Is This the Beginning of the End for Free Shipping?

Shipping, and whether or not it’s free, has been the de-facto decision maker for online shopping conversions ever since Amazon.com introduced its Prime membership in 2005. What started out as a way for non-Amazon retailers to remain competitive and to incentivize shoppers to buy more online has now become a very expensive customer expectation. In fact, a recent First Insight survey, The State of Consumer Spending: Retail Holiday Shopping Trends 2023, found that for 62 percent of consumers shipping prices have become one of their top considerations for where to shop online.

However, this sentiment may be changing. The survey also found that when looking at generational breakdowns, a whopping 91 percent of Gen Z consumers are willing to pay for shipping. In addition, one-third of shoppers surveyed say that they would be willing to spend $10 or more on shipping this holiday season. Surprisingly, the expectation for fast shipping is also waning — while nearly half of all consumers surveyed in 2022 expected shipping to take two days or less, the majority of consumers today say they expect shipping to take between three and five business days.

This is great news for retailers, most of which have had a tough time competing with Amazon and Walmart by offering fast, free shipping on nearly everything. With holiday spending forecasted by the NRF to be just slightly up over last year at 3 percent to 4 percent, any shipping costs retailers can save will make a significant difference to their end-of-year numbers.

Looking further at the shipping data, respondents who said that they're willing to spend more on shipping — specifically $15 or more — yields some interesting insights. These shoppers are two-and-a-half times more likely to spend more overall this holiday season than they did in 2022 and also to spend across more categories. However, these same shoppers know that retailers have been baking the cost of free shipping into the cost of goods, with 42 percent of this group expecting a 35 percent to 50 percent discount in order to finalize the sale. When compared to shoppers who will only spend from zero to $5, the higher shipping spenders are three times more likely to purchase luxury gifts and are more than twice as likely to use social media to help them find gifts than the $5 and under group. Developing highly personalized offers for these shoppers is just one way that retailers can improve their margins.

Actionable data is the key to understanding where shoppers are willing to spend more. This is just one way that retailers can maximize profits. Many retailers believe that the only thing shoppers ever want is a discount. And while that may be true for many consumers, there are important segments of shoppers who are willing to spend for the right item. In fact, we found that 87 percent of respondents will pay full price for a gift if they know the recipient will love it. Deeper dives into consumer behavior data will be more important in 2024 than in the recent past. Understanding which levers to pull to encourage specific groups of shoppers to spend can make a significant contribution to both bottom- and top-line numbers.

Viki Zabala is senior vice president of marketing at First Insight, a next-gen retail decision platform that helps retailers and brands create more profitable products and experiences.