The battle for the hottest prices of this holiday season is bubbling into a new arena: the fight for free shipping.
As Walmart, Target and Amazon launch a price war on merchandise in the weeks leading up to Thanksgiving, they now delight customers with the promise of fast, efficient and free shipping. On Monday, Amazon raised the ante by extending free shipping to all customers over the holidays, with no minimum purchase required. The retail and technology giant also offers Prime Members free same day delivery for over three million items. Prime members who pay $ 119 a year for service will receive two days of free shipping without a minimum purchase.
According to analysts, it is a step that Amazon hopes to dull its competitors and may even win new Prime subscribers for the year 2019. But big promises are associated with high risks. and these shoppers go somewhere else.
(The founder of Amazon, Jeffrey P. Bezos, owns the Washington Post.)
"This amounts to the following:" How do I want to shop? Who is the cheapest? And who do I trust most? Said Mark Cohen, director of retail studies at Columbia Business School.
To be on the safe side, Target and Walmart Ball are playing. Last month, Target announced that it will offer free shipping for two days from December 1-22, with no minimum purchase or membership required. In March, Target said that buyers who spent at least $ 35 or used a company credit card received two days of free shipping. In previous holidays, Target offered free standard shipping.
Walmart continues to offer free two-day shipping in the US for purchases of $ 35 or more. In addition, the free two-day shipping to third-party providers in the marketplace will be expanded.
"Amazon has taken a potential challenge to its dominance," Cohen said. "Free" is a very addictive drug. "
Cohen said Amazon has "a drag on competitors," largely because of the revenue generated by membership of Prime members, which Bezos recently scored in its annual shareholder letter of more than 100 million worldwide. However, dominant e-commerce is especially important for the tech giants.
Charlie O'Shea, Moody's leading retail analyst, noted that Amazon does not sell the majority of its products in physical stores, as Walmart and Target do. O'Shea estimated that brick-and-mortar stores with comparatively strong online appearances like Best Buy did not even reach 20 percent of e-commerce sales.
While free shipping is one of the simplest promotions a retailer can offer, O & # 39; Shea said it comes at a steep price. Amazon's shipping costs for the 2017 fiscal year were close to $ 22 billion, O'Shea said in the fourth quarter at approximately $ 7.4 billion. The retailer achieved a profit of just over $ 3 billion in 2017.
However, the promise of free shipping does not guarantee that buyers receive their goods on time. Retailers of all sizes often have to deal with a plethora of holiday orders sponsored by FedEx, UPS, the postal service, and other third-party shippers who are facing huge demand.
Paula Rosenblum, co-founder and managing partner of Retail Systems Research (RSR), said Amazon's promise is being tested by its third-party prime operators, who sell and distribute their products through the Amazon website. While these third-party vendors generate profits for Amazon, they may be "a thorn in the side [Amazon’s] Page "if they let customers hang, Rosenblum said.
An Amazon spokesman said the offer applies to all items approved for free shipping, including items from millions of third-party vendors.
As Target and Walmart signal to Amazon that they "will not roll," Rosenblum said Amazon's move was only the latest in the "race to the bottom."
"As far as I can tell, a price parity has been achieved," said Rosenblum. "As soon as you can get the shipping costs for the shipping costs, it will be very interesting."
O & # 39; Shea has put it another way.
"I call it a limbo contest," he said. "How deep can you go?"
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