24/7 Wall St.

Whether buying online or in an old-fashioned store, customers and shoppers love to hear “free” followed by almost anything. In online sales, “free” is usually followed by shipping. Now it looks as though Etsy, Inc. (NASDAQ: ETSY) is trying to become the next “free shipping” destination for online shoppers.

Etsy issued a press release on Tuesday notifying customers and would-be customers that it will provide sellers who use the Etsy platform with tools and support that will make it easier for sellers to guarantee free shipping. There is of course a catch or two — it’s aimed at orders of $35 and higher, and it’s aimed at buyers within the United States.

In an effort to drive the free shipping preferences, Etsy indicated that products which are shipping for free are to get priority placement in Etsy’s domestic search results. While the move is said to be an initiative aimed at building buyer trust and loyalty, it’s also part of the evolution in an Amazon-dominated world.

While this may just sound like another effort to keep pace with Amazon and other online shopping destinations for goods, this also comes with an obvious benefit if it does not have any negative impact on user behavior. That would be that Etsy’s cut would come on higher-priced items than might have otherwise been found on Etsy searches. Focus on larger-ticker sales items could juice up margins and average sales prices.

The company’s press release indicated that shoppers on Etsy.com will primarily see items which are shipping at no charge and from shops and vendors which offer free shipping on orders of $35 or more.

Etsy noted that the company plans to start actively marketing its free shipping initiative to buyers starting in September. The press release might indicate that Etsy should just making its shift sooner rater than later, but the move is obviously ahead of its busier season. According to Etsy’s own buyer data, the company noted that buyers are significantly more likely to purchase an item in their cart with free shipping versus similar items which come with added shipping costs. This is similar to what other marketplaces have said over time, and it should be common sense to a degree.

Etsy seems to have some proof in the pudding here as well. The company’s press release indicated that Etsy ran a limited free-shipping promotion during May of 2019. The result was said to be higher order values on purchased items that shipped for free or were eligible for free shipping.

And for better metrics that investors would care about, Etsy’s press release indicated that the free-shipping initiative should have modest upside to Etsy’s previously announced 2019 gross merchandise sales guidance.

Josh Silverman, Etsy’s Chief Executive Officer, said:

Shoppers come to Etsy to discover over 60 million special and unique items that often cannot be found anywhere else. Yet we hear that high shipping prices often deter shoppers from completing their purchases. By making free shipping the norm on Etsy, rather than the exception, we’ll connect more people with items that they love. Ultimately, we believe this will help increase marketplace conversion and order value, encourage repeat visits, and drive more sales for Etsy sellers.

Etsy shares were last seen up 4.2% at $66.71 on Tuesday shortly before the closing bell. Etsy has a 52-week range of $38.02 to $73.35, and its consensus analyst target from Refinitiv was last seen at $74.64. Etsy’s current market capitalization is $8 billion.

Wedbush Securities has only a Neutral rating on Etsy based on valuations, but the firm did outline how the free-shipping initiative could impact its numbers based on multiple approaches. That report said:

If sellers move the cost of shipping to the product there would be a positive impact to GMS, and a negative impact to take rate, leading to a neutral revenue impact (Etsy’s take rate includes shipping cost, but shipping is not included in GMS). If sellers eat the shipping cost, and take a lower margin on their sales, that would have a neutral impact to GMS, and a negative impact to take rate, leading to lower revenue. However, Etsy expects the overall initiative to have a net positive effect as conversion and frequency will improve and should help the long-term GMS trends. We’re also not expecting Etsy to subsidize the shipping cost for sellers, and therefore don’t expect an added operating expense for the company.