Consumers’ Preference For Free Shipping Hurts Smaller Retailers

Date: May 04, 2016

Volume Shipping Discounts Give Advantage To Big E-Tailers


Habituated to services such as Amazon Prime, which offers free shipping for products but charges an annual fee, consumers increasingly expect Internet merchants to offer no-fee shipping. The trend is putting small e-retailers at a disadvantage, because large firms like Amazon or Target can leverage their sales volume into deep shipping discounts. Essentially, big retailers are relying on free shipping as a loss leader to further boost their volume. The Wall Street Journal reports StellaService, a mystery shopper service, says data from 30 of the biggest e-retailers shows the percentage of orders with free shipping rose from 33 percent two years ago to over 50 percent. Package carriers FedEx Corp. and United Parcel Service Inc. will give volume discounts, providing e-retailing giants such as Amazon, Target, and Wal-Mart a significant competitive advantage. A survey of 560 shippers conducted by Shipware shows those able to provide reliable, guaranteed volumes of about $100 million per year could count on paying 80 percent less for overnight and 60 percent less on ground delivery.

Retail Wire reports the companies that are most affected by the free shipping trend are “smaller e-commerce players that can’t absorb the shipping costs.” Brian Yarbrough, an analyst at Edward Jones & Co., said, “Without free shipping, you lose a lot of customers. Retailers have been finding that the time when most people abandon their order online is when it shows the shipping charges at the end. That’s when they are most likely to just say, ‘I’m out.’”

What This Means For Small Business

While Internet sales are growing by large volumes every year, small businesses seeking a foothold on the web are at a competitive disadvantage because they can’t match big retailers’ volume.

Additional Reading

NFIB offers advice to small businesses considering the move to free shipping.

Note: this article is intended to keep small business owners up on the latest news. It does not necessarily represent the policy stances of NFIB.

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