Amazon: Free Shipping Paying Off

E-tailer Amazon.com’s (Nasdaq: AMZN) free shipping offer is showing “pleasant” results and is helping to boost average order size, a company executive said Wednesday.

“We see pleasant results, though it’s too early to extrapolate long-term,” Diego Piacentini, director of worldwide retail and marketing atAmazon, said during a conference call.

“We do confirm this is not a promotional move. This is a long-term move that is about our pricing strategy. It’s about reaching the right pricing level, and part of that is shipping costs,” said Piacentini.

Amazon announced in late January that it would make permanent its free shipping offer, which applies to most purchases of more than US$99.

Trend Lines

“Trend-wise, the fact that we have introduced this hurdle of $99 is increasing order size [and] is increasing units per order, which is exactly what our objective was,” Piacentini said.

Morningstar.com analyst David Kathman told the E-Commerce Times that Amazon’s continued belief in the shipping offer probably means it is working as planned.

“I’ve generally been pretty impressed over the years with Amazon’s ability to adapt to changing market realities,” Kathman said. “If they try something out and there’s a backlash they’ll back off, but if it works, they’ll run with it. In six-plus years, they’ve gotten pretty good at guessing what consumers want online.”

Amazon’s move already has been matched by some of its competitors, including electronics e-tailer Buy.com.

At a Cost

Piacentini acknowledged that Amazon likely will report higher shipping costs in coming quarters as a result of the deal.

“You would expect that there would be an impact in our margins,” he said. “But overall, I would say it’s going in the direction we want it to go.”

World View

Piacentini repeated Amazon’s oft-expressed optimism about overseas growth. He said the main difference between e-commerce in the United States and overseas is not what people buy online but how they pay.

He pointed out that Amazon offers “cash on delivery” payment in Japan and automatic withdrawal from bank accounts in Germany.

“The product mix is the same worldwide. The differences are on the transaction side, and we think we are addressing those on a country-by-country basis,” he added.

Piacentini said Amazon remains decidedly upbeat about long-range growth prospects for U.S. e-tail sales as well. Noting that online sales accounted for one percent of all retail sales in the fourth quarter, he said in-house predictions call for that figure to grow to 15 percent within 10 years.

Smooth Transition

Piacentini also predicted a smooth transition in the wake of the departure of chief financial officer Warren Jenson, who announced his resignation from Amazon earlier this week.

Kathman said he was a bit surprised that Amazon stock actually closed higher in the wake of the news.

“His departure certainly isn’t good news, since he really did a lot of good things for Amazon and will be tough to replace. But on the other hand it’s not horrible news, since they do have a pretty deep bench,” he said. “Amazon will survive this loss okay.”

Settlement Reached

Meanwhile, Amazon reportedly has reached an out-of-court settlement with BarnesandNoble.com in a long-running patent lawsuit. Amazon claimed BN.com illegally copied its one-click checkout technology.

That lawsuit dates back to 1999, when Amazon successfully won an injunction preventing BN.com from using one-click ordering. That injunction was lifted last February, and the lawsuit was scheduled for trial last fall.

Details of the settlement were not disclosed.