April 1, 2010, 12:00 AM

How to compete with Amazon`s shipping? GSI may have an answer in ShopRunner

GSI Commerce is preparing to launch ShopRunner this year as a shipping service designed to help online retailers compete with Amazon.com’s Amazon Prime, which provides free shipping to customers who pay an annual $79 fee, industry analysts say.

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With its own shipping operations finally generating profits, GSI Commerce Inc. is preparing to launch ShopRunner this year as a shipping service designed to help online retailers compete with Amazon.com’s Amazon Prime, which provides free shipping to customers who pay an annual $79 fee, industry analysts say.

“If anyone can pull off this kind of ‘herd-the-cats’ effort, it would probably be an e-commerce platform company like GSI Commerce,” says Colin Sebastian, a stock analyst at investment firm Lazard Capital Markets LLC.

GSI has declined to speak publicly about plans for the shipping service. But GSI is advertising online for an account manager for ShopRunner. The ad states: “GSI has launched a membership marketing division called ShopRunner. ShopRunner members pay an annual membership fee and are entitled to a certain set of online shopping benefits from the biggest and best Online Retailers.”

Sebastian and Herman Leung, a stock analyst at Deutsche Bank, say they have learned about ShopRunner through market research and discussions with online retailers who say they’ve been contacted by GSI. Leung notes that GSI has said it plans to launch a new “consumer engagement service” this year and appears ready to build on the greatly improved performance over the past year of its own shipping operations. “GSI had been losing money in its shipping business for the last several years until 2009, which was the first year I ever noticed they made money from shipping,” Leung says.

GSI has been able to profit from shipping, he adds, because of its increased scale, as GSI’s 80 online retailer clients now generate some $3 billion in annual gross merchandise sales. That level of business enables GSI to negotiate favorable shipping rates from package carriers; with ShopRunner, GSI’s clients will benefit from those lower rates, the analyst says.

 

Amazon, No. 1 in the Internet Retailer Top 500 Guide, introduced its Amazon Prime service in early 2005 and has since used it to gain market share in online retailing, Sebastian says. He estimates that Amazon Prime has about 4 million subscribers, who each pay a $79 annual fee for free two-day shipping on most orders. “We note that free shipping continues to be an important feature for online buyers, and ShopRunner will help reduce this friction for some of GSI’s partners,” Sebastian says.

He and Leung say they expect GSI to launch ShopRunner well in time for the start of the fourth quarter 2010 holiday shopping season. While offering it initially to its existing retailer clients, GSI will probably also extend ShopRunner to additional retailers. That could bring GSI beyond its current base of mostly sports equipment and apparel retailers, into such areas as consumer electronics and home furnishings, the analysts say.

While there is no live service yet, there is a web page at ShopRunner.com that includes what appears to be the logo for the new offering: “you buy, we fly.” The site indicates ShopRunner is “coming soon,” and includes an e-mail link for obtaining more information.

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