Two competing retail chains are taking decidedly different tacks on online shipping fees during the holidays this year.
Target Corp. is offering free shipping and returns on all online orders from Nov. 1 through Christmas Day. Wal-Mart Stores Inc. is charging shipping fees for orders under $50. Target is No. 16 in the Internet Retailer 2015 Top 500 Guide; Wal-Mart is No. 3.
This is the second straight holiday season that Target has offered free shipping on all online orders, though last year the promotion was offered only through Dec. 20. This is also the second time in recent months that Target has offered free shipping on all online orders to entice shoppers. In August, the retailer removed the free shipping minimum for about two weeks as part of a back-to-school promotion.
The success of last year’s free shipping promotion during the holidays may be one reason Target decided to bring it back.
“The simplicity of the policy signaled to guests that shopping Target’s digital channel was simpler than ever, and sales soared,” Target.com president Jason Goldberger told attendees at the Internet Retailer Conference & Exhibition in June.
“The offer created a surge in traffic and conversion on both our conventional site and mobile, which as expected, was partially offset by a moderate decline in average transaction size,” former chief merchandising officer Kathee Tesija told analysts about the 2014 holiday shopping season on Target’s Q4 earnings call in February 2015, according to a transcript from Seeking Alpha. “Orders were up well over 50%, driven by very strong conversion increases on both the conventional site and mobile.”
Target is not alone when it comes to using free shipping to try to compete with Amazon.com Inc., No. 1 in the Top 500. Last week, Best Buy Co. Inc. (No. 14) said it will offer free shipping on all online orders through the holidays.
“For the past few years, free shipping has been an arms race,” says Samuel Lee, research lead for research firm L2 Inc. “Amazon is leading the way with free shipping on orders over $35 or free two-day shipping for Prime members. Wal-Mart and Target can’t win that game. Amazon’s net shipping costs have been going up 25% every year for the past 10 years. They’ll take a lower margin now [with free shipping] to gain sales share for the future.”
Target is using other tactics in addition to free shipping to grow its business this holiday season. In a blog post, the retail chain says it’s expanding its relationship with mobile app Curbside. The app allows shoppers to pick the Target store most convenient to them, select and pay for items from that store, and then pick up their orders from a designated delivery station at that store. Target says it’s increasing the number of stores where the service is offered to 121 from 21 stores in Chicago, New York-New Jersey, San Francisco and Philadelphia.
Target also will make it easier for international shoppers to shop online, accepting payment in nearly 60 different international currencies while expanding its shipping to include over 200 countries around the world. Target announced earlier this week that it would begin shipping online orders to consumers in many other countries, using the Borderfree unit of Pitney Bowes Inc. to manage fulfillment and the collection of customs duties.
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