People love online shopping for a variety of reasons. Convenience tops the list for many. Shopping from your couch is a lot more convenient than jumping in the car and driving across town. And yet, there is one thing that trumps convenience: shipping costs.
Online retailers are coming to grips with the fact that customers want free shipping. Shipping is never really free inasmuch as retailers build it into their prices as a cost of doing business, but consumers still want to see the words ‘FREE Shipping’ attached to their orders.
- Both Retail and Wholesale?
A 2019 market research report from the National Retail Federation pretty much tells the story. According to their data, 75% of U.S. consumers expect free shipping when they shop online. They expect it even on orders under $50. The study also revealed that:
- 65% consider shipping costs before proceeding to check out
- 39% expect 2-day shipping to be free
- 29% have abandoned an order after discovering shipping wasn’t free.
It is interesting to note that 70% are willing to go pick up their products at a physical store in order to avoid shipping charges. And if that is true for consumers, is it also true for retailers buying from wholesalers and distributors?
- The Illusion of Free
There is nothing truly free in business. Let us say you were a retailer looking to buy wholesale sunglasses from Olympic Eyewear in Salt Lake City, Utah. At the time of this writing, Olympic was offering free shipping on U.S. orders over $300. That appeals to you. It also encourages you to buy a larger volume of bulk sunglasses in order to save on shipping charges.
You turn around and offer your customers free shipping on all orders over $50. They have the same reaction. They may be tempted to buy two pairs of sunglasses, rather than one, so as to avoid shipping charges. But in the end, it is all just an illusion.
Your wholesale distributors will not lose money on shipping. The costs associated with shipping are built in to their pricing structures in order to guarantee they still make a profit. Olympic may make slightly less profit per-piece by offering free shipping on orders that reach a certain value threshold, but they still aren’t losing money. Part of what you pay for their products covers their shipping costs.
It is the same at retail. Consumers looking for free shipping still pay for it. They fail to realize that retailers build shipping costs into their pricing. Consumers also don’t realize they are ultimately paying all the costs up and down the supply chain.
- A Game of Markups
What this all boils down to is essentially a game of markups. A product’s manufacturer sets a price high enough to cover its costs and earn some profit. They sell to distributors who do the same thing. Distributors turn around and sell to wholesalers, who also mark up the price, then sell to retailers who apply a final markup.
The final retail price of a pair of sunglasses reflects all of the costs and profit margins of every player in the supply chain. Those costs include shipping. Products like sunglasses have to be shipped from manufacturer to distributor, then distributor to wholesaler, and so on. The consumer pays for it all in the final retail price.
Although shipping is never truly free, consumers still demand it. If you want to sell online, be prepared to offer free shipping, whether that means direct to the customer’s door or to a retail outlet where they can pick up their purchases.
