Sixty-three percent of Internet sales shipped for free during the week that ended on Dec. 4, up from 51% during same week in 2010, and 44% in 2009; free shipping, necessary to entice customers, cuts retailers' profit margins

Allison Oesterle

Allison Oesterle

Dec 9, 2011 – Industry Intelligence

LOS ANGELES , December 8, 2011 () – During the week that ended on Dec. 4, 63% of Internet sales shipped for freeing 2011, up from 51% during that same week in 2010, and 44% in 2009, The Wall Street Journal reported on Dec. 7.

During the rest of the year apart from the holiday season, the average percentage of Internet sales that are shipped for free is over 40%.

A recent study by comScore Inc., 46% of shoppers have cancelled at least one Internet purchase at checkout upon finding that free shipping was not available.

According to John Jannarone, a reporter for the Wall Street Times, free shipping can be a double-edged sword for retailers: without it, they risk loosing customers, and with it, they risk loosing revenue if they are unable to entice enough shoppers.

For years, Amazon.com, Inc. has experienced shrinking profit margins, most likely driven at least in part by Amazon’s willingness to provide customers with free shipping on their orders.

Even those Internet retailers that do offer free shipping stand to lose business to competitors who offer more attractive free shipping deals such as a lower minimum purchase price in order to qualify.

Apart from price, Internet retailers are also looking at the delivery speed of products purchased online.

Amazon offers free two-day shipping via its Amazon Prime program, and a service called ShopRunner provides similar shipping services for 90 retailers that provide it with an annual fee.

Brick-and-mortar retailers such as Wal-Mart Stores Inc. are experimenting with allowing customers to pick up products purchased online in-store. Wal-Mart is also running a pilot program that would make local deliveries from its stores.

Retailers who are looking to expand their e-commerce sales ignore the increasingly propensity of retailers to offer free shipping at their peril.

Although retailers have typically generated higher profit margins from online sales rather than in-store purchases, the cost of providing free shipping could potentially reduce that gap as free shipping costs lower retailers’ online profit margins.

The primary source of this article is The Wall Street Journal, New York, New York, on Dec. 7, 2011.

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