Best Buy Catches the Free-Shipping Wave

Mega-retailer Best Buy announced on Wednesday it will offer free shipping on a number of specific items through December 21. Products with free shipping include CDs, DVDs and Blu-ray discs, as well as gaming software and accessories.

iPods, iPads and iPhones are excluded, as Apple will not allow it products to be advertised as bargains in any manner. Also, desktop computers are included, although laptops are excluded, suggesting that high-margin items are given preference for free-shipping.

Best Buy also announced a recently launched Store Pickup Plus program that lets customers designate a friend or family member to pick up gifts at a store. The retailer will also ship out-of-stock items to a local Best Buy at no additional cost.

A Best Buy spokesperson told the E-Commerce Times the company would be unable to provide comments in time for this story.

Competing for Big Holiday Spend

Best Buy’s free shipping offer comes as major retailers anticipate a robust holiday season. Target on Wednesday delivered a positive fourth-quarter sales forecast during its earnings report. On Tuesday, Walmart also gave a glowing fourth-quarter forecast in its earnings report, projecting comparable sales at its U.S. division would return to positive same-store sales growth after six straight declines.

“Consumers are going to open their wallets more than they have in the last two years,” Jeffrey Grau, principal analyst at eMarketer, told the E-Commerce Times. “It’s going to be a better holiday season, but people are going to be careful. Retailers want to make sure they get their share of the pie. They’re offering promotions earlier in the season this year.”

Does Free Shipping Work?

Free shipping is one of the major tools retailers use to entice new customers and hold existing customers. Amazon has incorporated shipping promotions into its core business offering for years.

“The biggest friction points in online shopping are payment and shipping,” Azita Arvani, principal of the Arvani Group, told the E-Commerce Times. “By offering free shipping, it reduces a key friction point, which should result in more sales, provided the offer is not too restrictive to a point of being meaningless to the consumer.”

If shoppers respond to free shipping, retailers may be able to avoid deep discounts on their products.

“Retailers see that consumers are responding free shipping, so they are offering free shipping with lower a minimum threshold or no threshold on certain product categories,” said Grau. “Many retailers make their money this time of year, and they each want to get a jump on each other. Best Buy is following suit.”

No Free Lunch

Shipping is an expense, of course, whether it is free to the customer or not. The question is who ultimately pays for it and how the cost is absorbed.

“In general, some retailers are putting the cost into the price of the product, and some are taking a lower margin,” said Grau. “Some may have even been able to pass the savings along by putting pressure on their shipping partners. But unless you’re Walmart or Target, you won’t be able to put much pressure on UPS or FedEx.”

Since shoppers compare prices, it’s difficult to recover shipping costs by jacking up prices.

“Retailers have to decide for themselves whether the potentially higher sales can justify absorbing the shipping costs,” said Arvani. “They’re going to hope for higher volume and slightly lower margins. They’ll try to make up the cost in higher volume.”

Small E-tailer Squeeze

In the brick-and-mortar world, lower pricing from large retailers has killed small shops. This may now be happening online as well.

“The large retailers are going to squeeze the little guys online. There’s a lot of pressure on the small e-tailer,” said Grau. “Their best defense is to sell a product that is unique — something you can’t get anywhere else. Because of that, consumers will be willing to pay a higher price. Or, the small e-tailer can offer fantastic customer service.”

Smaller e-tailers will have a difficult time competing with the large retailers on free shipping. Some will lose sales.

“It’s going to be harder for the small e-tailer, but its not a conscious move by large retailers,” said Arvani. “It’s just a fact of life. For big companies, it’s easier to absorb the costs of shipping. It’s not directed at the small ones.”