Many retailers that struggled to fulfill pandemic-fueled demand for goods now find themselves with too much merchandise. Added to that are rapidly rising freight costs and customers who must spend more on essentials, leaving less cash available for discretionary purchases.
According to second-quarter earnings reports, some of the nation’s largest retailers resorted to offering promotions to sell off all their slow-moving products. The discounting has hurt retailers’ bottom lines and caused many to scale back their sales and earnings projections for the rest of 2022. With the holiday season approaching, retailers ended the first half of 2022 in need of space — in fulfillment centers, warehouses, and stores — for their peak-season inventories.
Walmart Inc. (No. 2 in the 2022 Digital Commerce 360 Top 1000 database) saw shifts in consumer demand coming and canceled billions of dollars’ worth of orders from suppliers late in 2021. But it still had a glut of inventory during Q1 and Q2 of the current fiscal year, the retailer reported.
Like rivals including Target Corp. (No. 5), Macy’s Inc. (No. 16) and Nordstrom (No. 20), Walmart offered promotional pricing to move its slow-moving inventory. But some retailers took another route. The Gap Inc. (No. 19) and Kohl’s Corp. (No. 21), announced plans to “pack and hold” some inventory to sell later.
At Kohl’s, that strategy contributed to a 48% year-over-year increase in the retailer’s inventory in the second quarter. The Gap reported inventory was up 37% year-over-year in Q2 of 2022.
Free shipping is still king
But despite rising costs, most top online retailers keep offering free shipping. And the reason is clear: shoppers love it.
Numerous Digital Commerce 360 consumer surveys show that free shipping is always popular with consumers. For example, in an August 2022 survey of 1,116 online shoppers by Digital Commerce 360 and Bizrate Insights, 70% of respondents listed the availability of free shipping as one of the three top criteria for selecting online retailers. In a similar survey conducted in May 2021, when COVID-19 vaccines were still rolling out, 82% cited free shipping as a top-three criterion.
But that doesn’t mean retailers can afford to offer it to everyone on every order.
Allison McGuire, vice president of marketing at Paper Mart, a packaging supplies retailer, believes free shipping should evolve into an earned perk retailers offer to high-value customers and prospects.
“Making free shipping exclusive to your loyalty program or newsletter subscribers creates customer loyalty and ‘fans’ of your brand,” McGuire says. “Unless companies’ margins are extremely high, most cannot afford to offer free shipping to everyone — or free returns for that matter — and still remain profitable.”
Free shipping offers in 2021
Among retailers in Digital Commerce 360’s Top 1000, nearly three out of four offered free shipping on at least some orders in 2021. However, retailers usually offer free shipping with strings attached, such as a minimum order threshold, or membership in a paid loyalty program, such as Amazon Prime. 45.1% of those require a minimum dollar amount to receive the free shipping.
Among the Top 1000, that minimum threshold averaged $65.27. Meanwhile, 4% of Top 1000 retailers offered free return shipping in 2021.
The Top 1000 ranks the largest e-retailers in North America by online sales.
2022 Ecommerce Fulfillment Report
This article contains information featured in Digital Commerce 360’s 2022 Ecommerce Fulfillment Report.
The report analyzes how retailers are adjusting to yet another “new normal.” For many merchants with stores, omnichannel services were the key to digital growth in 2021. In that year, customers took advantage of opportunities to pick up orders and get them delivered the same day.
The 2022 Ecommerce Fulfillment Report includes:
- Exclusive consumer survey results that reveal what customers value most, their evolving shopping habits and ever-changing expectations.
- Real-life case studies of retailers are adapting to change.
- Breakout sections on the fulfillment operations at Amazon, Target and Walmart.
- Results of Digital Commerce 360’s “mystery shopper” experience with same-day delivery.
- An update on logistics and supply chain issues.
- 20+ charts and graphs detailing fulfillment, consumer shopping behavior and more.
More about the 2022 Ecommerce Fulfillment Report is available to Digital Commerce 360 Gold and Platinum members as part of their paid memberships. Single-copy sales are available for $399. Get the report now.
To access this analysis and other exclusive ecommerce research and data, learn more about Digital Commerce 360 Memberships.
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