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Is free shipping a necessity for luxury retailers?

By
August 27, 2012

Nordstrom's Web site

With the online retail space as competitive as it is, brands that offer free shipping give themselves a considerable leg up over competitors.

Not only will a free shipping offer coerce consumers to a specific retailer, but it could help build brand affinity since affluent consumers appreciate value. Indeed, free shipping could be seen as a kind of customer service.

“Free shipping is not a necessity for all luxury consumers, but it is a significant incentive for a portion of the luxury segment,” said  J. Robert Taglairino, president of Taglairino Advertising Group, Miami. “New wealth, representing a majority of high-net-worth individuals, appreciates a value gesture.

“Their value system is based on their middle-class upbringing and a strong sense that every dollar saved is a dollar earned,” she said. “In the luxury realm where we would rather not compromise the retail value of our brands, free shipping is a much appreciated gesture.

“So, in that regard it could be considered as a level of customer service instead of a discount.”

Package deal
Last year, department store chain Nordstrom bolstered its reputation for customer service and brand loyalty by dropping its shipping fees in favor of standard free shipping and returns in the United States on all items bought online.

The retailer’s previous policy indicated free shipping on orders of more than $200.

Nordstrom site

Then, Nordstrom competitors such as Barneys New York, Harrods and Neiman Marcus started offering free shipping in their home countries – the U.S. for Barneys and Neiman Marcus and England for Harrods.

Other retailers such as Net-A-Porter, Shop Bop and Gilt Groupe also offer complimentary free shipping and returns in select countries.

Meanwhile, others have less-lenient free-shipping policies.

For example, Bloomingdale’s offers free shipping on orders more than $150 and $50 on beauty orders.

Bloomingdale’s free shipping option

Furthermore, Bergdorf Goodman is offering a free two-day shipping upgrade on orders of more than $300.

Since they do not offer complimentary shipping on all orders, they could deter shoppers.

“What began as a competitive edge has quickly become a cost of business,” said Elizabeth DeMaso, managing partner at Brenes Co., New York.

“And, it’s presenting a frustrating conundrum for retailers who are forced to absorb the hard cost of shipping,” she said. “It’s not an easy decision and it eats into profits, but without free shipping, marketers run the risk of losing customers to other online merchants.”

Retail perks
A free-shipping offer could be seen as a crucial perk for affluent consumers.

Even though money is not a concern for these shoppers, they still appreciate perks and value such as a complementary delivery for online orders.

This is especially true for younger consumers, who will eventually become used to this practice.

“While Baby Boomers have dominated luxury spending for decades, they will be eclipsed by Generation Y in the next 40 months,” Mr. Taglairino said. “Gen-Y has cultivated its taste for luxury goods online with value-based online pricing during the course of the recession.

“While Gen-Y is evolving into full retail luxury consumers, it is unlikely that their taste for luxury goods online would be as strong without the incentives that lured them to the luxury marketplace in the first place,” she said.

Obviously, there are some disadvantages to free shipping for retailers, especially because it is an expensive marketing tactic.

For marketers considering the pros and cons of implementing free shipping, they should keep in mind that the online store is often the only way for a customer to visit a store since no retailer can cover every market with bricks-and-mortar, per Ms. DeMaso.

“Online retail has opened up access in a way that was previously impossible, and there should be expected costs associated with that kind of access,” Ms. DeMaso said.

“For marketers who just aren’t ready to take the free shipping plunge, there are other tactics that can be effective including loyalty programs and free samples with purchase,” she said. “Marketers can also consider offering free or reduced shipping on specific days or with a particular product purchase.

“Or, to help drive up the total purchase, marketers can offer free shipping at certain thresholds.”

Final Take
Rachel Lamb, associate reporter on Luxury Daily, New York

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Rachel Lamb is an associate reporter on Luxury Daily. Her beats are apparel and accessories, arts and entertainment, education, food and beverage, fragrance and personal care, government, healthcare, home furnishings, jewelry, legal/privacy and nonprofits. Reach her at rachel@napean.com.

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