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There Is No Such Thing As Free Shipping
[Image: 3061686-poster-p-1-why-free-shipping-is-a-lie.jpg]

When shopping online, you tend to run into the lie pretty quickly.

Spend a certain amount—perhaps $15 or $20—and your shipment is free. Take advantage of competitive holiday promotions that promise free shipping on any item, no minimum required. Or subscribe to a service like Amazon Prime, which, for $99 a year in the United States, offers members free shipping on millions of eligible items.
But the truth is that, like virtually everything else, "free" shipping is not actually free.

The implications of the lie aren't often felt by us consumers, who have come to expect free shipping. The biggest impact is felt by e-commerce businesses, particularly smaller ones, which face what some have called an emerging crisis: The cost of free shipping, in many cases, is unsustainable.
For many online shops, the cost of a free shipment is either folded into the prices for items or funded by investors. Jerry Storch, CEO of Hudson’s Bay Company, a brick-and-mortar giant that includes Canada’s The Bay department store, Lord & Taylor, and Saks Fifth Avenue, says it’s much more expensive for retailers like them to deliver products to a customer's front door than to have them shop in the store. For the retailers that can pay for it, he says, free shipping is becoming a loss leader.
"The economics are clear," Storch explained at the Shoptalk e-commerce conference in Las Vegas this spring. "Direct-to-home has a supply chain cost three times higher than a store-based model. So when we say the internet retailer can charge less, how can that be? Maybe this is why so many of us have so much trouble emulating Amazon's model and making any money. It's because it's really expensive and it's also why Amazon's had trouble making money on merchandising sales. It’s a very expensive model and it’s not less expensive than the store-based model."
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. Typically, Amazon recovers only about 55% of the amount it spends on shipping, a number that has drawn new scrutiny after the company’s third-quarter earnings significantly missed expectations. As it expands its Prime service and other recent offerings, Amazon's net shipping costs—the difference between what it pays for shipping and the amount customers pay in shipping fees and Prime memberships—reached nearly $1.75 billion in the third quarter, its highest quarterly total ever outside of the peak holiday season, according to data compiled by GeekWire from the company's earnings reports.
In the face of rising shipping costs, Amazon is building up its own shipping operation and seems to be quietly pushing Prime customers toward buying from add-on pay-for-shipping services such as Prime Pantry. In February, Amazon raised the minimum for free shipping in the United States to $49, up from $35, a change it repeated in Canada last month. Earlier this year, Target alerted store credit card customers they now have to pay a handling fee for special items.
Your average customer, of course, doesn’t care about supply chains when they’re buying new shower curtains or Bluetooth speakers. Even if the cost of shipping is folded into the prices of items or memberships, customers generally prefer their purchases without any extra fees. According to a 2016 survey from public relations firm Walker Sands, free shipping was the top factor that would make customers buy from e-commerce sites more frequently: 88% of respondents said free shipping was more persuasive than easy returns or same-day shipping.
This is why a wide variety of online retailers offer a "Free Shipping Day" annually on December 16, in an effort to boost holiday sales, and why Best Buy and Target have announced that they would offer free shipping for many online purchases at least until Christmas.
Still, someone has to pay the cost of shipping. If customers or investors aren’t footing the bill, e-commerce companies could easily lose money on every free shipment. That’s sustainable if a new round of financing is coming; otherwise it can plunge a retailer or e-commerce company, especially a smaller one, into financial oblivion.


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