Many retailers hold firm on free shipping minimums
December 18, 2015 04:03 PM
For retailers like Macy’s and Wal-Mart, free shipping offers can vary in frequency and duration as the holiday shopping season plays out, but don’t change much. Many other retailers set a minimum order requirement for getting free shipping and stock to it, holding the line on shipping promotions that cut into profits.
Macy’s Inc., No. 7 in the Internet Retailer 2015 Top 500 Guide, sent an e-mail to shoppers promoting free shipping on all online orders over $25 plus an additional 20% off all orders on Black Friday (the day after Thanksgiving). The retailer was still promoting that free shipping threshold today on its home page, but notes the deal ends tomorrow. Macy’s normally requires a $99 order to get free shipping.
Wal-Mart Stores Inc. is offering free shipping today without a minimum, but the retailer announced an online order minimum of $50 in October, which it maintained from mid-November to mid-December, according to a study of Top 1000 retailers by Internet Retailer.
Of 309 merchants in the Top 1000 that featured free shipping thresholds prominently on their homepages during that period, 87% maintained the order minimums. Only 3% increased the thresholds, while nearly 10% decreased them. Order minimums ranged from $1—which The Coleman Co. (No. 785) slashed in mid-December from the $49 rate in place 30 days before that—up to $2,000, by Cabinets.com (No. 954). The average order limit for the companies measured was $82.72 in November and $79.12 in December, the median for each month was $50.
Retailers use, and manipulate, free shipping offers because they tend to hit home with shoppers, says Nikki Baird, managing partner with RSR Research. “Most retailers look at shipping offers as promotions, and consumers respond to these types of promotions at least as strongly if not more so than regular ones, such as 25% off an item” she says. “It’s not really rational on consumers’ parts, but there are some kinds of promotions consumers are just not rational about. Free shipping is one and saving on gas is another. Consumers will do crazy-stupid things to save 10 cents per gallon on gas—like spend $300 or more at a grocery store—when the net savings to their pocket over a fill-up is like $1.80.”
Manipulating free shipping thresholds can pay off for retailers that keep close tabs on sales. “If a retailer is smart about where they set their minimums, they can definitely influence consumer behavior, and benefit from the same kind of irrational reaction,” she says. “If the average basket size is $50 and you set the minimum for free shipping at $75, you can definitely get consumers to go there. If a retailer is seeing average holiday purchases at $25 per order, and they normally offer a $50 minimum for free shipping, it might be worth the retailer’s while to set the minimum at $30 as a holiday promotion—so that those $25 people make the move up to $30.”
Consumers have been conditioned to expect some level of free shipping, thanks to Amazon’s Prime program which is variously estimated to be available to between 40 and 50 million households in the U.S. That’s why SignatureHardware.com (No. 253) has a standard free shipping minimum of $50, says Mark Morse, vice president of marketing. “It’s a consumer expectation these days,” Morse says. “Who wants to pay shipping, honestly? Amazon set the bar. I can see when you have a low-dollar purchasing point where the consumer can be expected to pay shipping, but with Amazon Prime, they expect it for free and can get the product in the next day or two.” SignatureHardware.com sells bath, kitchen and home products and its busy season begins in early January, when consumers start thinking about home renovation projects, Morse says.
Gap Inc. (No. 18) is another retailer that maintains a free shipping threshold, at $50, year-round and has done so since 2010, a spokeswoman says. The minimum can be met by total purchases across its e-commerce sites, such as those of Gap-owned brands Old Navy, Banana Republic, and Athleta, as well as at Gap.com. Instead of cutting free shipping limits, Gap offers other promotions during the holidays, such as 40% off total purchases today on Gap.com.
Target Corp. chose to go all-in and announced free shipping on all web orders from Nov. 1 through Christmas Day. This is the second straight holiday season that Target has offered free shipping on all online orders, though last year the promotion was offered only through Dec. 20. This is also the second time in recent months that Target has offered free shipping on all online orders to entice shoppers, the first being tied to back-to-school shoppers.
Target’s 2014 holiday season free shipping offer provided plenty of incentive to trot it out again. “The offer created a surge in traffic and conversion on both our conventional site and mobile, which as expected, was partially offset by a moderate decline in average transaction size,” former chief merchandising officer Kathee Tesija told analysts on Target’s Q4 earnings call in February 2015, according to a transcript from Seeking Alpha
Target is No. 16 in the Top 500; Wal-Mart is No. 3.