Ina Steiner EcommerceBytes Blog
News and insight focusing on ecommerce.
by Ina Steiner, Editor of EcommerceBytes.com
Wed Dec 3 2014 11:55:08

Is Free Shipping Behind Retailer Angst over Ecommerce?

By: Ina Steiner

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Retailers are bemoaning the costs of selling online versus in-store, according to the Wall Street Journal. But they may have themselves to blame in great part. The newspaper reported:

While conventional wisdom holds that online sales should be more profitable, because websites don't need the pricey real estate and labor necessary to maintain a store network, many retailers actually earn less or even lose money online after factoring in the cost of shipping, handling and higher rates of returns. For retailers that outsource their Web and fulfillment operations, costs can run as high as 25% of sales, industry analysts said.

In the early days of ecommerce, small sellers dominated, and they understood the folly of offering free shipping. As many an EcommerceBytes reader has pointed out, there is no such thing as free shipping.

Fast forward to today, and while shipping rates have soared, large retailers continue to put pressure on margins by creating the expectation of free shipping. And compounding the problem, retailers are also setting expectations about the speed of shipping.

eBay is one of the most egregious, expecting its sellers to offer free, fast shipping and investing its own resources into a same-day delivery network that it's finally learning is not as lucrative as it once believed.

Savvy retailers use shipping as an incentive - shipping is free if shoppers spend a certain amount, which boosts average order size.

What's your stance on free shipping, and what could large retailers learn from their smaller counterparts?




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This user has validated their user name. by: Ric

Wed Dec 3 13:17:22 2014

Who is running these big retailers anyway?

They, (along with eBay) wanted this whole free shipping thing in order to drive sales volume, and now they are complaining about profit margins?

Who are these CEO's and where did they get their education?   I think most of them need to file SNAD on their degrees because they do not appear to be very intelligent.

They wanted the added volume "free shipping" brought them, now they want to complain about low profit margins - go figure.

If these so called geniuses want to see their profit margins increase, why not give back some of their compensation packages?

Ater all, if they were not bright enough to figure out there is a cost to free shipping, they do not deserve the millions that are bestowed upon them because they can't do simple math.

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by: Orwellwasright This user has validated their user name.

Wed Dec 3 13:30:25 2014


Since ebay is furiously destroying  smaller sellers as fast as possible, so those formally loyal and professional partners will not draw traffic from their beloved mega sellers, the profitability of those saps still hanging on is irrelevant to them....

 Do you think the slavemasters  with the whips who built the pyramids cared how heavy the rocks were? Of course not , with an inexhaustible supply of slaves, when one is whipped to death, another is ready and waiting

And yes, I believe ebays attitude toward us is very close.. They could care less about any seller other then the million item platinums, In fact I believe they actively despise the Hanger ons


Likewise ebay could care less how many non preferred sellers are cheated, robbed, swindled, blackmailed, berated, and finally defected or dsr's off the site (one down, two dozen waiting in the wings)

With far too many sellers, a diminishing buyer base, and eBay's refusal to invest in advertising and infrastructure their model for retaining customers depends wholly on their forcing sellers into increasingly damaging and profit draining policies . IE free shipping

Of course  they are forcing free shipping and posting ridiculous delivery dates on items, why not? it makes them look good at no expense and will rid the site of even more of those pesky longtime hanger on sellers..
 
remember Ebay does not have policies, they have pathologies

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by: RCL This user has validated their user name.

Wed Dec 3 14:21:42 2014

No. Many sellers know how to make the buying experience more enjoyable with the perception of free shipping, and benefit from it. The abuses of sellers charging whatever the heck they felt like made eBay a frustrating place to shop, and eBay has tried to get rid of mail-profiteering. THAT is a plus. I don't think free shipping bothers any successful seller.... it's attractive.

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by: angryllama This user has validated their user name.

Wed Dec 3 14:51:51 2014

I've been shipping since 1970 INCLUDING the 20 years that I owned / operated my own Mfgr/Rep firm.  Free Freight is a SUCKER MOVE. I feel that as languid as my own sales have been this year they are at least MORE PROFITABLE as I do NOT "Give Away The Store" by offering Free Freight. I confess up to Schadenfreude when I am researching previous sales on what I'm all set to list... and see BOZOS who started $10 to $30 items at $.01 with Free Expedited Freight and ... TA-DA drew exactly ONE BID with the result that all they got for their efforts was than ONE, LONELY, PENNY.  I think that Lots of eBay buyers KNOW to FILTER away from this godforsaken Best Match Foolishness and instead click on BUY NOW and use Low price OR Low Price including Freight.  Why? Because when one buys 2 or 3 DVDs with "FREE" freight the Combined Postage is still EXACTLY the Same TOTAL with NO $reduction.  Buy those same 3 DVDs the way I have all my auctions set up and the discounted postage usually saves 35 to 45 percent off the total initially shown. I CRINGE every time I somebody selling an 8 pound item TOO BIG for even the LARGE Flat Rate Priority Box and citing $6.95 freight to ALL USA continental buyers.  8 pounds Priority by zip/weight to Maine or Washington State would easily be $17... a $10 CASH LOSS right off the bat.

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This user has validated their user name. by: Rexford

Wed Dec 3 15:27:20 2014

And postage will continue to go up every year.  Bemoan, bemoan.

It's been said before. Free shipping is a gimmick. There is no such thing.  Someone has to pay for it.  It is easy for a "just a venue" company to push free shipping because they are not paying for it.  But the crooked ones still take a cut of the shipping costs that they don't pay in the first place.

I myself am willing to pay for it as a buyer. Someone is delivering something to me. That is a service.  I am willing to pay for that service.

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by: quirkyantiques This user has validated their user name.

Wed Dec 3 15:34:32 2014

Amazon lost 3.3 BILLION dollars on shipping last year.......
note that word LOST. And this was AFTER charging 2.8 billion for shipping.
Yet they are largely to blame by, like Ebay, attempting to foster the notion that shipping can be "Fast and FREE".
http://www.bloomberg.com/video/amazon-by-the-numbers-the-big
gest-holiday-ever-BbZE~AtqRMqG7wo2zHL8fA.html

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This user has validated their user name. by: Ming the Merciless

Wed Dec 3 15:48:01 2014

"Free" shipping reduces the number of multiple item orders from the same buyer.

The bottom of their B school class individuals who run ebay will continue to browbeat sellers even more about "free" shipping precisely BECAUSE retailers are gradually using incentives for "free" shipping. Ebay sees and will continue to see "free" shipping as more attractive to buyers than other shipping models even if the buyer actually pays more in total price.

Further, they invent programs like the GSP to to generate revenue for themselves by further monetizing shipping and illegally overcharging on customs fees.

Ebay won't be satisfied until they put every last small and medium seller out of business.

If they think they have inexhaustible supply of seller victims, they'd better think again.

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This user has validated their user name. by: eBankrupted

Wed Dec 3 15:59:51 2014

In most ebay electronics categories, it is expected to offer 'free shipping' to appear at the top of search. At least with Amazon, there's a reasonable way to obtain actual shipping without losing exposure. Ebay extorts sellers; plain and simple.

The secondary problem with 'free shipping' might not seem so obvious, but my study has shown that a buyer who pays for shipping calls the shipping company, or at least makes an attempt to track the package before blowing a head gasket and knee jerking an INR on the day ebay promised (er.. estimated) delivery.

When you offer 'free shipping', in the buyers mind, you are also the customer service rep for UPS, USPS, etc. So the stress factor increases to the point of watching every delivery, spoon feeding exceptions by email or phone for required signatures, and lots of volunteer activities that waste the time that would otherwise be spent on selling.

Ebay created the 'free shipping' delusion, and they are thrilled to extort sellers into it (and its related poverty profit margins).

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This user has validated their user name. by: Al G

Wed Dec 3 16:07:51 2014

As Robert Heinlein said in "Stranger in a Strange Land" -TANSTAAFL- there ain't no such thing as a free lunch! Or free shipping.

Maybe now the B&M retailers have enough statistics to start to do a proper P&L analysis.

A few points to ponder:

1. opening a mail order adjunct to an existing B&M business ADDS costs to the operation - staff, advertising, logistics etc. Will competitive pricing & shipping justify the increase in market share. "We lose 1 cent on every transaction (with all costs figured in), but we make it up in volume.

2. Individual sellers have less overhead than B&M shops - no B&M, no redundant management - if those sellers can source their product at the same price as a B&M - it's a no brainer, they can undercut the B&M stores.

3. Remember Sears and Montgomery Ward? They were the original mail-order catalog, but they went belly-up with the expansion into the malls and the 'I want it now culture' letting their mail order business die off. (There was also J.C.Whitney - a big mail-order car parts store, wonder what happened to them). All were Chicago based (logistics). It would be interesting to see if their model would work nowadays with better transportation & inventory management.

4. B&M stores have enormous inertia - it takes years to decades for them to fail, or at least modifiy their business to a more profitable outcome. While this happens, the small sellers are always scurrying around looking for a new angle to compete with them. It is the nature of retail.

5. Even eBay is not exempt from the above point even with their hubris. In reality, what is the percentage of items being offered with free shipping vs a competitive combined price and shipping. It does not make a bit of difference to eBay when it comes to their FVF. A sale is a sale & they get their cut. Perhaps eBay is cutting their own throat by pushing free shipping since their cut may be reduced by the competitive frenzy.

6. The market is innately chaotic in any case and B&M retailers are not really poised to react so quickly on the Ecommerce scale unless they make a really concerted effort.

7. This whole Ecommerce thing is new. Think radio, automobiles, early 20th Century technology. In the beginning, there was a Wild West attitude with many vendors competing. Eventually the industries consolidated into a few major players & at that point the industry matured. I don't think we are even close to the consolidation phase, it is still the Wild West out there.

As the old Chinese proverb states "Trying to outsmart everybody is the greatest folly." (וועללען זעין קליגער שפּאַס אַללעה יז די גרעסטעה נאַרישקעיט).

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by: Ebay Seller-Ebay Buyer This user has validated their user name.

Wed Dec 3 16:16:05 2014

As long as the majority of Americans have wages that haven't come close to keeping up with the tripling of gas the past 12 years and the doubling of most foods and beverages the past 6 years; it really doesn't matter what any seller; large or small does. Products in demand will sell while products not in demand will see businesses going under.

Offering free shipping depends on the product, so there is no one answer here. For some products it's great, for others it's terrible. Incentives to get free shipping if buying a lot does make sense though.

As I see it, most people selling have to work longer hours to make less and many brick and mortars will go under if the internet buries them this Xmas. Commercial real estate might take a hit next year, which could be a big negative economic factor to consider if heavily invested in the stock market(something maybe very few stock analysts have even thought about I'm guessing).

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by: lostinNYC This user has validated their user name.

Wed Dec 3 17:26:50 2014

Why argue against ''free shipping''?

It does help my sales and customers like it because it is free of hidden fees. If bad sellers would not grossly overcharge shipping and handling costs, that would not be an issue, but until that happens, many buyers (me included) like to see upfront what the total cost of an item is. It also does not hurt the bottom line, because it is built into the selling price.

I am actually getting slightly more for shipping  and handling if I offer free shipping on small items, because somehow buyers often do not understand that the lowest price for online shipping on eBay is $1.93 at the moment and not the price of a stamp. If I charge around $2.30 to cover my costs, sometimes I get a low DSR rating for shipping fees, if I built that same shipping cost into my final price, my ratings are better and the customers happier.

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This user has validated their user name. by: Ming the Merciless

Wed Dec 3 20:11:32 2014

Coercing "free" shipping for the purpose of elimnating TRS discounts was, in my opinion, the principal impetus behind creation the DSR system.

Ebay knew that sellers who charged even actual shipping cost would get dinged, and enough dings would cause a loss of of discounts and search placement such as they were.

Ebay has carefully trained and conditioned buyers to expect "free" shipping, "free" merchandise, and instant gratification.

Ebay conditioned buyers are likely the reason WalMart and Best Buy have significantly changed their return policies.

The largest criminal corporate entity in the United States created and trained the largest cadre of criminal buyers in the United States.

And everyone is paying for it except those responsible.

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This user has validated their user name. by: Marie

Wed Dec 3 20:22:13 2014

@lostinNYC
"It does help my sales and customers like it because it is free of hidden fees."  What are you considering "hidden fees"?  I don't spell out for my customers what my fees are in my pricing.  I state a product price and that includes my costs plus a modest profit.

"If bad sellers would not grossly overcharge shipping and handling costs, that would not be an issue, but until that happens, many buyers (me included) like to see upfront what the total cost of an item is."  WHOA!!  Buyers have to take responsibility for what they do and don't do.  If a buyer doesn't choose to look at the shipping being charges and decide for themselves that it is a reasonable amount for the product, why is that then all the seller's fault.  As for the total cost, the buyer just needs to add the product price and the shipping cost together.  If the buyer doesn't like the shipping cost stated by the seller, then move on.  Find it elsewhere for a price you are willing to live with.

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This user has validated their user name. by: Basset

Wed Dec 3 20:44:51 2014

If the large retailers had only asked me I would have told them that shipping was NOT free. Saved everyone a lot of grief ; )


SOME sellers misuse shipping cost. From my experience as a buyer, most do not but I do think some categories are more prone to abuse. If a buyer does not like it they can vote with their feet.  Regardless, shipping policy should be up to the sellers to run their own business, not have policies pushed on them.  

Funny, how it never seemed to be a problem whether a seller offered it or not back ''in the profitable days''  - before eBay seized on shipping (''free'' or separated) as a way to more riches.  



The loose but accepted term ''free shipping'' has indeed led to some naive  buyers believing that shipping is indeed free, per some news stories I've seen.  Hope those folks are tipping their USPS workers well, for all the ''free'' delivering going on.

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by: Moonwishes This user has validated their user name.
Web Site

Thu Dec 4 00:40:15 2014

Back a few years ago, it wouldn't have been so hard to contemplate 'free' shipping because of the current postage prices. Then the PO came along and doubled the international shipping prices with huge increases every ounce or two. I used to have, while not free shipping, greatly discounted shipping that after a buyer had bought a certain amount of goods, there would be NO additional increases in S&H no matter how many items were bought with that order. I could do that because I figured out just how much it would cost to sell each item individually. Even with no fees on ecrater, we still had PP fees, and those first few initial ounces for postage. I actually still made money no matter how many items I shipped. My biggest order ever was 27 items. I charged $6.00 for the S&H (which was my top rate at the time) and I made so much more than if I had sold each item individually (even international sales). Think of just that initial 30 cents per sale at PP, and then the initial $1+ per item at the PO. A lot of math for this time of the night, but the point is, even if I hadn't charged anything for postage, I would have come out ahead.

However, to give 'free' shipping on everything, even Amazon doesn't do that unless your order goes over $35 now, you have to do the real math to figure out whether free shipping helps a seller or not. If it doesn't then don't. If somehow it does, then do it. I just don't think enough sellers actually work out the math to see where it lands them.

One of my very last ebay purchases several years ago was an item that was around $2 and shipping via PRIORITY was charged at $3.20. At that point even with e/postage, Priority was still over $5 so she actually paid me to take something of her's as she made no money at all on the deal when you include both the postage and all the fees attached to the sale.

The only way to know if free shipping is right for your business is pull out your calculator and spend some time with it.

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by: val2525 This user has validated their user name.

Thu Dec 4 02:08:36 2014

Most of the retailers I regularly shop with only offer free shipping with a minimum purchase. Maybe 2-3 times a year they'll offer FS for any purchase amount, but it's always around Christmas. One retailer I frequent has free shipping if it's shipped to the store. They've figured out women picking up their items at the store will also browse the store to see what's new.

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by: Tiffee Jasso This user has validated their user name.

Thu Dec 4 03:28:29 2014

The idea was to cut out the smaller sellers as they were considered noisy competition. What they didn't realize these same small sellers were spending a good share of their dollars at the very stores and venues that decided to step on them and squash them flat!  Personally, I hope they keep losing 25% or more and that costs keep going up and up. I can think of no one that deserves to fail more than these new CEOs that slept through Business 101.

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by: Red Ink Diary This user has validated their user name.

Thu Dec 4 07:18:36 2014

@Tiffee Jasso
Excellent point, well stated. I was thinking along similar lines yesterday when I noticed that in 2014 to date I have made 266 individual purchases on Amazon. There have also been multiple transactions through other venues. The majority of those transactions were from 3rd party sellers. Ten years ago it would have all been via eBay.

ON Topic:
When I first started selling 15 years ago I was advised to charge all fixed shipping as though the buyer was Zone 5. The theory was that it would average out long term with half of all sales being Zone 5 or closer and the other half being in Zones 6 through 8. A year end analysis proved this to be generally true and a better business model than pricing shipping in tiers according the amount spent. In my case, living in Hawaii, everybody was Zone 8 which made the point moot.

I believe the answer to Ina's question is yes. B&M retailers had (and mostly continue to have) no clue about the actual costs of eCommerce. Unfortunately that is true of many micro sellers too.

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This user has validated their user name. by: Rexford

Thu Dec 4 08:35:07 2014

Marie says " If a buyer doesn't choose to look at the shipping being charges and decide for themselves that it is a reasonable amount for the product, why is that then all the seller's fault."

Amen.  I never understood, how when the shipping cost is clearly posted, how anyone could complain about shipping.  You don't like it?  Use the back button on your keyboard and don't purchase.

I guess these are the same people who pull up to the most expensive gas pumps in town and wonder why their fill-up is $90.00.

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by: rhawk This user has validated their user name.

Thu Dec 4 09:01:11 2014

HA  HA  HA   HAHA.....   NO S%*T Dunb#@$$3$.  Who are these ignorant people running ebay, and these large retailers?  All this crap ebay  and the large retailers are trying/doing is not sustainable in the real world. Stupid F@#ks.

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