Walmart Enters Free Shipping Fray
Walmart.com is looking to one-up its online competitors
with a new free shipping deal in the run-up to Christmas, according to The
New York Times.
The free shipping deal, which will run through Dec. 20,
will extend to 60,000 gift items and will not require a minimum purchase. Items
pictured on the Walmart.com home page that are part of the offer include HDTVs,
laptops, camcorders, home theater systems, photo gifts and musical instruments.
Other categories include entertainment furniture, fragrances, personalized
jewelry and toys.
"Everyone’s trying to figure out how we can serve a customer that’s
trying to save every penny they can," Steve Nave, senior vice president
and general manager of Walmart.com, told the Times. "It’s
the most competitive offer out there, and we’re pretty excited about
it."
The move by Walmart comes as many others have offered special shipping
deals as a means to spur sales.
Interestingly, Walmart has said it will not
put pressure on shipping companies to absorb some of the costs associated with
providing free shipping on so many items. The retailer also said it was not
raising prices to help offset costs.
Mr. Nave said items selected for free shipping
were those most likely to be given as gifts. He also said he expected that
the company would likely continue to offer similar programs beyond the holiday
season.
Other retailers that offer free shipping before Christmas find they
are unable to maintain the program year-round.
"We’d love to be able to offer free shipping, but free shipping
isn’t
free," said Laurie Brooks, a spokesperson for L.L. Bean, told the Times. "It
does cost a company money."
Discussion Questions: What will Walmart’s free shipping program mean in the
competition for online sales this holiday season? How can smaller retailers compete
in an environment of free shipping offers and subscription programs such as Amazon
Prime?
This will set the hurdle bar at a new level for online retailing. It removes a barrier to the sometimes higher cost of buying online when you consider all in costs.
Walmart.com offering shipping is a big move and one that is going to deliver a bump to WMT and a jolt to others in the online retail space. Walmart might be the largest retailer but they are not necessarily the best. There are some very good online merchants, namely Amazon, and this presents an interesting challenge for them, much as Amazon and others have been a challenge for WMT. Of course, WMT’s size means they get the best pricing on shipping from the various suppliers, who might also benefit here, albeit at lower margins.
Much as discounting is a slippery slope, it will be interesting to see much aggressiveness we see this holiday season. The next frontier is likely upgraded shipping, where AMZN dominates with its Prime program.
Shipping is now seen as a given, like ketchup for fries or mayo on a deli sandwich. Who can afford to make this up all the time along with the rush for Groupons and media cries that no one will buy anything without a discount?
Maybe bricks and mortar don’t look so bad after all….
Free or low cost shipping have become “must haves” for e-commerce, and retailers that fail to offer it could lose customers during the holiday shopping season. If Walmart can consistently offer low prices and throw in free shipping, they could significantly increase their sales, while continuing to squeeze smaller retailers.
This is a logical, and deadly, follow on to Walmart’s Pick Up Today and FedEx Site to Store programs; one that will position Walmart as an even more formidable multi-channel competitor.
The only problem that I see is that Walmart will have a hard time retracting the free shipping after the holidays. Zappos’ free shipping changed the industry standard but many may not remember that it started as a “surprise” that Zappos would spring on select customers in order to delight them. Well, those same customers were less delighted when the free shipping didn’t get applied to the next order. When these incidences were contested, Zappos would just throw in the free shipping but by then, the value and “delight” factor was dinged.
I’m hoping that Walmart is moving toward making this a standard offering and using the high-volume holiday shipping season to work out the efficiencies and build scale. Otherwise, they will risk a post-holiday backlash…and the possibility that others will jump on board and make free shipping an ongoing standard.
A trend to “free shipping” is already in force with several retailers such as L.L.Bean and now that Walmart is getting in that boat it will most likely make this sales methodology become the industry paradigm.
“Free shipping” isn’t free so it has to be covered in the price. That will put further pressure on smaller retailers to become more innovative or look to Heaven for guidance.
What does free shipping mean? If you can’t run with the big dogs then stay on the porch. Free shipping is just another form of low prices. So all the old cliches about better service come to mind.
As a Coloradan, free shipping has just become the only additional differentiator that online retailers can offer me, as Amazon has just informed me. Apparently, Oklahoma and Colorado passed laws this year that will enforce sales taxes on internet sales. The way it works in Colorado is companies like Amazon will report a total of my purchases to the State of Colorado, and I will have to add those sales taxes to my tax bill. So spending with a retailer who collects those taxes for me vs. one that makes me have to keep some kind of reserve in mind to pay myself at the end of the year–yeah, Walmart may very well get business from me this year that Amazon got last year. And free shipping will definitely make a difference.
Shipping is part of the price. In the development of the online retailing the consumers just didn’t know that and would make decisions based on the cost of shipping. They didn’t want to pay $6 in shipping so they drove 20 miles to the mall and spent 2 hours to buy the product at $2 more in a brick and mortar store but save the shipping.
Similarly, online retailers would use shipping to support a lower price. They would feature an item for $9.99 plus shipping. The buyer would pay an additional $4 in shipping that cost the company $2, but the happy shopper paid only $9.99.
There is no “FREE SHIPPING”!!! Wal-Mart merely doesn’t charge the buyer for shipping, but it is included in the price. Even a discounted price. It is no different than a brick and mortar retailer. There is a shipping cost of getting the goods to the store, the buyer isn’t charged for it, but be assured the buyer pays for it in the price of the goods.
This is price competition, it is not free shipping competition.
Walmart.com is once again providing value to shoppers by focusing on Cost Per Unit Purchased (CPUP). As consumers get savvier with online shopping they are calculating the overall Cost Per Unit Purchase. If they buy a pair of sneakers for $129.99 and a watch for $59.99, but shipping is $9, then the CPUP is $134.49 for the shoes and $64.49 for the watch. Roadrunnersports.com has been using the Free shipping model for years with their VIP Club and it makes a huge difference.
If Walmart is not squeezing the shippers to help offset the cost of Free shipping you can be sure they are squeezing more from their manufacturing suppliers.
Gee, I was going to buy something from (your favorite site here), but Walmart has free shipping, so I’ll buy it there (assuming they have what I want). Really?
It seems likely to me that Walmart customers will get a better deal, WMT’s margins will drop microscopically, and retailers will react by meeting the deal, thereby lowering the overall margin performance for holiday. The last time the industry went down this path, it was to accelerate the promotional schedule and then to out-promote the other guy. That didn’t work out too well.
While it’s certainly a market share environment, my sense is that, if retailers took the same time/money into providing better service and better/more interesting products, they would do far better than trying to operate on lower costs than WMT.
Since there is no “free” lunch, Walmart is clearly investing in this initiative to win over new customers. I can’t help thinking this story is tied to a recent story about Amazon purchasing diapers.com. What this is saying is that eBusiness is big and getting bigger and that Walmart wants a piece of the action and is prepared to invest in it at the cost of lower margins. Whether free shipping remains free will really depend on market conditions and how competitive the landscape becomes. Will free shipping survive the industry consolidation that is underway with fewer players controlling a bigger piece of the e-pie?
Finally. Shipping SHOULD be free for online sales, I’ve always believed that. After all, have you ever had to pay for shipping when goods are transported from China to the store you bought it in? No, it’s invisible. Merchants build the shipping into their margins, and online should be no different.
I guess it’s just another part of the growing up process for online sales. But it’s about time the logic came front and center. It’ll help online revenues grow to where it should be: 50% of retail sales.
George asks how other (smaller) retailers can compete. Walmart has gone the route of offering free shipping on select items, and no doubt has good reason for each on that list. As an example of another approach, after placing a single order the other day on Zappos.com and indicating standard shipping, not only was my order upgraded gratis to free overnight shipping, I was invited to be a “VIP” member. A very simple sign-up and I am now entitled to free overnight shipping (with some limitations).
The alternative view, in other words, is identifying your best customers and dangling free shipping as a reward, as opposed to making pennies on zillions of items spread across the masses.
Walmart.com free shipping will be a killer. Consumers already perceive Walmart to be EDLP, and now free shipping will make this a deal too amazing to beat. The only real obstacle is that Walmart does not carry many items in certain quality circles that even mainstream consumers want to buy online.
From my perspective, the most interesting aspect of this is the impact that it will likely have on specialty and independent retailers. Walmart’s move is likely to reverberate with other major retailers who are competing on price for commoditized items, and create an expectation among consumers shopping online for not only those items but also for specialty and non-discretionary items.
For specialty and independent retailers, who already have higher costs per-hit and per-transaction, this only creates greater pressure on prices, and margins. Walmart’s move reinforces the point that online retailing is primarily price-driven, which is not what specialty and independent retailing is all about.
Specialty and independent retailing is about compelling assortments, unique stores, and memorable customer experiences. The more that online retailing becomes price-driven, the more these retailers will need to focus on these brick ‘n mortar fundamentals.
Comparing online prices is now taking as much work as buying an airline ticket and figuring out who has what fees.
I’m actually quite surprised it took Walmart this long to offer free shipping. If they continue it beyond the holidays it obviously will have a direct impact on Amazon Prime and ShopRunner. Will people find the two-day delivery worth the extra expense?
Nothing is free – nothing. Did I say nothing? Yes. I did say nothing. Period. It’s not free – no way – no how. It’s either in the price or it’s absorbed as an expense, but it’s not free!
Zappos, one of the finest online retailers, has a regular habit of upgrading their ‘free’ shipping to overnight shipping. Amazingly, order even in late afternoon and find your order on the porch next day! How they do that–I don’t have a clue, but I love it! Let’s see Walmart do that and then their might be a story. This offering? Not so much a big deal.
And, did I say it’s not free?
Like just about everyone else believes…this decision has two direct impacts: 1) It puts more pressure on smaller online providers and 2) Continues to create a “free shipping” expectation on the part of consumers (whether it is actually “free” or not).
Remember when scale didn’t matter much for online retailers? When the entry barriers were low for new dot-coms, and the big chains were endangered species?
Well “free” shipping at Walmart is your proof that those early assumptions were short-lived, if not outright wrong. Big multichannel retailers (and Amazon.com) have the clout and technical ability to negotiate minimum shipping costs as well as the geographic coverage to avoid sending every package through a hub in Memphis.
Sure, “free” shipping isn’t really free to the end purchaser, but shoppers will opt to buy from the retailer whose dead-net delivered prices make for a best overall deal. Walmart may have an edge in this competition on many items this season. It will be interesting to see if it can meet its margin targets on those online purchases.
OK, the panel has established that shipping isn’t “Free.” But Lee Petersen hit the relevant point. Every retailer pays to ship goods from somewhere to somewhere consumers can buy them.
Online retailers originally offered discounts versus brick & mortar pricing in an effort to offset the shipping cost barrier. But they also used the TV infomercial approach of charging “shipping and handling” fees that more than covered the actual cost of shipping plus the merchandise discount.
Consumers reacted negatively because this approach actually called out two of the three primary drawbacks to online shopping — shipping costs and delivery delays (the third being concerns sparked by not being able to actually see and handle the merchandise).
Of course, consumer concerns with merchandise purchased online has largely gone the way of the dodo bird — so shipping is the last big consumer barrier. Now retailers are finally figuring out that an online price equal to the brick and mortar price — both of which inherently contain some form of shipping costs — is just fine. Because the real benefit of online shopping to consumers is convenience, not lower net landed prices.
It’s about time.
This is a huge move in the right direction for Walmart and for online shopping. The very premise of online shopping is that it should be a better price–there is less overhead without the bricks and mortar infrastructure and staffing, so shouldn’t there be a price break? This move eliminates one of the biggest barriers to online shopping–the often exorbitant shipping costs. I have experienced up to $15 to have one item sent to me, and I now wait until some of my favorite online sites offer free shipping. Good move Walmart, as always, you moved the cheese first!
Free shipping is becoming the norm. Walmart jumping on this should not surprise anyone unless possibly why did it take so long. By the way, look at the items they offer free shipping on. Not exactly the low price items are they?
This move by Walmart is expected, especially considering their need to catch up on relatively poor results these last several quarters. Meanwhile, of course competitors will match this. However, as others have pointed out, costs are costs and freight is cost so there is no free lunch.
One wonders, then, if Brick and Mortar or other online competitors may win simply on price. Yes, “some” consumers like free shipping while others like lowest price so this gives other retailers choices. It is through smart choice that supermarkets have learned to compete here with Walmart and clubs. This will also be the case for Amazon, who by the way has an overall more efficient system due to no stores at all and an “anticipation” model that allows them to price lower. It seems to me that this will more likely benefit Amazon and other online “pure plays” that can operate at overall lower margins than brick and mortar despite Walmart’s size.
If one looks back to last holiday, Walmart tried this and failed to dent Amazon merely making them visible to more Walmart consumers. So, is this smart or more a move to try whatever will boost sales when their core demographic is so challenged?
More important is for vendors to consider what this means to them. In fact, many items and purchases require physical co-location with the product for consumers to complete the purchase, even if inevitably completed online. How do you know if the TV fits? If it doesn’t then “free freight” both ways will really kill profits. Zappos (who is great, really) can do this as shoes and clothes are high margin items. Will this work for say CE goods?
Indeed the end game for this may be trouble for many types of items and vendors need to think about it as there are cost floors under everything. If cotton costs rise, can clothing costs go down no matter how much leverage one has?Some of these moves are the inevitable path online and other portions of retail are on, but like government budgets this does not mean it is good for retailers, vendors or consumers despite near term “value” and as costs are costs this clever marketing may have longer term poor effect when as others have noted consumers simply “expect” free and do not appreciate or pay for it. While price is a key, so is service and experience.
Free shipping might sound great. However, my experience with Walmart (I am a big fan) “free ship to store” was pathetic! Free shipping is only of value if it is also timely. What is the benefit of buying a book from Walmart if it takes two weeks to arrive? The same transaction at Amazon arrives in 3 to 4 days. If Walmart can use their buying power to negotiate service with UPS or USPS that provides swift delivery then they may have a winner.