Online retailers compete by cutting shipping charges

Let the free shipping wars begin!

On Tuesday, online retailer Amazon.com Inc. announced that it would provide free shipping on orders of more than US$49 as part of a three- to six-month marketing test. The announcement was a change to a "Free Super Saver Shipping" offer the Seattle-based company began in January for most orders of more than $99.

Just a day later, online competitor Buy.com said that it was improving on Amazon.com's offer by providing free shipping on all orders, regardless of value.

Amazon.com spokeswoman Emily Glassman said the company is trying the lower order requirement because of the success of the free shipping offer in January. The company believes it can make up for the shipping fees by increasing the volume of orders, and the results so far have been promising, she said. "We hope that we will be able to make it permanent," she said. "Customers love free shipping."

Glassman discounted Buy.com's free shipping offer, saying that the $49 minimum order set by Amazon.com is just as good because most orders for consumer electronics total more than $49 and would be eligible for free shipping. "It's really a distinction without a difference," she said.

Robert Price, president and chief financial officer at Aliso Viejo, Calif.-based Buy.com, said his company immediately one-upped Amazon.com on its free shipping offer to bring in more buyers. By cutting out shipping costs to consumers, he said, it also helps his online business "level the playing field with the brick-and-mortar [stores]."

Since the free shipping policy went into effect Wednesday, the number of orders at Buy.com is up 30 percent and the dollar value of each order has risen by 20 percent, Price said. "It's a very real factor in the consumer purchase decision process," he said. "By offering free shipping, we take one of the largest dissatisfactions away."

Analysts said the moves will likely increase business for the companies, but they're not sure how long the deals will last for Internet shoppers.

Harry Wolhandler, an analyst at Accelara Research in Harrisville, N.H., said that as long as the businesses are able to absorb the costs without giving up some margin of profit, "then it's a reasonable thing for them to be doing."

In addition to more orders, such offers also give them welcome attention in the eyes of bargain-hunting consumers, he said.

But not all online retailers will take this approach, he said. For upscale retailers such as L.L. Bean Inc. and Lands' End Inc., where top quality and satisfaction guarantees are the factors that bring back buyers, the emphasis isn't on price and shipping costs. "It's not price sensitive in that same regard," so such retailers don't have to compete with free shipping offers because their goods aren't available in multiple channels, he said.

Lisa Melsted, an analyst at The Yankee Group in Boston, said that while the competing free shipping offers will help consumers in the short run, there's no guarantee about how long they'll last. "Long term, I think it remains to be seen," Melsted said. "That's a lot of shipping costs to suck up and pay for on their own."

Both companies have some restrictions on their offers, with accompanying fine print, but in general many items can be shipped for free under the deals.

For Amazon.com, the announcement follows other price-cutting moves since January's free shipping policy on orders over $99 was set. Last July, the company also cut book prices by 30 percent for books over $20, while in April, the company extended the 30 percent discount to books over $15.

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