As we’re all aware, there is no such thing as a free lunch, especially in the retail world. The cost of free shipping can be high for smaller e-commerce companies, but it’s even starting to impact Amazon and the big box giants, who were mostly responsible for commercializing this trend in the first place.
I recently read a published Fast Company article explaining how ambitious the concept of free shipping is and how retail giants, such as Amazon and Target struggle over escalating losses incurred from this free shipping model. In the retail world free shipping is far from being free, it’s a loss leader for those companies that say they can do it and I believe it will soon be adjusted.
Bob Schwartz, former President of Magento (online order management software), and Nordstrom.com founding GM, presented his view on the phenomenon of free shipping as follows:
“Amazon to me is the anchor that forces the industry to free shipping because Amazon isn’t held accountable to be profitable, this pulls all the other retailers down the same gutter, yet all other retailers are held accountable to be profitable – without being held to the same metrics that Amazon is held to.”
The fact of the matter is, shipping rates actually can be leveraged down as you ship higher volume within the preferred small parcel dim and weight characteristics. However, this still doesn’t cover all the losses, and retailers are forced to accept lower margins when offering such service. The only way to recoup is to increase the retail price in order to make it up, or award it only when a min average order volume (AOV) is met.
It’s difficult to overcome because as shoppers we have become programed to look for this free benefit when shipping online. It’s a tactic, thanks to Amazon, and one that may never go away. In an article 24/7 Express Logistics posted, 38% of shoppers polled abandoned their carts when free shipping was not offered. It went on to say that 9 out of 10 consumers indicated that free shipping was their number one incentive to shop online.
According to Bob it’s not all doom and gloom; he talks about the emerging alternative models such as click-and-collect (buy on line and pick up in store), dim reduction (consolidation reducing size and or packages), and implementing min AOV.
- Here are a few alternatives to lower shipping cost:Although free shipping is a service that many shoppers expect, having options to upgrade to premium shipping is popular. Statistics have shown a large number of shoppers will go for this upgrade in which a premium is paid.
- Increase AOV by implementing a spend threshold before shoppers can qualify for free shipping.
- Consolidate online orders that contain many items, apply packaging logic to reduce wasted carton space, reducing potential dim fee, thus accelerating the fulfillment process. Another upside is that this feature is great for the environment, as it optimizes the packaging dimension required per order to ensure minimum wastage.
Talk to us at AMS Fulfillment about alternatives and more stable shipping methods. We can offer many options to fit your shipping requirements and budget.
For more information please contact John Bevacqua by phone or email at the following: Office 661-775-0611 or [email protected].
About the Freight Freak:
John Bevacqua is the VP of Logistics at AMS Fulfillment. His area of excellence is in creating distribution and fulfillment operations that function as a capable interface between suppliers, retailers, and wholesale distributors. His experience includes developing and leading FedEx/ Kinko’s Distribution Services into the FedEx post acquisition, USA Wireless Technologies, and a top Logistics Management company. He has also worked with third party fulfillment companies, preparing him for his current position with AMS Fulfillment.