Free Shipping Is Not Free

We recently had someone post a comment on our Facebook page who was perplexed by the fact that our retail prices increased when we adopted a free shipping model in November 2014. While savvy consumers are aware that free shipping is the primary selling point online retailers offer, it’s been our experience that many still don’t know that free shipping is not free.

Since the genesis of the Internet, more consumers are shopping online instead of driving to the brick and mortar establishments they frequented for years. With online sales steadily increasing, big box retailers began focusing more effort in attracting consumers to their websites. Earlier this year Forrester Research forecasted that online sales in the United States would grow to $334 billion in 2015, up from $284 billion the previous year. With 69 percent of Americans regularly purchasing products online, retailers big and small have had to adapt to the changing landscape. Arguably the biggest factor in that landscape involves the cost of shipping and the relative lack of options both retailers and consumers have available.

With the announcement that FedEx and UPS were implementing dimensional pricing for all boxes beginning on January 1, 2015, online retailers were forced to adjust their retail prices to reflect these additional shipping costs. Those increased shipping costs weren’t limited to small online retailers like Christmas Lights Creations. Every major retailer in the United States, including Wal Mart, Home Depot, Target and Amazon were forced to modify their free shipping models to offset the added costs of shipping.

Surveys conducted in the recent past indicated that greater than 60 percent of online shoppers were abandoning their carts before checkout due to high shipping costs. To counter that, the majority of online retailers implemented free shipping models in an effort to generate more revenue. In some cases, big box retailers were prepared to have lower profit margins because they viewed the loss as a cost of attracting new customers. Larger companies have the luxury of absorbing losses wherever they may occur, but small businesses can’t afford to do that.

The reality is that big box retailers aren’t prepared to lose money any more than a small business. In 2014, Amazon increased their minimum purchase requirement to $35 before a customer could take advantage of free shipping. Home Depot and Wal Mart offer free shipping with a minimum purchase of $45, and all of those big box retailers will add tax to your purchase when applicable. The reason customers buying from those retailers are required to purchase minimum amounts is because smaller orders would result in a loss due to higher shipping costs.

Unlike those big box retailers, Christmas Lights Creations offers free shipping with a minimum purchase of $50. Because we’re based in the state of Tennessee, we must apply tax to customer purchases made by Tennessee residents. We don’t charge tax on purchases for customers residing outside the state of Tennessee and we do not add any handling fees regardless of one’s state of residence.

However, like every online retailer in the United States we must factor in the cost of shipping into our retail prices. And frankly, our retail prices are as good if not better than any retailer in America. We conduct frequent research comparing the retail price of our products against those of our competitors, and we consistently rate as well if not better.

In some cases, there are online retailers that carry the same products that we do but do not offer free shipping. On the surface it may appear that their retail price is much better than ours, but the facts prove otherwise.

To that Facebook commenter who was confused why our prices increased when we implemented the free shipping model, the answer is simple. Because like every online retailer in the United States, we had to. There isn’t an online retailer in America that can literally ship a product to you for free because we can not absorb those costs. If we did that, every one of us would go out of business. In short, there is no such thing as free shipping. Free shipping is not free, and these are facts that every consumer should get their head wrapped around pronto, because thinking otherwise is pure folly.

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