In its second-largest acquisition, Amazon buys the company for $970 million.
The move appears aimed at increasing Prime’s popularity.
Amazon.com Inc. customers who are not members of the retailer’s Prime program will have to buy more to get free shipping on orders. The e-retailer, No. 1 in the Internet Retailer Top 500 Guide, says that shoppers who want free shipping through its Free Super Saving Shipping Program will have to spend $35 per order, up 40% from $25.
“This is the first time in more than a decade that Amazon has altered the minimum order for free shipping in the U.S.,” Amazon says. During that time, we have expanded free shipping selection by millions of items across all 40 product categories.”
The move appears designed, at least in part, to nudge more consumers to taking part in Prime, which offers free-two day shipping on eligible orders—plus access to more than 41,000 streamed TV and movie titles—for $79 a year. In the statement about the price increase, the e-retailer devoted about 60% of its comments to promoting Prime, including a link to a 30-day free trial of Prime. “The service is so popular that more than a year ago we began shipping more items with Prime than with free shipping,” Amazon says.
Still, an Amazon spokeswoman denies the price increase has anything to do with Prime. "The minimum order amount for free shipping at Amazon has not changed in more than a decade," she says. "That really is the reason why."
Amazon doesn’t say how many consumers have signed up for Prime, though several analysts put the figure at around 10 million. Though widely suspected of running Prime at a loss, Amazon generates about $1,200 in sales annually from the average Prime member, double the $600 spend for the average Amazon shopper who is not a Prime member, according to Morningstar Inc. and Consumer Intelligence Research Partners.
Amazon is scheduled to report its third quarter earnings on Thursday.
For at least one investor, the price increase portends bad news for earnings. "Free shipping is a central tenet of Amazon.com's growth strategy," writes Paulo Santos, an indenpedent trader, via Seeking Alpha this morning. "What Amazon.com is doing is backtracking on this central tenet. It would not do so lightly, it's a significant change, so its decision must be informed by something the market is not yet seeing--that is, earnings are so ugly that they demand action, even at the risk of maiming growth or provoking customer backlash."
The move could lead to larger average order values from Amazon shoppers, says Colin Sebastian, an analyst for investment firm Robert W. Baird & Co. And the price increase could lead to more Prime memberships. “If consumers who want free shipping have to spend more than $35 to qualify, it may become more attractive to pay the $79 annual Prime subscription fee,” he says. He estimates that Amazon has made 20 million items available for Prime.
The Amazon price increase also could benefit eBay, he says. “We would expect that the somewhat higher threshold for free shipping on Amazon could, on the margin, benefit eBay, where more value-oriented shoppers may fin discounted shipping on cheaper items,” he writes in a research note. “We also note that Amazon's higher threshold could negatively impact some third-party seller (e.g., in Media categories), who may look to eBay volume.”