Amazon upped its game this holiday season: they’re offering free shipping to all U.S. customers, with no minimum order purchase amount. Plus, they’re expanding same-day delivery to more Prime items, and offering one-hour Whole Foods delivery to Prime members in 60 cities.
“This holiday, customers can enjoy free shipping with no minimum purchase amount on orders that will arrive in time for Christmas including items from Amazon’s expertly curated Gift Guides across electronics, fashion, home and toys,” said Doug Herrington, Amazon’s senior vice president of North American retail in the company’s announcement.
Free shipping is nothing new for Amazon. Prime customers –100 million of them worldwide–get free shipping on most if not all of their purchases. Amazon offers free shipping on some orders over $25.
But this announcement shows that Amazon is serious about competing for the holiday retail market–and not just with Target and Walmart, but with UPS and FedEx as well.
Amazon Offering Free Holiday Shipping
On Nov. 5, Amazon announced that it would offer free shipping to all customers on all items for the duration of the holiday season.
There’s one key drawback to Amazon’s service: free shipping will take five to eight days, much slower than the two-day shipping that is well on its way to becoming industry standard. But Amazon Prime customers will still get the two-day shipping they’re used to. Plus, Amazon is expanding same-day delivery to about 3 million items for Prime customers, again with no minimum purchase.
Consumer research firm Mintel has found that nearly one in two people who buy online during the holidays expect free shipping. It’s easy enough for companies to offer because customers know exactly what it means. But it’s also very expensive.
Moody’s analyst, Charlie O’Shea told The Washington Post that Amazon spent nearly $22 billion on shipping in 2017. About $7.4 billion of that spending came during the fourth quarter. For comparison, Amazon’s profits for the year were just $3 million–meaning Amazon spent more than seven times more on shipping than it made in profits.
Target is offering free holiday shipping, too, and many smaller retailers do the same. But they turn to UPS, FedEx and the U.S. Postal Service (and pay notoriously high holiday fees at UPS and FedEx) to deliver them.
That’s not what Amazon is doing. Instead, the company is adding a fleet of full-time seasonal drivers to its Amazon Flex service. These third-party contractors are fairly cheap for Amazon, earning $18 to $25 per hour according to the Washington Post. But that’s a gamble, too because it’s harder to ensure quality service when employees aren’t your own.
Amazon already dominates e-commerce, and tens of millions of Americans already pay the company $119 per year for Prime memberships. It doesn’t really need to attract new customers. But as Amazon lures purchasers with the promise of free shipping, it may be able to convert many of them to Prime customers as they seek to expedite shipping from eight days to two.
Target Offering Free Holiday Shipping Too
Target is also offering free holiday shipping to all customers and promising to do it in two days with no minimum purchase.
That’s an enhancement of Target’s existing free two-day shipping offer, which was available to shoppers who spent more than $35 or used a Target credit card. It’s also an improvement over last year, when the retailer offered free standard shipping on holiday purchases.
Further, Target is trying to leverage its brick-and-mortar stores as an advantage. The company is expanding its drive-up service to 1,000 stores across the U.S. That means customers can shop through the Target app, drive to their nearest store and have an employee meet them at the curb with a cart full of their purchases.
Amazon dominates e-commerce in almost every respect, but they still haven’t mastered one-hour delivery for most items. Advantage: Target.
Walmart, the U.S.’s other dominant brick-and-mortar retailer, isn’t offering any new shipping details for holiday shopping. Instead, the company is maintaining its existing policy of free shipping on purchases over $35.
What Can Shippers Do?
Smaller retailers–and compared to Amazon, Target and Walmart, almost every American company is a “smaller retailer”–can’t offer sweeping deals like these unfortunately. They don’t have the resources to eat the cost of free holiday shipping like Amazon does. Nor do most have hundreds of locations that they can harness to offer curbside pick-up.
But small retailers do have some advantages. They can often cultivate greater customer loyalty and more customization. And if their third-party shipping carrier disappoints their customers, they can switch to another provider.
This holiday season, try to worry less about Amazon and Target and more about keeping your customers happy.
Yes, the industry is moving toward cheaper, faster shipping; yes, that means carriers are going to charge shippers more. Instead focus on how you can negotiate a better contract or hold your carrier accountable for their performance. Then, pass those savings on to your customers. They’ll thank you for it.
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