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Free Shipping, As the Retail World Knows It, Is Far From Being Free

The cost of free shipping can be especially onerous for smaller e-commerce companies, but it's even impacting Amazon and Target, two of the giants often considered responsible for popularizing the trend to begin with.

Temando Resources

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The idea that we can make ‘free shipping’ work is ambitious.

Highlighted in a recently published Fast Company article is the fact that even industry leaders, such as Amazon and Target struggle to contain the escalating losses incurred from their free shipping model.

The irony of this situation is that the cost of shipping actually goes down as you ship more, but to do so, you’ll need to appeal to shoppers by jumping on the free shipping bandwagon.

Free shipping, as the retail world knows it, is far from being free; in fact, it’s a loss leader that remains to be fixed.

Back in the day when free shipping emerged as a tactic to boost the economy during the retail crisis, shareholders bore the brunt and accepted low-margin growth.

However, it’s only human to want something for free over having to pay for it, which makes the free shipping habit something very hard to break.

Bob Schwartz, who is the former Magento president, Nordstrom.com founding general manager, and Temando board member, presented his view on the phenomenon of free shipping in the above mentioned article:

“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 into the same gutter, yet these other retailers are held accountable to be profitable - even if they’re not held to the same metrics that Amazon is held to.”

Bob Schwartz

“Shipping and fulfillment remains the last bastion of optimization”Bob Schwartz, former Magento president, Nordstrom.com founding general manager, and Temando board member

When we asked Bob where he thinks the industry is currently at when it comes to shipping, he said, “Over the years, the retail industry has made great strides in reducing payments and online merchandising friction, but shipping and fulfillment remains the last bastion of optimization."

But it’s not all doom and gloom; Bob continues by highlighting “alternative models” that have emerged as a result, such as click-and-collect or parcel lockers. Already, we are seeing these models emerging across the world.

In the United States, large retailers such as Wal-Mart and Best Buy lead the charge with click-and-collect (or ‘BOPUS’ - buy online pick up in store) over the holiday season, buoyed by 49% of Americans who tried this service for the first time last year.

Swedish retail giant, IKEA has started to trial click-and-collect points in the United Kingdom last year, buoyed by the popularity of this service: “£5.6 billion of online orders were collected last year, a 42% rise from the year earlier.”

In Australia, 24/7 parcel lockers by Australia Post are used for both sending and returning items across 250 local locations. Meanwhile in France, La Poste is continuing its roll out of ‘Collect & Station’ lockers around train stations in the country.

While these alternative shipping options continue to gain ground, retailers are still struggling to manage shopper expectations when it comes to free shipping.

Read: Amazon’s Shipping Costs Surge in Push for Faster Holiday Season Delivery

However, with a little creativity and the right use of technology, retailers can offset their losses and enjoy sustainable growth. Here’s three ideas:

1. Ship from Store
One of the exciting things to emerge from the fulfillment industry recently is the transformation of stores as distribution centers. It makes a lot of sense; an online order can reach a customer faster, and travel shorter, hence lowering the cost of shipping.

This is one of the initiatives that Target’s CEO Brian Cornell is spearheading to unlock the potential of ecommerce in their business: “Ship-from-store capabilities allow us to balance inventory across the network, leverage the capital and labor already in our stores, and reach guests more quickly,”.

2. Give Shipping Options
Although free shipping is a service that many shoppers expect, having options to upgrade to premium shipping options is popular. In Temando's ‘The Delivery Advantage’ ebook, they featured data from a poll of over 4000 shoppers who said that they’re willing to either pay for a premium shipping option: 38% and 34% will pay for after hours and hyperlocal delivery respectively.

Alternatively, spread out the cost of shipping and increase AOV by implementing a spend threshold before shoppers can qualify for free shipping.

3. Use Packaging Logic
To reduce the need for multiple consignments for online orders that contain many items, apply packaging logic to accelerate the fulfillment process. Another upside is that this feature is great for the environment as it optimises the packaging required per order to ensure minimum wastage.

It's already known that ‘free shipping’ is a tactic that may never go away, as shoppers have grown to expect it as part of ‘the Amazon effect’, and it’s a proven way to increase conversions: 38% of shoppers we polled abandoned their carts due to the lack of free shipping, and nine out of 10 consumers say free shipping is their number one incentive to shop online more.

So to ensure that the joke’s not on you, you’ll need to be clever about how you can make free shipping work best for you.

The Halo Effect of Shipping
Great shipping can make a significant, and immediate impact to a retail business, but more importantly, it lays the foundation for long term success. Here's a look into flow-on effects of a successful shipping strategy:

Download the eBook: The Delivery Advantage

Article Topics
Best Practices   Supply Chain   Inventory Management   Retail   Shipping   All topics


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