Target free shipping deal undercuts Amazon, Best Buy and Walmart

Discussion
Feb 24, 2015

It takes a minimum order of $35 for shoppers on Amazon.com (non-Prime members) and Best Buy to get free ground shipping. Walmart.com shoppers need to spend $50 on eligible orders to qualify for free shipping. Target.com, as of yesterday, is lowering its minimum order to $25, no exclusions, for its online customers (AKA "guests" in Target-speak) to get their orders with no shipping fee added.

"Lowering the free shipping threshold from $50 to $25 is one more way Target is putting guests first and making it easier for them to shop Target when and where they want," said Jason Goldberger, president of Target.com and Mobile, in a statement.

Target is making the move after what Mr. Goldberger described as the "enthusiastic response" to the company’s free shipping offer over the holiday season. Between late October and Dec. 20, customers received free shipping on all Target.com orders regardless of size.

"Now, whether guests are stocking up or doing fill-in shopping, we’ve enhanced our year-round shipping offer to be one of the best in all of retail."





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The new, lower minimum program is just one of the ways Target is looking to use digital channels to connect with consumers. The company has been pushing its order online and free pick-up in-store option. The company claims that more than 80 percent of click and collect orders are ready within one hour.

Target has also been expanding the use of stores as mini fulfillment centers and plans to open two new online distribution facilities in Memphis, TN and York, PA.

CEO Brian Cornell is looking to accelerate the growth of Target’s sales through digital channels. According to a Star Tribune report, online currently accounts for between two and three percent of the retailer’s total sales, compared to its Minnesota neighbor, Best Buy, which generates about eight percent of its total sales online.

Is Target on the right path to substantially increase the percent of its total sales that come through digital channels? Will its $25 minimum for free ground shipping give Target a boost in the competition for consumers’ e-commerce dollars?

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21 Comments on "Target free shipping deal undercuts Amazon, Best Buy and Walmart"

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Ken Lonyai
Guest
2 years 9 months ago

This is a good move if Target is looking to shift sales from brick-and-mortar to e-commerce, but I’m not convinced it’s going to pull customers away from competitors like Amazon. It may expand sales overall a bit, but my intuition is that it will partly cannibalize physical store sales. Why run out for one or two non-urgent items when it’s easy enough to order and have in a day or two?

As far as I know, the brand doesn’t offer a substantial increase in breadth of products online and and is not especially price competitive, so its own retail customer base is the likely source of new mobile customers.

Keith Anderson
Guest
2 years 9 months ago

Shipping fees have historically been one of the greatest barriers to converting online browsers to buyers. As noted, most retailers offer free shipping above some minimum order threshold, but Target’s move to lower its threshold definitely makes its online offering more compelling.

The free shipping on virtually all orders for RedCard holders is also key. These kinds of incentives have been proven to be sticky and increase lifetime customer value.

Of course, this impacts the unit economics of Target’s online business, and they’ll have to continue to optimize their order values, picking efficiency and fulfillment capabilities to make this part of their business sustainable over the long-term.

Chris Petersen, PhD.
Guest
2 years 9 months ago

The “right path” is being able to execute omni-channel seamlessly. Target has been late to the online party, so this might be a step in the right direction.

The question for Target will be whether they have the systems, infrastructure and people to be able to execute all of this cost effectively.

For most consumers, free shipping is very compelling. But nothing is “free” for the retailer. In order to offset free shipping with a $25 minimum, Target has to get very good at lowering the cost of inventory across stores, online and the supply chain. Target’s inventory turns would suggest otherwise.

Oh, and one more thing. Free ground shipping might get you in the game, but the customer experience has to meet standards of the top e-commerce players, like the ones that begin with letter “A.”

Paula Rosenblum
Guest
2 years 9 months ago

I’d be a lot happier if that focus went into developing and sourcing more interesting products. This feels like just another leg in the race to the bottom.

Cathy Hotka
Guest
2 years 9 months ago

Free shipping lights up the antediluvian, reptile portion of the brain. We love it.

By doing this, Target is telling people that they can buy online pretty much whenever they want, rather than having to wait until they need several things. We’ll have to wait to see how the economics work, but the newfound buzz from this should be worth it.

Ed Rosenbaum
Guest
2 years 9 months ago

For those of us old enough to remember the Johnny Carson show and “Karnack the Magnificent,” the answer is “tomorrow.” And the question is “When will Amazon and Walmart match the Target shipping cost reduction?”

These big guys are not going to let one get a competitive edge on them. Not for long anyway. Besides, these shipping costs were on the high side to begin with. Most of the cost was probably profit. So before the public catches on they will decrease the costs. The winner is … us for a change.

Zel Bianco
Guest
2 years 9 months ago

This seems a little strange to me as I don’t know of anyone who can go to a brick-and-mortar Target and leave without spending at least $50. While reducing their free shipping minimum to $25 will generate a little publicity and might give a small boost to digital sales, they would be better served by improving their online shopping experience and offering more exclusive services.

Target has achieved so much success by offering a mixture of practical items and affordable luxuries customers didn’t even know they wanted. I can’t understand why they haven’t parlayed this into a subscription service that would combine Amazon subscriptions with something like BirchBox. What mother wouldn’t love to have their monthly household supplies delivered to the door, with a bonus item or two for themselves?

Shep Hyken
Guest
2 years 9 months ago

Anyone who goes head-to-head with Amazon.com better be prepared to compete at every level. It is a price war on the item and on shipping. I applaud Target (and anyone else) who wants to play in this arena, but they have to realize that they are commoditizing their business. Price will be the differentiator and the shipping costs need to be absorbed somewhere (probably in the price of the merchandise). The good news is that the Target brand is strong. Current customers will appreciate the free shipping, and new customers may give them a try.

Bill Davis
Guest
2 years 9 months ago

Possibly. This should make Target more competitive with Amazon, but the big question is whether Target can do this profitably and that’s an unknown at this point. Even Amazon has been challenged managing Prime and they are much further along the logistics expertise curve than Target is.

Let’s hope this effort goes well for Target, but it is worth keeping this in mind.

Tim Caton
Guest
2 years 9 months ago

“So?”—Every Amazon Prime customer

Tony Orlando
Guest
2 years 9 months ago

Maybe I have been in this game too long, but free shipping on a $25 order can not turn a profit, and IMO unless their pricing increases on the goods they sell, it will end up costing them money. Everyday I read about this, and I have run numbers on this working with a delivery start up. The numbers don’t add up. Good for Target to dip into the pool, but somehow a profit needs to be made, even if all orders are consolidated into an efficient manner of areas they serve.

The comments above on Amazon are spot on, and even Amazon is struggling to turn a profit on their subscription service, so maybe I’m nuts, but this could cost Target more money than they think it will. Good luck.

Lee Kent
Guest
2 years 9 months ago

I would like to chime in with both Shep and Paula. As long as Target does not step up their game with more unique products (what happened to the old Tar-chez chic lines?) they simply commoditize themselves, making it all about the price game.

Sure they might get a little buzz, for about a nano-second, but then the race to the bottom is back on.

Come on Target, my two cents says you can do much better than this. Go back to your roots.

Peter Charness
Guest
2 years 9 months ago

It will help. Beating Amazon on assortment, price and Prime on the other hand is going to be tough.

Jack Pansegrau
Guest
Jack Pansegrau
2 years 9 months ago

One additional consideration: at least for now, Amazon still enjoys a sales tax advantage. I live in California and supposedly Amazon settled with California to collect sales tax…BUT with their system of third-party Amazon sellers, Amazon exploits this loophole to continues to offer many products tax free. One personal example on a pair of Solomon Trail Runners—size 11 at $97 and size 10.5 at $90—the difference being sales tax, depending on the actual seller of the shoe. AND the price was way below that of REI. So of course I frequently opt for Amazon and ALWAYS check their site on every purchase. Not sure I need the complexity to add a price check at Target, so regardless of their shipping scheme, I’m not sure I will expand my searches unless I know Target is either price competitive or an exclusive seller.

Li McClelland
Guest
Li McClelland
2 years 9 months ago

Hey, George Anderson. Smooth. Target would indeed do itself a favor if they’d quit calling their paying customers “guests.”

As to the question at hand, I don’t think Target’s new free ground shipping level is going to help them competitively, but I do think it’s going to hurt their bottom line. They really do seem lost right now.

Gordon Arnold
Guest
2 years 9 months ago

Consumers should consider that there is no such thing as free delivery. Likewise, the smaller the minimum order size needed for free delivery, the longer you will wait for and pay for the product. When you are buying something, never let yourself get distracted from how much you are paying and always remember you are paying for everything. If consumers were as “aware” as many of us think more retailers, maybe even Target, would be gone by now.

Craig Sundstrom
Guest
2 years 9 months ago

I think the wrong question is being asked. It should be “Is this the right path to increase the percentage of profits that come from online?” After all, if all you want to do is increase online sales, then you can just give things away (though the sales would have to be measured by volume not dollars since there would be no sales dollars involved anymore. Of course if all Target wants to do is copy Amazon, then profitability isn’t a concern anyway).

Or maybe we should just view this as a loss leader promotion, in which case the question in a few months will be “Was Target right to raise their minimum free shipping level?”
Target: expect more…and keep waiting for it.

Arie Shpanya
Guest
2 years 9 months ago

I think this is a great strategy that directly competes with Walmart and Amazon. Amazon’s free shipping threshold increased to $35 from $25 and Target’s new decrease aims to give two of its biggest competitors a run for their money. I don’t see Amazon following suit, but I’m interested to see what Walmart does.

Target’s pricing will have a huge impact on whether this change will have an impact on digital sales.

Kai Clarke
Guest
2 years 9 months ago

Yes! Amazon is the king of online commerce, and by going to the next step, with free shipping, Target is throwing down the gauntlet and trying to become a true force in the online retail market. This is a smart move, and online social media will support this. Now, Target has to get the online mix right….

Peggy Leslie
Guest
Peggy Leslie
2 years 9 months ago

Target has one thing going for it that Walmart and Amazon don’t: registries. All the young people I know register with Target for their baby and wedding showers. Target makes it easy to pick a gift and have it sent directly to the recipient without having to know their address. Lowering the minimum shipping should make that easy to use for the more casual friend or less-loved family member.

Bryan Pearson
Guest
2 years 9 months ago
Definitely. A recent LoyaltyOne survey of 1,000 American consumers nationwide reveals that consumers, especially in certain segments, are eager to shop online and reap the convenience and shipping savings of in-store pickup. Among the findings: 43% of those surveyed from ages 18-39, including the millennial generation, don’t wait to wait for their purchases. Target is wise to not only offer in store pickup, but tout the fact that the majority of items will be available within an hour, especially with this impatient segment. Among those surveyed, men (40%) were more likely to pick up in store to avoid delay compared to women (37%). 69% said that simply avoiding shipping fees would incentivize them to pick up their online purchase. 74% of those aged 55-65 would rather make the trip to the store than pay for shipping, indicating that frugality, not speed is the driver for this segment. Target obviously took an important lesson away from its holiday offer of free shipping–customers value the convenience and value of getting what they want when they want it… Read more »
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