Amazon, other retailers revamp 'free' shipping as costs soar
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Amazon, other retailers revamp 'free' shipping as costs soar
By Lisa Baertlein
LOS ANGELES (Reuters) - There is no such thing as free shipping.
Even so, Amazon.com Inc and other online retailers who use so-called free delivery to cultivate customer loyalty are scrambling to keep it from draining profits as costs climb and e-commerce contracts.
They are adding fees for faster service, raising minimum purchase requirements and making other changes that shift more costs to consumers who are struggling with financial issues of their own.
"The days of free delivery are numbered," Ken Morris, managing partner at Cambridge Retail Advisors, said of the fast-changing retail marketing tool.
Retailers are beginning to look more like some airlines, which charge for better seating, transporting luggage and also restrict use of frequent flyer points, Morris said.
It is an open secret that most retailers raise product prices to subsidize free shipping. Still, product inflation and soaring shipping costs are making the service unsustainable as the prospect of recession threatens to wallop already-flagging online spending.
Amazon marketed free shipping as a differentiator and used pricey Prime subscriptions and fat profits from other businesses to underwrite its package delivery costs - forcing other retailers to follow, even if they lacked Amazon's advantages.
With retail margins shrinking and shipping rates for United Parcel Service Inc, FedEx Corp and the U.S. Postal Service hitting record levels, the industry where nearly three-quarters of e-commerce companies offer some sort of free shipping is rethinking the financial cost of habituating shoppers to free shipping.
Retailers' top priority is lowering shipping costs, with speed a close second, said Lee Spratt, CEO of DHL eCommerce Solutions America, which provides logistics services.
Retailers from Amazon to dog treat seller Einstein Pets and ubiquitous apparel chains like Zara, Abercrombie & Fitch and Foot Locker are drawing the line at losing money on a service consumers have come to expect.
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