Editor's Note: This is an excerpt from a note sent out earlier this morning by our Retail team. Click here for more information on our array of services and how you can subscribe.
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Good article today in WWD - Free Shipping: Retail's New Battleground
Takeaway: Free shipping = an offensive weapon for retailers to gain market share.
We have seen it used sporadically from players in the department store/mass channel. Most notably, Target (TGT), who over the holiday season eliminated the free shipping threshold all together, and then in February cut its free shipping threshold from $50 to $25.
Over the next 18-24 months, it's likely we see free shipping across the board. That will manifest itself during this holiday season when retailers make a free shipping offensive play.
We've seen retailers, most notably Kohl's (KSS), talk about how a $25 shipping threshold isn't sustainable from a profitability perspective. We agree with the company on that.
For Nordstrom (JWN), it makes sense to offer free shipping and returns given the basket size, but for the mid-tier space...it's 600-1000 bps dilutive. The problem is that a)
- Consumers want it (in chart below its nearly twice as important as any other online shopping feature)
- If one domino falls, all others will have to move accordingly
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