Advertisement
  1. Business

Amazon just upped the ante in the race for free holiday shipping

Packages move along a conveyor belt at the Amazon.com Inc. fulfillment center in Robbinsville, New Jersey on June 7. [Bloomberg photo by Bess Adler]
Published Nov. 5, 2018

The battle for the hottest prices this holiday season is spilling into a new arena: the fight over free shipping.

As Walmart, Target and Amazon launch a price war for merchandise in the weeks before Thanksgiving, they are now wooing customers with the promise of fast, efficient, no-cost shipping. On Monday, Amazon upped the ante by expanding free shipping to all customers through the holidays, with no minimum purchase required. The retail and tech giant is also offering Prime Members free same-day delivery on more than three million items. Prime members, who pay $119 a year for the service, already receive free two-day shipping with no minimum purchase necessary.

It's a move, analysts say, that Amazon hopes will edge out its brick-and-mortar competitors and maybe even lock in new Prime subscribers going into 2019.

But with grand promises come high risks: fall short on getting customers their presents in time, and those shoppers go elsewhere.

(Amazon's founder, Jeff Bezos, owns The Washington Post.)

"This is going to boil down to: 'How do I want to shop? Who's the cheapest in price. And who do I trust the most?'" said Mark Cohen, director of retail studies at Columbia Business School.

To be sure, Target and Walmart are playing ball. Last month, Target announced that from Nov. 1 to Dec. 22, it will offer free two-day shipping with no minimum purchase or membership required. In March, Target said shoppers who spent at least $35 or used a company credit card could get free two-day shipping. In previous holiday seasons, Target offered free standard shipping.

Walmart will continue to offer free two-day shipping in the United States on purchases of $35 or more. It is also expanding its free two-day shipping to third-party marketplace sellers.

"Amazon took out a potential challenge to its supremacy," Cohen said. "'Free' is a very addictive drug."

Cohen said Amazon has "a chokehold on competitors" largely because of the revenue generated through Prime memberships, which Bezos most recently put at more than 100 million worldwide in his annual shareholder letter. But dominating e-commerce is particularly crucial for the tech giant.

Charlie O'Shea, lead retail analyst for Moody's, noted that Amazon isn't selling the majority of its products in physical stores, as is the case with Walmart and Target. O'Shea estimated that brick-and-mortar stores with comparatively strong online presences, like Best Buy, don't even incur 20 percent of revenue through e-commerce.

While free shipping is one of the easiest promotions a retailer can offer, O'Shea said it comes at a steep price. Amazon's shipping costs for fiscal year 2017 totaled nearly $22 billion, O'Shea said, with about $7.4 billion in the fourth quarter. The retailer posted just more than $3 billion in profit in 2017.

Still, the promise of free shipping doesn't guarantee shoppers will get their goods on time. Retailers of all sizes often grapple with a surge of holiday orders carried by FedEx, UPS, the Postal Service and other third-party shippers that must contend with a huge spike in demand.

Paula Rosenblum, co-founder and managing partner of retail systems research, said Amazon's pledge will be tested through its third-party Prime operators that sell and ship their products through Amazon's website. While those third-party shippers generate profit for Amazon, they "could be a thorn in [Amazon's] side" if they leave customers hanging, Rosenblum said.

An Amazon spokesperson said the offer applies to all items eligible for free shipping, including items from millions of third-party sellers.

As Target and Walmart signal to Amazon that they "are not going to roll over," Rosenblum said Amazon's move is just the latest in the "race to the bottom."

"As far as I can tell, price parity has been achieved," Rosenblum said. "Once you can achieve shipping cost parity, then it becomes very interesting."

O'Shea put it another way.

"I call it a limbo contest," he said. "How low can you go?"

ALSO IN THIS SECTION

  1. Pat and Harvey Partridge visit Waiheke Island in New Zealand in April. Courtesy of David Partridge
    The husband-and-wife team founded St. Petersburg’s Partridge Animal Hospital were known for their compassion and kindness to all creatures great and small.
  2. The lobby bar at the Current Hotel on Rocky Point in Tampa serves eclectic cocktails and locally brewed coffee. SARA DINATALE  |  Tampa Bay Times
    Take a look inside Tampa Bay’s newest boutique hotel.
  3. The Florida Supreme Court building in Tallahassee. SCOTT KEELER  |  Times
    The Tampa Bay Partnership, Greater Tampa Chamber of Commerce and Tampa-Hillsborough Economic Development Corp. filed a brief in the Florida Supreme Court.
  4. Tech Data's headquarters in Largo. TD AGENCY  |  Courtesy of Tech Data
    Largo’s Tech Data would be the fourth in as many years, though the potential sale seems far from a done deal.
  5. Former WTSP-Ch. 10 news anchor Reginald Roundtree, shown here with his wife Tree, filed a lawsuit Friday against his former employer alleging he was fired because of age discrimination and retaliation. [Times file] WTSP  |  FACEBOOK
    The suit comes after a federal agency took no action on age discrimination complaints he had filed.
  6. Guests of the Flying Bridge at the Tradewinds Resort, which is now under new ownership. [DOUGLAS R. CLIFFORD  |  Times]
    The new owner says he plans to keep its management and 1,100 employees.
  7. The University of South Florida has earned national accolades for its push to raise graduation rates. Student loan debt in Florida is so crushing that it makes it hard to afford a house.
    Staggering debt loads make it hard to buy a home.
  8. The “nakation” — aka clothing-optional tourism — is becoming one of the fastest-growing segments of the travel industry. Shirking that outer layer at nude beaches and resorts and even on clothing-optional cruises has become the vacation choice du jour for hundreds of thousands of free-spirited Americans. AP Photo/Caleb Jones
    It’s certainly bringing in big bucks in Florida, where the state’s tourism department reports that nude recreation made a $7.4 billion economic impact in the Sunshine State last year.
  9. Bay area gas prices increased by double digits since last week, according to AAA, The Auto Club Group. Pictured is a man in St. Petersburg filling up in 2017. [DIRK SHADD   |   Times (2017)] SHADD, DIRK  |  Tampa Bay Times
    Oil refineries’ seasonal maintenance, as well as wholesale gas prices, pushed prices higher.
  10. Former Morgan Stanley investment broker Ami Forte has been permanently barred from working in the broker-dealer industry as a result of thousands of improper trades that were made in the accounts of Home Shopping Network co-founder Roy Speer during the last months of his life. (AP photo | 2016) TAMARA LUSH  |  Associated Press
    Financial regulators barred brokers Ami Forte and Charles Lawrence as a result of more than 2,800 trades on Roy Speer’s accounts in 2011 and 2011.
Advertisement
Advertisement
Advertisement