For large U.S. retailers, free door-to-door has been normalized

Absrtact: January 3, for large U.S. retailers, free door-to-door has been normalized. This is good news for consumers, but obviously not the same thing for investors. In the just-concluded holiday shopping season, target, wall

January 3, for large U.S. retailers, free door-to-door has been normalized. This is good news for consumers, but obviously not the same thing for investors.

In the just-concluded holiday shopping season, Target, Wal-Mart and Amazon have added free door-to-door service options to make more products available for free onsite service. In addition, the retailers have abolished the minimum threshold for spending on the benefits.

However, as more and more American consumers see free shipping as their right, it is difficult for retailers to make profits by opening up the electricity business service. Analysts said the dilemma was clearly reflected in the holiday season's earnings weeks later.

"For most companies, the cost of trying to provide fast, free services is too high," said Steve Osburn, head of supply chain Kurt Salmon, a retail consulting firm Jasmine. For some retail outlets, this will erode profits. ”

As physical retail stores and Amazon competition constantly upgrade, delivery links become the key areas of contention, so they have to spend huge sums to build logistics team. While free door-to-door is a popular promotional tool for businesses in the holiday shopping season, retailers seem to be increasingly reliant on the trump card in 2014.

In the third quarter of 2014, the proportion of free-shipping net purchase orders reached 68%, a 44% increase from a year earlier, according to comscore, the industry data tracker. Amazon said this week that its free shipping activities in the holiday shopping season helped consumers save 2 billion of dollars.

Most of these free shipping activities are obtained through Amazon's Prime membership. Pay 99 dollars a year to become a prime member, most goods can be free door-to-door.

Amazon declined to disclose data from the previous year, nor did it disclose how much prime consumers would spend, as compared to the average consumer, a figure that would be useful for understanding the impact of Prime members on Amazon's revenues. Sucharita Mourproux Sucharita Mulpuru, an online retail analyst at the US market research firm, estimates that Amazon will lose 1 billion to 2 billion dollars a year in the US prime delivery fee.

Other retailers, including Target and Wal-Mart, are also waiving the minimum threshold for free door-to-door to attract consumers. Jasmine's data showed that more than half of the companies surveyed had removed the threshold for free shipping during the holiday shopping season in 2014, compared with a 5% per cent for those offering free shipping services over the same period a year earlier.

High cost

However, analysts say the promotional practices of this consumer solicitation are often accompanied by high costs. Amazon's shipping costs rose 32% in the first nine months of 2014, compared with a year-on-year increase of 29% per cent for the company in 2013.

This growth in consumer "subsidies" may be a good reason for investors to give up Amazon's shares. U.S. stocks rose more than 11% in 2014, according to the S & P 500 index, while Amazon's shares fell 22%.

Retailer Target said last November that growing net sales are making its margins pressure, mainly because of high shipping costs. Like Amazon, Target also offers free shipping throughout the year for its membership card holders. Analysts expect Target's sales to be $74 billion trillion in the fiscal year ended January 31, 2015, while net sales accounted for 2.5%, about $1.85 billion trillion.

In a recent study, Wolfe Research said that Target's net sales share increased by 1% per cent, and its profit margin dropped 5 basis points. The company said the cost of the holiday shopping season's free shipping promotions did not have a substantial impact on its fourth-quarter performance, and it also expects to boost its profitability through the launch of its online business.

Wal-Mart has yet to disclose the profitability or shipping costs of its electrical business. The company said last October that it expects to invest heavily in the electricity sector in the next six to 18-24 months, and that its operating losses are inevitable during the building of warehouse centres and other spending to drive sales growth. The company expects revenue from the electricity sector to reach $12.5 billion by January 2015, and will grow at 30% to 40% over the next three years.

"Most physical retailers dabble in the electricity business but are still operating at a loss because they cannot control the cost of delivery," said Jarrett Streebin, Easypost CEO Jallett Stribing of the express industry start-up. If Wal-Mart doesn't save on shipping costs, I don't know which entity retailer can do that. ”

There's no other choice.

Retailers have no choice but to adapt. America's huge retail sales are growing slowly, but the size of the electricity business is growing fast. In the third quarter of 2014, U.S. network sales rose 16% year-on-year, while retail sales grew by only 4%.

To offset the high cost of shipping, American retailers have relied more on their physical stores in 2014, a method known as "full channel retailing" (omnichannel). The strategy includes picking up online orders for consumers directly from nearby physical stores, rather than going to remote warehouses to pick up the goods, which could reduce shipping costs or encourage consumers to come directly to nearby retail outlets.

Take Wal-Mart, can realize the day to the physical store free to mention the type of goods has more than 70,000 kinds.

At the same time, Amazon is rapidly building its storage center near the American metropolitan area in order to deliver faster delivery services. In addition, the company also offers a faster delivery service in New York Prime Now, which can be delivered to buyers within an hour.

Oliver Chen, an investment banker Cowen and company analyst, said: "Everyone's profit margins are falling, but it doesn't matter because you have to compete in such a way." Whether you like it or not, this is the new model of consumption. (LI)