Can Free Shipping Beat the Fiscal Cliff?

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Free shipping has become one of the greatest concerns related to the profit margins at e-commerce operations like Inc. (NASDAQ: AMZN). Each item shipped free makes money for United Parcel Service Inc. (NYSE: UPS), FedEx Corp. (NYSE: FDX) and the U.S. Postal System, but increases the costs of an online sale. Yet, offers of free shipping are considered critical to holiday goods and services demand, as well as a way that some e-commerce operations separate themselves from less generous peers. However, free shipping, and the purchases it is supposed to encourage, may not have been able to overcome concerns about the economy and next year's taxes, at least not based on recent research.

Internet research firm comScore reported:

The most recent week kicked off with Free Shipping Day (Monday, Dec. 17), which delivered a strong $1.01 billion in spending representing a 76-percent growth rate vs. the corresponding Monday last year, but on a par with Free Shipping Day in 2011 which occurred on Dec 15, 2011.

"On par" is a polite way to say flat, and flat is a bad sign so late in the holiday season.

Overall, e-commerce sales have been robust so far this year, at least up until now. Says comScore:

Holiday season retail e-commerce spending for the first 51 days of the November-December 2012 holiday season. For the holiday season-to-date $38.7 billion has been spent online, marking a 16-percent increase versus the corresponding days last year.

The picture becomes less easy to analyze when the most recent sales period is taken into account:

The 5-day work week ending December 21, 2012 recorded a growth rate of 53 percent in spending, a notable accomplishment this late in the season.

Did online retailers sharply cut prices to drive up demand as Christmas approached, or were fiscal cliff concerns obliterated by holiday spirit? No one has a complete answer to that question yet.

It is accurate to say that online shopping improvements have been uneven this year. Trends will be even more difficult to recognize until bricks-and-mortar sales are in, so that analysts can look at overall sales. Free shipping did not produce a jump in sales this year. Perhaps that is because so many e-commerce sites offer it, or because shopping momentum is just not up to last year's benchmarks.

Douglas A. McIntyre

Filed under: 24/7 Wall St. Wire, Internet, Retail Tagged: AMZN, FDX, featured, UPS

Originally published