During the holiday season, stores like Amazon, Target or Wal-Mart, made more items available for the free delivery system. Even though online shoppers consider free shipping as a natural right, retailers are finding it hard to make profit online. Analysts say that the final reports will be available in a few weeks when companies will declare their financial result for the holiday quarter.
In the United States, the number of online shopping with free delivery has increased in the third quarter of 2014 with 68% compared to 44% last year.
According to Amazon, the holiday season saved customers the amount of $2 billion in shipping fees. Many of the savings came trough Amazon’s Prime Program which offers free shipping on the majority of items for an annual tax of $99. Amazon refused to reveal numbers or to reveal an estimate fo how much the Prime Program customers have bought compared with the others. That would have given an insight into how much Amazon has gained trough Prime program. Analyst calculated that Amazon loses every year on UD Prime, shipping around $1 billion/$2 billion.
On the other hand, retailers like Wal-Mart or Target have removed the minimum spending threshold for free shipping in order to attract the customers interest. Surveys showed that for the 2014 holidays, a bit over 50 % of the companies have excluded the thresholds, more with 5% than the previous year.
Amazon’s shipping costs for the first nine months of 2014 increased with 32%, compared to 29% to the same period of 2013. Specialists believe that this growth could make Amazon share holders to quit, as in 2014 the company’s stock declined with 22%.
Target offers free shipping the whole year, to customers who have membership cards. The online orders of Target are 2.5% of the company’s total earnings. In other words it stands for $1.85 billion out of $74 billion of the annual sales for the end of 2015, analysts predict.
Wal-Mart, said that over the following 18-24 months would heavily invest and calculate online losses by building fulfillment centers and finding other ways to drive sale. Wal-Mart expects online income revenue to hit $12.5 billion in the year to January 2015 and grow at about 30 to 40 percent over the following three years.
In order to cut costs, companies are trying to encourage customers to pick up the online orders from the stores. Specialists believe that retailers have to adapt to the new situation as online shopping just keeps on growing.
“The margins are worse for everybody but it doesn’t really matter because you have to play the game. That’s the way the shopper is moving, whether you like it or not,” Said Cowen and Company analyst Oliver Chen.
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