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The Price of "Free" Shipping for your Apparel Company

Free shipping, once a coveted find, has become a standard feature in the minds of today's shoppers. Retail behemoths like Amazon make it seem easy, but free shipping is never really free. This perk comes with a price tag, and small retailers need to get creative in order to afford it.

The Real Cost of Free Shipping

Purportedly "free" shipping is only free to the consumer, and even then shoppers are often paying a premium for the perk. Amazon customers who pledge their loyalty to its free shipping program are often receiving the discount through Amazon Prime, which costs them around $100 a year, helping to defray shipping expenses for the retailer.

The cost of shipping always has to come from someone. Big retailers can cash in on volume discounts and pay less for shipping services. In 2015, Amazon spent over $11 billion on shipping costs, but that volume likely earned it discounts of over 80 percent for overnight shipments, and as much as 60 percent on ground delivery. Small businesses can't command the same price cuts as retail giants, leaving them to adjust their expenses in other ways and absorb a greater percentage of shipping fees.

Evaluating the Supply Chain

A comprehensive view of the entire supply chain is crucial in order to determine whether your business can incur the cost of shipping promotions. If you're considering free shipping, you'll have to either sacrifice some of your profits or cut your expenses elsewhere. Overarching visibility can help you identify areas where you can reorganize distribution, streamline transportation, and improve logistics.

Though just 30 percent of companies use a transportation-management system (TMS), you can gain valuable insights by incorporating this type of software into your distribution system. For small businesses, turning to an independent logistics service provider (LSP) is often the best way to improve supply chain management. If you minimize your expenses elsewhere in the supply chain, you may find that you can offer free shipping while maintaining similar profit margins.

Meeting Consumer Demands

Free shipping is an important concern for any retailer. This value-added benefit is becoming the norm in the minds of today's consumers. During the 2015 back-to-school shopping season, a whopping 92 percent of shoppers expected free shipping opportunities. This is one of the fastest-growing consumer trends. Fortunately for consumers, 61 percent of retailers believe that free shipping offers notable benefits that outweigh the expense.

How Free Shipping Pays You Back

It's not easy to begin swallowing the cost of free shipping promotions, but offering this perk to customers can ultimately increase your profits. Free shipping will typically increase your overall sales. One case study found that offering free shipping for a particular purchase threshold increased sales by 90 percent. Using a similar strategy, you can encourage larger purchases, thus offsetting some of the shipping expense. Shipping promotions can entice new customers and help them overcome the hesitation of first-time buyers.

If you're thinking about offering free shipping, take some time to reevaluate your distribution process to find out where you can trim your current spending to make room for this customer-centered benefit. Start with a smart logistics consultation from The Apparel Logistics Group to see where you stand.

Posted: 11/9/2016 12:03:57 PM by Global Administrator | with 0 comments


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