This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Free Shipping Day: Boom or Gloom for Merchants?




By Todd Obolsky, special to CNBC

NEW YORK ( CNBC) -- Happy Free Shipping Day.

Or was it? For many online shoppers, a free shipping offer is the holy grail of deals. Forget 20% off an item or a coupon for a future discount: Free shipping is what makes people click the "buy" button.

And Friday, the fourth annual Free Shipping Day, may have meant banner sales for the more than 2,200 merchants that signed on.

Internet marketer Luke Knowles hatched the idea for Free Shipping Day after reading several years ago that 90% of consumers buy more when offered free delivery. On Free Shipping Day in 2010, Internet non-travel retail spending hit $942 million, the third-highest one-day total ever.

More from CNBC
Holiday Season to Be a Bumpy Ride for Airlines
Businesses You Can Start for Under $5,000
What They're Googling Now

There's no doubt that free shipping is a significant force in online retail sales. In a recent comScore poll, 42% of respondents said it was "somewhat important" to "actively seek out shipping deals," while more than one-third (36%) said it was "very important" and "would not make a purchase without it." And more shoppers are taking advantage every year: For the week ended December 4, comScore estimated 63.2% of all online retail transactions included free shipping, a full 11 points above the comparable holiday week in 2010. (Even during the rest of the year, levels top 40%.)

This "negative" cost for the consumer can come at a notable price for the small business owner, who often tentatively skates on ultra-thin margins throughout the year in the hopes of tipping annual profit into the black come December. So what are the costs behind the costs -- is there a dark side to free shipping?

Beezer Molten, owner of adventure gear and clothing retailer Half-Moon Outfitters, based in Charleston, S.C., says "Shipping is always going to be a fairly tough part of the business -- it can absolutely crush profitability on Web transactions if done wrong." In order to compete with the likes of national chains such as REI and EMS, free shipping is available throughout the year. He says it's pretty much a "required element" these days, even if plenty of customers do favor speed and check off one of the faster methods at additional cost.

At San Francisco-based Ningyoushi.com, which trades in Japanese designer and collectible toys, owner Omar Valles says bargain hunters who cherry-pick the toys with the largest discounts for their baskets can be a serious downside in Web retail, destroying margins that are already stretched.

However, they're more than matched by the goodwill generated by an offer of free delivery (it kicks in with a minimum purchase of $100), and the interest in perpetuating a local business. "I had one customer who continually bought from me, but, I discovered, never used the free shipping," said Valles, who also operates brick-and-mortar counterpart Double Punch. "So when he visited the store one time I asked him why. He told me that he appreciated the offer but at the same time, he knew how tough the economy had been and that was his way of showing support for my business."

Valles says the rate quote in the shopping cart that spells out shipping options and costs for the buyer is almost as valuable. Overall, though, he doesn't see no-cost shipping as a requirement, but as an extra perk that can generate regular customers.

For Susan Svec, owner of Susan's Soaps & More, an online retailer based in suburban Dallas, a successful sale doesn't necessarily depend upon free shipping. While online customers frequently take advantage of free delivery with a $75 purchase, she says there are other ways to engender customer loyalty. Those who connect with the company via email or Facebook get coupons and notice of special free shipping days. Even so, Svec is acutely aware of the struggle to construct the perfect product-customer service package. "Logistics is definitely one of the biggest headaches for small business."

Business owners have carefully considered the impact of offering free shipping, and crunched the numbers to arrive at the perfect tipping point that equalizes a higher-value checkout basket and gratis delivery. A minimum-buy strategy is common; many others increasingly employ a flat-rate system in which any basket of goods up to a certain value costs the same to send.

Practical eCommerce, a news and advice Web site geared to smaller businesses, polled some of its readers on the subject of free shipping earlier this year. Comments from the survey included sentiments like "Free shipping is never free," and, more pointedly, "Companies that offer 'free shipping' have to add a percentage of shipping into each product they sell, as UPS (UPS) does not work for free. If consumers believe they are truly getting shipping for free, they have been misled." If the unspoken contract of trust between customer and company is broken, however, it can't usually be fixed.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $128.46 0.00%
FB $78.97 0.00%
GOOG $558.40 0.00%
TSLA $203.34 0.00%
YHOO $44.28 0.00%

Markets

DOW 18,132.70 -81.72 -0.45%
S&P 500 2,104.50 -6.24 -0.30%
NASDAQ 4,963.5270 -24.3630 -0.49%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs