Target Corp. (NYSE: TGT) dropped the amount of the total from a single customer in a single purchase that triggers free shipping from $50 to $25. Amazon.com Inc. (NASDAQ: AMZN) already offers free shipping. These shipping price cuts probably severely hurt margins at some retailers, a portion of which cannot afford it.
As it announced the new program, the huge store chain said:
Target Corp., effective immediately, all online orders of $25 or more now qualify for free shipping, with virtually no exclusions. The new minimum, decreased from $50, makes Target’s new free shipping threshold among the most compelling offers in online retailing.
“Lowering the free shipping threshold from $50 to $25 is one more way Target is putting guests first and making it easier for them to shop Target when and where they want,” said Jason Goldberger, president of Target.com and Mobile. “We saw an enthusiastic response to our free shipping offer over the holidays. Now, whether guests are stocking up or doing fill-in shopping, we’ve enhanced our year-round shipping offer to be one of the best in all of retail.”
Target did not say how many customers this would affect, nor how much the plan would cost it. If tens of thousands of customers take advantage of the program, the hit will be more than a tiny one.
Amazon’s Prime program offers free two-day shipping for all of its members. The catch, which helps Amazon offset these costs, is Prime membership costs $99 a year. Amazon might make money on Prime, even with the free shipping component. A number of investors believe otherwise and have criticized Amazon for these marketing costs. However, Prime puts pressure on other retailers to match its free shipping program or risk that consumers will migrate to those retailers that offer free shipping in some form.
Troubled retailer J.C. Penney Co. Inc. (NYSE: JCP) has a free shipping program, but it is not as aggressive as many others, which could cost it customers (but save it money). J.C. Penney’s program offers free shipping for orders of $25 or more. However, this is to have items shipped to a J.C. Penney store. Therefore, people have to travel to the locations, and customers “will be contacted when the items reach the store” J.C. Penney’s real free shipping is triggered when people make purchases of over $99. The plan is not as attractive as Target’s.
Some consumers use free shipping as a means to cut total costs of retail purchases. There is no telling how many people fall into this category. However, if retailers know the number is large, free shipping wars are on the way, and not all retailers can afford the battle.