L.L. Bean, Zappos lead free-shipping revolution

Online retailers make shipping charges a thing of the past. Will competitors follow?

By InvestorPlace Mar 24, 2011 2:39PM

Everyone loves a good deal when shopping online. But everyone also hates to find a bargain, only to get gouged on shipping.


L.L. Bean hopes those two factors will work in its favor as it launches a marketplace where online shoppers no longer have to suffer a dime in shipping fees. Like Amazon.com (AMZN) and its dedicated shoe site Zappos, L.L. Bean hopes the lack of fees is offset by the new customers it will win over with the deal.

 

It's a bold move. The question now, of course, is how many online retailers are going to follow. The answer may surprise you: Many.


Steve Fuller, the chief marketing officer at L.L. Bean, said his company came to the decision after examining "research after research after research" showing shoppers prefer to not pay for shipping. Specifically, the increased revenue that has come from shipping-free promotions is impressive. As many as 45% of online retailers offered free shipping throughout the holidays in 2010, according to research group comScore. And that, in part, helped lift seasonal shopping 4% overall -- including a 10% bump on Black Friday.

The free shippers over the holidays included brick-and-mortar giants like Wal-Mart (WMT) Target (TGT) and Sears (SHLD). Electronics and entertainment retailers Best Buy (BBY) and Gamestop (GME) offered similar deals.

 

There's a catch, though. A common factor among all of those retailers is that their shipping offers were limited. Wal-Mart offered free shipping only on specific items, while Target, J.C. Penny and others required purchases to be above $50. Amazon has offered the same shipping deal for years, but only recently through Zappos did it begin offering no-strings-attached free shipping on all online purchases.

The aforementioned companies that have toyed with free shipping over the past year are likely to follow L.L. Bean and Zappos. Best Buy's Thursday earnings report stressed the increasing importance of the company's online retail business compared with declining in-store sales, especially for entertainment products. And given that Amazon.com is transforming its premium subscription service Amazon Prime from a shipping-fee service to a streaming video provider, the natural assumption is that free shipping is going to be the norm and not a special service for the online megastore.


So as free shipping sales are ringing up at L.L. Bean and Zappos in the short term, you can expect many online retailers to follow soon in 2011.


That's great news for consumers.


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12Comments
Mar 24, 2011 6:33PM
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Free shipping is never free...It costs money to ship so the cost has to be made up somewhere, You have to either add the shipping in to the price or lower the quality of the product, now factor in the loss and damage quotient and most will find that their bottom line will suffer.

 

eBay is a big proponent of free shipping, They encourage their sellers to offer free shipping because they know the sellers have to add the shipping costs in to the item price and that raises the final value/sale amount which eBay takes a percentage of.

 

If it sounds to good to be free it then it is.

 

 

Mar 25, 2011 3:49AM
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As an ecommerce strategist for the past 8 years working with small ecommerce merchants - there are a couple issues here that I'd like to address:

 

1. There is no such thing as "Free Shipping" UNLESS the company is truly paying the cost of shipping out of their pocket.

 

UPS/USPS/FEDEX do not ship for free.  There is a hard cost associated with delivering product to a customer. 

 

In the majority of cases, the online merchant is raising prices to cover their shipping costs, and it is by MUCH more than 1-2%.

 

2. If a company IS truly paying the cost of shipping for the customer, they are subsidizing that cost with some other source of revenue .

 

3. Big companies like Amazon or Zappos get deeply discounted shipping rates from the carriers. Smaller merchants do not enjoy those rates. Big companies are better positioned to offer Free Shipping and mark up their products with a smaller increase.

 

Smaller online merchants cannot do this and end up working on thinner margins to remain competitive.

 

I wholeheartedly agree that companies who charge excessive shipping are wrong. 

 

But the flip side of that is that more and more American consumers want to get something for nothing.

 

We want good deals, we want the best price AND we want free shipping. 

 

The only companies that can survive on those margins are companies who sell in MASSIVE volume. 

 

Not the millions of smaller, independantly owned online stores.

 

And then we wonder why our economy has tanked?

 

Small business is the fiber of this economy.  We need to look at this picture holistically for the sake of our economy. 

 

Rather than thinking about it from a "me, me, me" perspective... 

 

i.e. "How cheaply can I get this item because I want to be able to afford my 43rd pair of shoes from Zappos."

 

Yes people's budgets are squeezed.  But the answer is not in driving American owned online businesses OUT of business, by demanding an ecommerce model that is not economically feasible.

 

Let's get back to the model of "a fair price for a fair product".

 

From the early days of mail order catalogs, Free Shipping wa designed to be used as a PROMOTION not as a standard price model.

 

- It costs money to get in the car and drive to the mall and buy a pair of shoes.

- It costs money for an online retailer to ship a pair of shoes.

 

Gas is expensive. It costs more money to fill your tank. Carriers are charging etailers fuel surcharges.

 

We already saw what happened to our economy when people bought McMansions they couldn't afford.

 

Ecommerce is one of the strongest growth industries in our country.  Let's not ruin the model because we want something for free that is NOT free.

Mar 24, 2011 9:31PM
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Unlike the other posters here, I like free shipping.  I shop mainly by price so for me it's all about the bottom line.  I don't know how many times I've wanted to buy something, but was turned off by high shipping costs.  If shipping is already included in the price I see first, then if that price appeals to me I can finish the transaction without getting to the checkout page and going "Shipping is HOW much?  No way!"  It's irritating to want to buy some $5 item only to be hit with $10 shipping.  If I saw the same item for $10 and free shipping, I'd be more likely to purchase.
Mar 24, 2011 11:45PM
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I own a small online business. We do charge shipping on our online orders- $5.95 per order. We do get the occasional complaint from our customers, but most understand that us charging shipping allows us to actually keep our prices lower. What most customers do not realize is that there is no such thing as "free" shipping. The shipping is just rolled into the retail price. Big box stores like Amazon and Best Buy are getting their merchandise at distributor pricing (70%-90% off) so it is no loss to them to offer free shipping. However, smaller online retailers like myself are only getting our merchandise at wholesale (50% off). The 50% profit we make has to cover employees, rent, materials....etc. and there is often not enough room in there to offer additional discounts. I really hope that shipping charges do not keep someone from buying a product- online ordering is still supporting small business.
Mar 24, 2011 11:21PM
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Nothing is ever free, but when I shop on line I look for the best deal and try to figure in my head what the shipping will cost. I have backed out of many purchases when I see what the shipping costs are at check out. Sometimes it is just rediculous. If companies would charge you the actual shipping costs instead of their pumped up shipping and handling it might be different. They hope you will just punch the complete order button before you realize, and it happens more than you think. A few people backing out of a purchase is far less than the many who go through with it. I like to know what my cost is as I purchase and not at the end when I have wasted all my time thinking I am getting a good deal. So add a little to cover it, and I can still shop for the best price and know the shipping costs won't change that. 
Mar 24, 2011 10:56PM
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I don't care what all you naysayers say. Free shipping makes it easier to comparison shop. Who gives a crp is they raise all prices 2 percent to cover it. At least when I see online that it's 9.99 with free shipping or 12.99 at the local store I can make a informed decision. Instead of 8.99 with 6.00 dollar shipping. I want to know up front. Not at the checkout screen. Plus even if it's the same price, a lot of times I can save tax. Which if it's a couple hundred dollar item, that can be 30 or 40 bucks.
Mar 25, 2011 2:53AM
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Some things, HP over-priced ink cartridges for example, can be bought on-line by price (including shipping) alone. Some other items, computers may not be bargain by price alone (watch out for pervasive cheap Vista/Win7 dogs).

Free shipping is not new; hence, not revolutionary. These companies deserve no special mention. This is cheap publicity foisted as news by the worse news group, MSNBC.

The value of the US dollar continues to wane while wages remain stagnant. How and why is news; this article is not.

Mar 24, 2011 6:41PM
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The shipping is definitely NOT free...it's always built into the cost of the merchandise.  When comparison shopping for an item, I can almost always find it $7/8 cheaper on a site that does charge for shipping.  Every now and then I will find something that is not only cheaper but has free shipping as well, but not too often. 
Mar 25, 2011 1:34AM
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No, you're not getting free shipping.  But I've tried to order things in the past that put up a whopper of a shipping charge at the very end of the transaction.  On top of that most shipping charges are per amount spent not necessarily size and weight.  A huge shipping charge for a small, expensive item vs. a smaller charge for a large cheap one.  And the expensive one is shipped the same way as the cheap one.  Example ground service with no signature required at the end which would justify spending more for shipping on the small item.

Mar 25, 2011 9:19AM
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Ordered from LL Bean; no shipping charges - pre shipping and handling charges.

 

Has something changed?

 

:(

Mar 25, 2011 1:37AM
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What I meant to say is that the higher cost for a small item would be justified if they shipped it faster and required a signature when delivered.
Mar 24, 2011 8:46PM
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You would have to be insane to think you are getting free shipping.  They will just raise their prices by 1-2%,  Buyer beware as always,
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