Outpost Enjoys Decline of Free Shipping Era

Computer e-tailer Outpost.com (Nasdaq: COOL) said Friday that its recent decision to start charging for shipping is already helping its bottom line.

Outpost said that in the three weeks since it abandoned its free overnight shipping policy, it has seen an increase in the average order size. That, in turn, has helped eliminate “small unprofitable orders.”

“It appears the policy change had a minimal impact on revenue growth and the number of new customers acquired,” Outpost said.

Last month, Outpost quietly informed customers that it would end its so-called “True Cost” policy of free overnight shipping on all purchases.

Softening Demand

That policy had been in place since early 1999, when the e-tailer used free overnight delivery, and an advertising campaign highlighting the feature, to elbow its way into the crowded electronics space. It worked, helping Kent, Connecticut-based Outpost gain about 1 million customers.

However, Outpost decided to change its shipping policy in the face of weaker demand for computers overall. The company said that its average order dropped to US$200 during December and January, but has risen to $280 since the start of the paid shipping plan on February 1st.

“We are pleased with our February-to-date results,” Outpost president and chief executive officer Kate Vick said.

Shipping Headaches

Word of the policy change’s effect comes amid growing realization among pure-play e-tailers of the true cost of fulfilling orders. Several studies have found that thousands of holiday orders arrived late or went unfilled due to flaws in the order fulfillment process.

A recent report from Jupiter Research found that shipping was a major hurdle to profitability, with 44 percent of all Internet merchants losing money as they shipped goods.

In a nod to that reality, Amazon.com (Nasdaq: AMZN) launched a storefront earlier this month selling software for direct download, a move that analysts noted would help boost profit margins by eliminating the need to ship packaged software.

Earnings Warning

Outpost also said Friday that its weak December and January will cause the company to miss analyst earnings estimates for its fourth fiscal quarter, ending February 28th.

Outpost said that it will report revenue of $118 to $120 million, up 55 percent from last year but still below estimates.

“While the current economic environment and slowdown in computer sales makes us cautious,” Vick said, “we remain comfortable that we can achieve quarterly profitability” by early 2002.

In morning trading Friday, Outpost was down 38 cents to $1.13, a loss of 25 percent.