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Free shipping as the Ďmodern-day couponíTuesday, June 09, 2015 > 09:21:29
Retailers are increasingly losing money by shipping products for free, but will use low-cost delivery as a way to promote new products
At each Mountain Equipment Co-op store, there is a quaint-sounding “mini picking-and-packing table” that helps the retailer keep its e-commerce costs in check.
Instead of relying on large distribution centres that promise supply-chain wonders, most online orders at MEC are sent from the nearest existing store.
“It reduces the distances we ship, and this decreases our cost,” says Kevin Baggs, the sales and service manager at MEC in Vancouver.
Retailers in Canada are eager to boost online sales with that ubiquitous “free shipping” offer, but they are also more than ever watching how the cost of this eats into their margins.
Amazon.com recently increased the pressure again with news that, within the U.S., it will ship thousands of new small and popular items — stuff that weighs less than 230 grams and costs less than $10 including makeup and mobile accessories — with no minimum order.
Retail analyst Farla Efros at Hilco Global calls it the “slippery slope of free shipping.”
It once was that retailers made the bulk of their margin dollars from shipping. Goods went by ground and arrived a few days later.
But with the “giving away” of same-day shipping for free, many retailers in the U.S. have been forced to open warehouses or distribution centres closer to customers, which is hurting their balance sheets, said Efros.
Canadian retailers just shake their heads, as the reality of shipping goods in Canada is very different than south of the border.
About two months ago, Walmart Canada axed its free shipping with no minimum order and implemented a $50 requirement. Amazon.ca also dropped free shipping to a list of “remote locations” in Canada, tacking on a $29 flat fee, plus an additional $22 per kilogram.
There is a range of minimum orders for free shipping in the Canadian marketplace. A scan of other Canadian retailers has Hudson’s Bay at $99, London Drugs at $200, and ToysRUs at $49.
MEC once required a $150 order for free shipping, but cut it to $50 two years ago. With Walmart.ca’s recent move, “$50 seems to be the number out there,” said Baggs at MEC.
Many retailers are further tweaking their free shipping calculations for other reasons.
London Drugs has a higher threshold for consumers buying products such as their regular vitamins and toilet paper, but also some quirky deals to spark interest in products it wants to promote.
For example, if you order online from the “vinyl records” department at London Drugs, the minimum order shrinks from $200 to just $25. And there are other special promotions that are periodically rolled out.
The company started selling LPs in 2012 and had about 40 titles. This year, it is hoping to carry about 600 titles, with another 475 titles that are only available online.
“Free shipping has evolved. It was once all or nothing, but we now use (it) to expose customers to a new product. It’s a modern coupon. It’s really to induce trial,” said Clint Mahlman, executive vice-president and chief operating officer at London Drugs.
“And we work with vendors to share the cost of the shipping,” said Mahlman, adding it is well-known that massaging the cost of shipping also depends on existing margins and buying habits for a particular product.