Daily Dose of iQ: Target Lowers Free Shipping Threshold to $25

Feb 24, 2015 — Beth Wanner

RetailWire reported today that Target has dropped its free shipping threshold from $50 to $25, undercutting Amazon ($35), Best Buy ($35) and Walmart ($50).

"Target is making the move after what (Target.com President Jason Goldberger) described as the 'enthusiastic response' to the company's free shipping offer over the holiday season," wrote RetailWire's George Anderson. "Between late October and Dec. 20, customers received free shipping on all Target.com orders regardless of size."

Target's hand was forced: The company hopes to gain some advantage by beating its rivals to the $25 threshold.

We blogged just after Christmas about the negative affect of free shipping on retailers’ holiday profit. The Reuters article we referenced argued Amazon is the only retailer with scale/volume enough to make free shipping profitable.

With this announcement, Target is taking an obvious risk, but its hand is almost forced here -– competing on the cost of shipping is going to happen with or without Target, so its hope is to at least gain some advantage by moving first.

I presume Target did some thorough analysis of competing on the basis of shipping costs (however, it's worth noting that the company dropped the operational ball in its attempted entry into the Canadian market). Either way, it's not a long-term strategy. It won't be long before other retailers either match or undercut this $25 threshold.

This is omnichannel: I expect the same experience online as in-store. No extra fees.

The announcement appears to be a reaction to consumer demand. There’s lot of competition out there and e-commerce makes it easier than ever for shoppers to scout a deal or more appealing shipping options.

I think this is the future of e-commerce. Consumers are demanding cheaper shipping options and I don’t see this reversing. It is definitely going to squeeze some of the smaller guys, but it will become a ‘you gotta pay to play’ sorta thing, with the ‘pay’ part being on the retailer to shoulder the burden of this new expectation. 

It also lends itself to the true definition of omnichannel. Eventually, I’m going to expect the same experience if I order from your online site as I would if I walked into your store –- which means the price is the same, no extra fees.

Topics: Retail Operations, Wireless Trends, Mobile Industry, e-Commerce

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