this year through Nov. 16, including an 18 percent spike in the week that began Nov. 5., when Amazon unveiled its offer.

Free Falling

Amazon and Target have eliminated shipping fees for online holiday orders

“Free shipping is the new normal,” DynamicAction’s Chief Marketing Officer Sarah Engel said.

While free shipping can entice customers to buy, it can wreak havoc with retailers’ profit margins, which are typically razor-thin already during the holiday quarter due to rampant discounts and increased marketing costs. Web orders that included some sort of promotion since the end of October have risen 13 percent from the same period last year, DynamicAction found. It also doesn’t help that transportation costs were already soaring this year due to a shortage of truckers.

Target is offering two-day free shipping from Nov. 1 through Dec. 22 on hundreds of thousands of items with no minimum purchase, while Amazon said on Nov. 5 that shoppers without Prime memberships need not buy at least $25 to earn free regular shipping, which typically takes five to eight business days.

Walmart Inc. has thus far declined to match the offers, sticking with its $35 minimum purchase requirement. The world’s largest retailer has suffered from narrowing gross profit margins in recent quarters, even as its online sales have grown.

E-commerce sales overall will jump 17 percent this holiday season, according to data tracker EMarketer, and account for about 12 cents of every holiday dollar spent. Amazon garners just under half of all online sales in the U.S., EMarketer said.

This article was written and published at Bloomberg by Matthew Boyle

Offer 1-day and 2-day shipping at ground rates or less.

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