Opinion
RIP to fast and free shipping
The urgency around overhauling retail businesses to offer speedy delivery at no extra cost turned out to be an expensive reaction to a momentary trend.
Leticia MirandaThis year might go down in history as the end of free and fast shipping. The good old days were sweet. Nearly any online good, big or small, could arrive at your door within a couple of days for free, and often could be sent back at no cost. It was exhilarating.
For a time, businesses were willing to eat the cost of shipping, which can take as much as 10 per cent to 15 per cent of a company’s profits, because they were in a fierce fight for e-commerce dollars. But over the past year, retailers have been quietly rolling back options that would get orders to your front door within days, as their operating margins suffered.
Amazon was something of a market leader in free shipping and quick delivery, but things have changed. Dominic Lorrimer
To cut costs, retailers including e-commerce behemoth Amazon have closed distribution centres or cancelled the opening of new ones this year. At the same time, retailers have followed the lead of companies such as LL Bean by adding new minimum order values for free shipping after years of requiring no minimum.
Some companies have increased the minimum amount of spending for non-subscription members to qualify for free shipping, and it is now common to see companies charge a fee to expedite deliveries.
The truth is shipping was never free. At some point, customers were going to lose the upper hand. Gone are the days when brands and retailers of all sizes were scrambling to keep up with the impossibly ambitious free two-day and then one-day shipping standards set by the Amazon Prime program, the e-commerce business’ premium subscription program.
Shoppers had all the power to influence brands to bend to their need for convenience and affordability – no matter how costly it was to business. It introduced a new crop of venture capital-backed e-commerce shipping companies that promised to speed up delivery times through sophisticated programs that find the fastest and cheapest routes.
New investor-backed last-mile companies, firms that travel that final distance between a distribution centre or store to your home, competed for business to deliver online orders.
For retailers, it was a costly service that was more of a marketing ploy than a long-term business strategy. Now, as online shopping has proved it is here to stay, there is not much to lose by making shoppers cover the cost of fast shipping.
Shipping prices matter more than speed
It turns out we don’t care too much about getting our online orders within one or two days anyway. Shipping costs are 2.85 times more important than speed to online shoppers, Claire Tassin, retail and e-commerce analyst at Morning Consult, tells me.
About a quarter of shoppers abandon their purchases when they see shipping prices, a survey by the e-commerce platform BigCommerce shows. If there is a shipping fee, shoppers might consider paying if they’re offered incentives such as rewards points, or if the charge helps reduce the business’ environmental impact, Tassin says.
Besides, the invention of kerb-side pick-up is a game changer for the most frugal of shoppers. Many US retailers, including Target, Walmart and Home Depot, offer free kerb-side and in-store pick-up for online orders as another way for shoppers to manage their budgets. It’s also a sales driver for companies. Walmart CFO John David Rainey told investors last month that in-store pick-up led to a 24 per cent increase in US e-commerce sales.
The urgency around overhauling retail businesses to offer free and fast shipping turned out to be an expensive reaction to a momentary trend. Of course, the internet has dramatically changed shopping, and Amazon has increased expectations among consumers. But there is a case for sticking out the variable swings that push the retail industry in one direction or another.
Bloomberg Opinion
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