Free shipping ups ante at holiday; brands scramble

21 Nov - Free shipping is the must-have deal for online gift givers this holiday season, so retailers who don't have the scale to compete will have to differentiate to inspire shoppers.

At the same time, the popular holiday promotion of free shipping is unsustainable over the long term, analysts say. Creative retailers will need more tools, whether it is flexibility on price or first-rate customer service, to lure in shoppers.

Last year's holidays featured a race to the bottom on price, with industry heavyweight Wal-Mart Stores Inc's online unit playing a game of chicken with Amazon.com Inc over who would be most aggressive with price reductions. But free shipping is stealing the thunder this year.

A survey by marketing technology company Unicast found free shipping to be three times more popular than any other deal, from coupons to a gift card with purchase or free returns.

Walmart.com threw down the glove last week, offering free shipping on electronics and many other items for the holidays, a deal that Amazon -- which already offers free shipping for thousands of items over $25 year-round -- said it would match.

"Clearly, this year retailers believe free shipping is an absolute necessity when it comes to winning value-conscious and increasingly informed shoppers," said Eric Best, CEO of Mercent, which helps retailers sell online.

Whereas U.S. online sales last November and December were sluggish, rising only 4 percent, according to comScore, the analytics company expects a 9 percent rise this year.

Forrester expects U.S. online retail sales to rise 16 percent this holiday season to nearly $52 billion, twice 2009's figure.

The increasing prevalence of free online shipping, offered by about 45 percent of retailers according to comScore, is hard to ignore by competitors who may not have the operating efficiency to withstand the hit to profit margins.

"This free shipping issue is a really good example where larger retailers are able to do things from a financial perspective that the smaller ones aren't able to do," said Gian Fulgoni, comScore's chairman.

STRINGS ATTACHED

The costliness of free shipping means many retailers' offers come with strings attached.

Whereas offers from L.L. Bean and Best Buy Co Inc require no minimum order, other free-shipping deals kick in only after a $50 purchase, such as at Target Corp and Old Navy.