Small businesses forced to offer free shipping

Amazon first offered free shipping in 2002 for a minimum spend, sending shockwaves through the online retailing industry. Today, free shipping is becoming the norm.

But absorbing the costs can be financially painful for small online merchants, who are being forced to offer free shipping to keep up with the major retailers now often offer it as a matter of course.

According to Forrester Research released late last year, free shipping trumps fast shipping for web shoppers. Consumers cite low prices and low delivery costs as the top two reasons for revisiting an online store.

Extending free shipping works for Melbourne retailer Mark Boldiston, who absorbs shipping costs into his business.

The owner of Flinders Lane contemporary jewellery retail store for men, Lord Coconut, says making online purchasing as pain-free as possible is paramount to drive online sales. He uses $10 Australia Post satchels because they’re trackable.

“My view is that if someone is purchasing online, it needs to be as convenient as possible. I have to wear the costs, and that’s the way it has to be these days. Consumers expect it. And I’ve always viewed an online sale as a bonus.”

Christine Foate has also been offering free shipping since launching her baby bedding e-store, Oopsie, six years ago.

A lot of retailers inflate the price of items to make up the costs associated with offering free shipping, she says.

“People understand that shipping isn’t truly free these days. The market has been educated to the fact that someone is bearing the brunt, and that they’re probably actually paying for shipping, which is often being built into the cost of the goods,” Foate says.

However, Oopsie doesn’t inflate the price of goods and also often sells below RRP as well, she says.

“We truly absorb the cost of shipping. However, offering free shipping does put restrictions on what kind of products can be stocked. Low margins products can’t be stocked if you’re to offer true free shipping and not build the cost into the price.”

Free shipping is cheaper for etailers with big sales volumes, because they’re able to secure far better postal contracts, Foate says.

“Therefore, offering free shipping actually costs them a lot less to offer. The margins are really being squeezed for the smaller players.”

Australian online-only bicycle parts, accessories and clothing store My Cycling World has trialled various free shipping offers over the past couple of years. Managing director Rhys Smith says that implementing is an evolving and important part of the business. Shipping is free for orders over $84.95 at the moment, he says.

“I’m not sure there’s an ideal way to offer free shipping in a cost effective way, but it’s what consumers want so you’ve got to keep experimenting. Implementing free shipping is a business cost just like electricity and rent, and you wouldn’t expect shoppers to pay for that, but you’ve got to do it in a cost effective way,” Smith says.

National Online Retail Association executive chairman and chief executive Paul Greenberg says that free shipping is a very powerful lever for customer engagement online. The key is for online retailers to find a way to make the shipping part of the sale appealing to consumers. Offering free shipping over a certain threshold is a popular approach, he says.

“I think that shoppers recognise that somewhere along the line, someone has to pay for free shipping, and that it’s more likely to be them (the customer), than the retailer. My advice is for online retailers to do the numbers and be sure that offering free shipping is actually a sustainable strategy for their business.”

Greenberg says there’s also been a trend toward implementing click and collect points at the bricks and mortar store for consumers that want to shop online to avoid the shopping crowds, and also avoid paying shipping costs.

Meanwhile, Forrester’s report recommends that retailers emphasise their shipping offers throughout the online purchase process, not just on the home page given the importance that shipping costs play in the decision to purchase online.