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Free Shipping Is A Lie
Free shipping is a top priority for online shoppers, but many merchants are struggling to keep up with the costs.
By NEAL UNGERLEIDER
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."
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