INSIGHTS

Inspiration and Ideas From Our In-House Experts & Customers

The Myth of Free Shipping

What is it about the "idea" of free shipping that is so attractive. I, myself have been lured by this phrase many times. But how can this be? UPS, FedEx and the USPS don't work for free. Does it really matter? At least we're saving some money.

A retailer throwing in the cost of shipping as an incentive for buying their product is believable enough. For instance, on Amazon.com if you spend over $25 you often are eligible for free standard shipping. Since a lot of the items that Amazon sells is books, CDs and DVDs one could see how eating a dollar or two is possible--especially since Amazon is such a huge seller. It's not like they are paying the same shipping rates as the average Joe on the streets. They get deep discounts and they play the averages to know that in the end, they won't lose money.

Where you should be suspicious about free shipping is on large or heavy items. Things like refrigerators, tires, auto parts, big screen TVs and furniture are extremely expensive to ship. It doesn't matter how large the company selling these items is. They are not going to be able to negotiate the price down enough with the carrier to give away free shipping. The cost is going to have to be made up somewhere.

So, how do retailers offer free shipping on these larger items. There are several ways, but here are the most common methods:

  • They hide the actually cost of shipping in the price of the item. This is an especially effective tactic on expensive items. For example, let's say that a big screen TV is priced at $3000. The retailer may pay something like $2500 for it. If the big box retailer is a big shipper, they may be able to negotiate a shipping rate of $150. So they offer "free" shipping to spur interest. In the end the retailer is still making $350 and has probably charged a higher retail price to cover those charges.

  • Another particularly effective method is the use of "standard" shipping. Let's take the example of the big screen TV again. The retailer may offer this TV for $2700 with a cost of $2550. Once again the actual cost of shipping is $150. Of course if they offer free shipping, they won't make any money. So how can they do it? They offer free "standard" shipping. The customer is told that the order may take 2 to 4 weeks for delivery, but if they wish to receive it within the next few days they can use an expedited shipping method and the cost will be $200. Of course many customers will be anxious to get that new TV so will go ahead and pay the extra shipping charge. The retailer actually makes an extra $50 on the transaction and this helps defray the costs of the customers that accept the free method. It's just a matter of averages.

This same principles apply to low cost shipping. The lesson here is that shipping is always charged and you may not see it. Once again, you may think, "big deal, at least I'm saving money one way or another." The problem with this mindset is that the true cost of the product is hidden. Let me give one more example to illustrate my point, this time from an industry that I'm more than familiar with: furniture.

Furniture Co. offers a wing chair for $450 with free shipping. The chair price is a steal in itself, but free shipping takes the cake. Now lets say that shipping the chair costs $200, which is not an unreasonable amount. That would put the cost at $250. Now think about this for a second. A wing chair for $250. Is this a rational price? Think about the cost of manufacturing. In that price is the fabric, frame, springs, cushions, finishing, upholstery, sewing and all the other parts and labor in addition to the profit to be made. Can you really make a quality chair for this price? One other thing to consider is that if this is sold retail (not direct from the manufacturer) there is a 30% - 50% markup.

I'm a strong advocate to showing customers the true price. That is one reason why Carrington Court breaks out the shipping price. We want you to understand that we are not hiding anything. Along those same lines we don't treat shipping as a profit center. Our goal is to break even on shipping. There are times that we lose a couple of dollars on shipping, but we never overcharge. We're in the furniture business not the freight business.

There's a lot more to be said about shipping. I know some may think this is a boring subject, but when you're purchasing furniture, it is a subject that is important to be informed on. I also don't want you to think that everyone offering free shipping is trying to rip you off. There are good deals to be had, but it is in your best interest to reflect on all the costs of your purchase. In the coming weeks I'll be posting an article detailing all the ins-and-outs of furniture delivery, the costs involved and different shipping methods available. Let me know if you have any questions.