Record holiday sales online could come with a price, Jupiter warns
Preliminary analysis suggests that Holiday 2002 sales online could exceed its earlier forecast of $13.1 billion, or 17% growth over last year’s holiday sales, according to Jupiter Research, which expects to release its final figures in March after more retailers release sales results. But web retailers could find there’s a price to pay for last year’s holiday boom times in months to come, Jupiter cautions: Customers accustomed to temporary free shipping used as a holiday promotion may demand it going forward.
Jupiter analyst Ken Cassar says widespread free shipping promotions were the primary reason the holiday season was successful for online retailers. Customers now expect it, putting pressure on retailers to make free shipping a permanent offer. To continue free shipping, retailers will have to recoup the cost by making warehouse, call center, and all other order-related cost centers more efficient, as well as negotiate rates as aggressively as possible with shippers, Cassar says. Even so, he questions whether those steps can make up the entire cost of free shipping and handling as a permanent offer.
“Retailers that want to maintain gross margins will have to make subtle increases in price. Retailers that want to continue free shipping will have to contend with either lower margins or higher prices. I don’t see any way around it,” he says.
With consumers increasingly valuing the web as a shopping channel for its convenience, shoppers may accept subtle, gradual increases in price where there’s free shipping, he adds. “It’s really a shift from one line to another. Data suggest that consumers are a lot more sensitive to a dollar in shipping and handling charges than they are to a dollar in product price, which suggests that if retailers shift a dollar from shipping and handling into product price, they may see a positive benefit from it,” he says.
But it’s a strategy that’s not without risk. If shoppers go to a price comparison engine and don`t factor shipping and handling charges into their price comparisons, he notes, they may wind up buying from a retailer whose total pricing is acatually worse than someone else’s, while believing they are getting a deal.
Cassar notes that while Amazon has bucked the trend by continuing to drop both prices and the threshold for free shipping, it’s in a unique position among online retailers due to its large sales volume and others shouldn’t necessarily follow its lead. “Amazon is willing to contend with lower gross margins in the name of driving sales volume. It may be right for Amazon, but not necessarily for everyone else,” he says.
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