| | |  Business News 
Wal-Mart Says ‘Try This On’: Free Shipping
 Stephanie Clifford & Claire Cain Miller
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November 12, 2010
| | Chris Jackson sorted packages at a U.P.S. site in Hodgkins, Ill., last December. Big online sellers can ship at discounted rates. (Tim Boyle/Bloomberg News) | |
For years, Wal-Mart has used its clout as the nation’s largest retailer to squeeze competitors with rock-bottom prices in its stores. Now it is trying to throw a holiday knockout punch online.
Starting this week, Wal-Mart Stores plans to offer free shipping on its Web site, with no minimum purchase, on almost 60,000 gift items, including many toys and electronics. The offer will run through Dec. 20, when Wal-Mart said it might consider other free-shipping deals.
“Everyone’s trying to figure out how we can serve a customer that’s trying to save every penny they can,” said Steve Nave, senior vice president and general manager of Walmart.com. “It’s the most competitive offer out there, and we’re pretty excited about it.”
Even before Wal-Mart’s surprise move, shipping prices were this holiday season’s predicament for online retailers. In a bid for cost-conscious consumers, Target and J. C. Penney introduced their most aggressive free-shipping programs ever, and Sears, Toys “R” Us, Williams-Sonoma and others were trying to match the success of Amazon’s shipping program, offering unlimited two-day shipping for an annual fee.
But given Wal-Mart’s scale and influence in the marketplace, its free pass for shipping sets a new high — or low — in e-commerce. And it may create an expectation among consumers — free shipping, no minimum, always — that would make it harder for smaller e-commerce sites to survive.
Wal-Mart says it will not raise prices to offset shipping and will not press shippers, like UPS and FedEx, to absorb the costs. But Wal-Mart and other big retailers already have low-price contracts with shippers, and the stores maintain distribution centers nationwide that reduce shipping distances and costs.
For smaller retailers and Web sites, which pay regular mail rates and may ship from only one location, free shipping is not nearly as affordable and often must be added into prices.
“You’re trying to compete with the Amazons and the Zappos, who have so many different warehouses that they can significantly reduce transport costs,” said Gary Schwake, director of business development at the Distribution Management Group, a consulting firm that advises retailers like Eddie Bauer.
Retailers say that shoppers have already started to revolt against shipping fees. While consumers are sensitive to what an item costs online, shipping costs can have even more influence, according to market research.
When e-commerce took off a decade ago, free shipping was a rare perk. Now, 55 percent of consumers are at least somewhat likely to abandon their purchase if they do not get free shipping, according to comScore, the online-research firm, and about 41 percent of transactions online now include free shipping (usually with a minimum purchase).
Wal-Mart is throwing itself into the holiday season shipping fray as it tries to revive sales. Even as other retailers’ sales have recovered, sales at Wal-Mart’s stores in the United States open more than a year have fallen for five consecutive quarters. Recently, it has been adding to the merchandise it carries, offering products for under $1 and undercutting Target on toy prices.
The Wal-Mart shipping offer has no minimum. Mr. Nave said an important factor was that an item was likely to be given as a gift. “We looked at the areas we felt were going to be popular in gift-giving this holiday, and went from there,” he said.
Even after the holidays, “I would expect to see us continue to have offerings similar to this in the future in some way, shape or form,” he said.
The Wal-Mart announcement was not public until Thursday, but retailers had already been escalating their shipping programs since last year, when mobile comparison-shopping apps helped make free shipping popular.
Amazon.com has one successful model. Year-round, it offers free shipping on orders over $25. And its Amazon Prime program, in which members pay $79 a year for unlimited two-day shipping on almost all purchases, could account for as much as a third of sales, said Jordan Rohan, an analyst with Stifel Nicolaus.
“It is making other retailers scramble,” he said.
To fight off Amazon Prime, a month ago GSI Commerce started ShopRunner, a service that bands together e-commerce sites including eBags and the Web site of Toys “R” Us. Shoppers pay $79 a year for unlimited two-day shipping from any of the members. This fall, Williams-Sonoma started a service like that for $30 a year, and Sears and Kmart, which introduced a similar program three years ago, are pushing it heavily this season.
Beginning in October, J.C. Penney started offering free shipping year-round, with a minimum purchase of $69 for most of the year. Target is offering free shipping on purchases of $50 and up, on 800,000 items. And in August L.L. Bean began offering free shipping with no minimum, through Dec. 20.
Bigger companies have a big advantage in the battle over free shipping: volume.
According to the Distribution Management Group, air shipping prices for big retailers are about 70 percent less than for a small company. Shipping at Amazon costs about 4 percent of sales, and Amazon loses money on it because it offers marketing benefits, said Aaron Kessler, an e-commerce analyst at the research firm ThinkEquity. But shipping at small sites usually costs about 35 percent of sales, said Mr. Schwake, the retail adviser.
Despite the costs, smaller retailers say they have little choice but to offer free shipping, in some form, these days.
“Everyone does it,” said Michael Mente, the co-founder of Revolve Clothing, a Los Angeles-based women’s clothing site. Asked if he received discounts from the shippers, he said, “Unfortunately not.” At the start-up site ModCloth, which sells women’s clothes, the co-founder Susan Gregg Koger said she couldn’t afford free shipping year round, but she decided to do it for the holiday season. It is a risk, she said.
“That’s really hard to offer and then roll back,” she said.
While Wal-Mart may continue with some free shipping offers after the holidays, even other big retailers like L.L. Bean say they just cannot afford it after Christmas is over.
“We’d love to be able to offer free shipping, but free shipping isn’t free,” said Laurie Brooks, an L.L. Bean spokeswoman. “It does cost a company money."
There are potential downsides, even for Wal-Mart. Physical stores with Web sites run a risk in promoting free shipping, Mr. Rohan said. “They’d much rather you buy that same item in the store for $50 and pick up a hundred dollars of other stuff you wouldn’t even think about,” he said.
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