This holiday season, the big draw in online shopping will be the free shipping. Consumers are demanding it, and with this year's bareknuckle competition, retailers have no choice but to give it to them.
Four out of five retailers will offer free shipping with minimum purchases this holiday, according to a survey by Shop.org, the online arm of the National Retail Federation. And 57.4 percent will offer no-minimum free shipping offers sometime during the season.
Free shipping ranked second only to social media as a popular marketing tool among e-tailers this holiday, according to the survey; 35.7 percent of stores raised their budgets for free shipping this year. "From free shipping to Facebook, online retailers are combining new initiatives with tried-and-true tactics to make their companies stand out," said Scott Silverman, Shop.org's executive director, in a statement.
And it's not just pure-play online stores like Zappos.com or Amazon.com (AMZN), which have free-shipping offers year-round, jumping on the bandwagon. As The Wall Street Journal noted recently, the Web sites of brick-and-mortar chains like Target Corp. (TGT) are offering free shipping for the holidays, and starting it earlier this year -- two weeks earlier, in Target's case -- because shoppers have come to expect it.
A slew of sites and organizations are springing up to solidify the movement. Freeshippingday.com is trying to line up retailers to offer a free-shipping holiday on Dec. 17, with guaranteed delivery by Christmas Eve. Last year, the group lined up 250 offers from stores big and small; this year, it's shooting for 500.
Big-time retailers are finding online sales to be one bright spot in a weak year. Rather than a sideshow, online sites are turning into real profit centers. Bloomberg recently reported that online sales could make a difference this holiday for companies such as Macy's Inc. (M), Gap Inc. (GPS) and Urban Outfitters (URBN), whose sites saw double-digit sales growth in September, far better than their stores.
As a consumer perk, free shipping makes sense. Search engines let shoppers find the lowest price on any product, which makes it a losing game for retailers to compete on low prices alone. Witness the response of Walmart Stores (WMT) in the battle of cut-rate books: When rivals matched its $10 offer, Walmart dropped its price to $9, and then Amazon.com undercut it with an $8.99 price -- which was all it took to display better online.
But low prices can't always close the deal. Once shoppers get to the checkout and learn what the shipping costs, they sometimes bail. Such "cart abandonment" worries e-tailers; 39 percent of shoppers in a Forrester Research study cited high shipping charges as the main reason why they walk away empty-handed on the checkout page.
And free shipping may turn out to be one of those holiday treats that hangs around, like a fruitcake. Even if this frugalista trend yields to the traditional desire for more and cooler stuff, Americans have developed an eye for what's worth spending more for and what isn't. And shipping charges are not on the shopping list.
Like free delivery, free shipping helps retailers compete across channels -- stores, catalogs, and online -- by giving customers what they want, said Ray Jones, managing director of Dechert-Hampe & Co., a consulting firm, in a study of shopper attitudes. More consumers are shopping online, the study shows, and some cost-cutting behaviors will outlast this recession. Stores will have to find those consumer hot-buttons and adapt, he said: "It comes to recognizing where your customer's pain is. It's not brain surgery."
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