Last week, Amazon reduced its minimum purchase to $25 for free shipping, following Walmart’s reduction of its minimum purchase to $35 and Target’s raising of its free-shipping minimum to $35 from $25, following Amazon’s reduction of its minimum purchase to $35 from $49.
Confused? Please see the timeline below.
Figure 1. Free-Shipping Timeline
Source: CNNMoney/Engadget/MarketWatch/Memphis Business Journal
The war was originally sparked with the 2005 launch of Amazon Prime, through which Amazon audaciously began offering free shipping (on selected items) for subscribers paying a $99 annual fee. Those Prime members receive an ever-growing list of services, such as free streaming video, free songs, photo storage and access to the latest services, such as one- and two-hour delivery, use of the Alexa intelligent agent, and so on.
Shipping minimums oscillated from that point onward, and many retailers offered free shipping during the holidays (at various minimums) to remain competitive.
Subsequent to the launch of Prime, the number of subscribers and features grew steadily, prompting Amazon to proclaim the first Prime Day holiday in 2015, which offered free trial memberships and deals exclusively for Prime members. Prime Day 2016 was even bigger, with Amazon announcing that orders increased by 60% worldwide and by 50% in the US. Consumer Intelligence Research Partners most recently estimated that Amazon has 80 million Prime members in the US, accounting for nearly half of US households. Given this figure and the ways that Prime membership locks in members through convenience, services and access to exclusive hardware platforms, Amazon is clearly challenging other retailers to respond.
The brief lifetime of Jet.com further inflamed the shipping wars. Jet initially launched as a type of online warehouse club, offering free shipping with a $35 minimum purchase. However, the company quickly dropped plans for a membership fee. Following Walmart’s acquisition of Jet.com in September 2016, Walmart adopted many of Jet’s policies (and it put Jet’s management team in charge of its online business), echoing Jet in offering free shipping with a $35 purchase in February 2017.
Despite its status as a titan of e-commerce, Amazon surprisingly matched Walmart’s offer of free shipping with a $35 purchase in February 2017 and then sweetened its own offer to a $25 minimum in May. Thus, the battle line has been redrawn at a $25 minimum purchase for free shipping. As of the time of writing, Walmart has not seen fit to match Amazon’s offer. One fundamental difference between the two companies is that Amazon’s shareholders seem to tolerate its paucity of profitability in exchange for rapid growth. Amazon could possibly offer free shipping across the board, and its shareholders would likely accept the lower profitability, whereas Walmart’s shareholders seem to be more traditional and focused on seeing earnings-per-share growth.
Other pieces you may find interesting include: Deep Dive: US Consumer Survey—Amazon Prime Members Love Shopping Offline Too, Deep Dive—US Consumer Survey: Amazon is Winning the Battle in the Toy Segment, Deep Dive: US Consumer Survey—Amazon Yet to Crack the Menswear Market