Amazon says it will offer free holiday shipping to all of its customers on hundreds of millions of items, a potentially costly competitive move designed to keep pace with similar moves by the company’s retail rivals.
Normally, customers who aren’t in the Amazon Prime program would need to order a minimum of $25 worth of qualifying items to get free shipping. Starting on Monday, Amazon says it will remove that minimum order requirement on eligible items “for a limited time,” without providing a specific end date for the promotion.
But this is not for two-day shipping. The company’s help page for the new program has the fine print: “With free shipping, your order will be delivered 5-8 business days after all your items are available to ship, including pre-order items.”
Even so, the program could get expensive for the company. Amazon spent more than $7 billion on shipping in the fourth quarter last year, before subtracting the shipping fees it collects from customers. If Amazon’s shipping costs keep rising at a similar pace, they could easily top $9 billion in the current quarter. That would be more than 12 percent of the $71.8 billion in sales that analysts currently expect the company to report for the quarter. With this move, Amazon is forgoing many of the fees it would normally collect to offset shipping costs.
The announcement is “yet another example of the steps retail ‘heavyweights’ such as Amazon, Walmart, Target, etc. will take to continue to expand market share, and they will use every weapon in their arsenal to accomplish this,” said Charlie O’Shea, Moody’s lead retail analyst, in a statement from the research firm.
“Free shipping is one of the easiest promotions to execute for a retailer, and is certainly popular among consumers, however it is a very costly initiative to undertake,” he said, noting that Amazon’s shipping costs for its 2017 fiscal year totaled almost $22 billion, and its shipping costs over the last 12 months were about $26 billion. “Amazon’s patient and seemingly profit-agnostic shareholder base provides the company with the flexibility to offer this type of costly promotion, which is a unique competitive advantage.”
Some customers were already seeing the option on Sunday evening.
It appears that Amazon is starting to offer free standard shipping on everything except for add-on items during the holiday season. This matches what Target is doing from now until December 22 (no end date was given by Amazon). https://t.co/GwUL02mERR pic.twitter.com/cDVh15NjEL
— RPG Site (@RPGSite) November 5, 2018
The news follows Target’s recent announcement that it will offer free two-day shipping on hundreds of thousands of items. Despite the longer shipping times for its new free shipping promotion, Amazon says it will have the “largest free shipping selection in the country.”
In addition, Amazon said the number of items available for free same-day delivery to Prime members now tops 3 million. Free two-day shipping has long been the core benefit of the Amazon Prime program, which costs $119/year.
Separately, Amazon is testing a program to let customers designate a specific day of the week as a default to receive their orders.
Updated on Monday morning to add Moody’s comment.