Online retailing is big business these days, with the top 500 Internet retailers growing by an average of 18% in 2011. E-commerce currently makes up about 8% of all retail sales, and that number is growing.
As retailers see their online storefronts grow from profitable little offshoots to major revenue generators, many are realizing the value of free shipping. A survey of merchants by E-tailing.com shows that free shipping is among the top promotional tactics to meet customer expectations 69% of the time, and that's up from just 55% a year ago.
Plenty of retailers that offer free shipping today actually weren't doing so just a year or two ago. L.L. Bean added free shipping just this year, for example, with its CEO and President Chris McCormick noting, "We tested free shipping offers with no minimum purchase for several months and the customer response was overwhelming." Gap
) introduced free shipping on all orders of $50 or more late last year as part of its plan to double its online revenue by 2014.
Consider these seven free-shipping strategies compiled by the folks at FreeShipping.org
- Totally free shipping: This is offered by L.L. Bean, Sears (SHLD), Nine West, Linens 'n' Things, and Sunglass Hut, among many others.
- Free shipping with membership: Offered by Amazon.com (AMZN), Barnes & Noble (BKS), Jones New York, and Overstock.com (OSTK).
- Minimum order shipping: Amazon.com may be the most familiar example of this, offering free shipping on most orders of $25 or more, while Macy's (M) sets the bar at $99 and Target (TGT) at $50.
- Select item shipping: Some stores will offer free shipping only on some items (perhaps excluding anvils and large safes).
- Site to store shipping: The websites of Wal-Mart (WMT), Cabela's (CAB), Nordstrom (JWN), and Best Buy (BBY) are among those who will ship items for free to a local store for you to pick up.
- Free return shipping: You'll find this from retailers such as Zappos, Sephora, Gamefly, and Netflix (NFLX).
- Flat rate shipping: Though this option is not free like the ones above, it can be a money saver: Once you know you're paying a set flat rate, anything you add to your cart won't add to your shipping expense.
This wide availability of free shipping is important not only for shoppers but also for investors.
Why Investors Should Rejoice in Free Shipping
According to a recent study, fully 43% of online shoppers abandon their orders once they see the shipping costs. Another study, by research firm comScore, found that 55% of online shoppers are likely to abandon their carts when shipping isn't free. Those kinds of numbers represent a lot of potential revenue for retailers and a lot of potential value for their shareholders.
Consider that Amazon.com generated revenue of about $34 billion in 2010. If that represented only 60% of the items placed in shopping carts, then the company would have left more than $20 billion on the table.
How Long Will Free Shipping Last?
We're probably likely to see more vendors offering us free shipping in the years to come. Even if some of them find it challenging to maintain profitability with such a policy in place, they may be pressured to institute and keep it in order to stay competitive. They'll also run the risk of angering customers if they take it away.
Still, companies probably won't do more than they need to do. If offering free shipping on orders of $50 or more isn't driving many would-be buyers away, there will be less incentive to move to entirely free shipping. Amazon.com bought Zappos in 2009, but it has not extended Zappos' free shipping on all returns policy to its Amazon storefront.
So stay inside by a fan or your air conditioner. Fill up that virtual shopping cart and enjoy some free shipping.
Longtime Motley Fool contributor Selena Maranjian owns shares of Wal-Mart Stores and Netflix, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of Wal-Mart Stores, and Motley Fool newsletter services have recommended buying shares of Netflix, Amazon.com, and Wal-Mart Stores, creating a diagonal call position in Wal-Mart Stores and buying puts in Netflix.