Free Shipping for Everyone

I predict that in 5 years free shipping will be the norm.

Let me paint a picture.  E-commerce started to take off 8 years ago because manufacturers who were paying slotting fees (definition) to stores like Macy’s and Sears realized they could use Google AdWords to directly establish 1:1 relationships with their customers, and save a crap load of money.

Obviously this didn’t make Macy’s and Sears of the world too happy so they made threats (“If you want our shelf space you better not think about setting your own store.”)

But you know what they say about holding back a tsunami.

It was this uncoupling that really made e-commerce take off.  To get a sense of how big e-commerce is today consider this: Bigcommerce and Shopify are two well known shopping platforms and they host 95,000+ and 200,000+ independent businesses respectively.  That’s 300,000 mostly small entrepreneurial businesses on just these 2 platforms.  And there are over 100 large platforms out there (not to mention custom stores).

But there is an elephant in the room: shipping fees.  The data is very clear on this: shoppers hate the idea of paying for shipping.  Some data is open to interpretation; this isn’t.

If you’re selling a high margin item you can absorb shipping fees.  But if you’re selling a handmade soap for $6.95 you have no option but to charge shipping.

Jet.com is a site that’s had a lot of publicity recently (is touted as an Amazon killer) because they’ve identified a way (details) to give shoppers lower shipping prices.

But Jet.com has scale and soaptopia.com doesn’t.

For the Soaptopias of the world to survive they need the help of UPS and FedEx.  These shipping giants have scale and (if they put their mind to it) can figure out a way to disrupt shipping price structures.

For example, if the FedEx truck is delivering a package to house 5498 in my neighborhood then the marginal cost of delivering one more package to house 5497 is nearly $0.  Right now FedEx doesn’t share those profits.

A small business would always want to have a direct 1:1 relationship with their customer (they don’t want to depend on jet.com) so they want UPS and FedEx to develop a solution.  If FedEx charges soaptopia.com 50% less for shipping (based on marginal cost argument above) then soaptopia.com can (and must) absorb the remaining 50%.  Moment that happens US e-commerce market will grow from $300 billion to $900 billion.  It’ll be a win for soaptopia.com, FedEx and soap shoppers all over the US.

Just my 2 cents.

2 thoughts on “Free Shipping for Everyone

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