2022 Shipping Report

Fast and Free Shipping: The One-Way Ratchet of Consumer Expectations

Brands need to provide fast shipping. How can they do it without breaking the bank?

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Key Insights

1. Free shipping is irrationally important to consumers

Free shipping is the #1 driver in motivating consumers to complete an online purchase. They would rather pay more overall to qualify for free shipping than pay separately for shipping.

2. Amazon Prime has habituated consumers to fast, “free” shipping

Most American adults are Prime Members, meaning they spend $14.99 a month or $139 a year for same-day and next-day delivery. Notably, 86% of Amazon Prime subscribers we surveyed feel like they’re getting expedited shipping for free and don’t feel the impact of their subscriptions.

3. Free two-day shipping is already table stakes for consumers

76% of consumers expect free two-day shipping with a minimum purchase of only $40, and 8 out of the 10 biggest retailers in the US offer free two-day shipping. Among them, six require no minimum purchase, only two require a subscription, and the retailers run the gamut across industries, from prescriptions to power washers.

4. There’s already a sizeable appetite for free next-day and even free same-day shipping

61% of consumers expect free next-day shipping and 52% expect free same-day shipping with a minimum purchase of only $40. Retailers are stepping up to the plate; 4 out of the 10 biggest non-grocery retailers offer free next-day delivery and of these, 2 require no minimum purchase and only one requires a subscription.

5. There is a significant power imbalance between the top 10 retailers and the rest of the market

While 80% of the 10 biggest retailers in the US offer free two-day shipping and most of them require no minimum purchase, only 26% of the remaining retailers on the list offer the service, and among them, most require a minimum purchase of at least $50.

6. Free shipping is difficult and expensive for brands to provide at any speed

The cost of standard shipping for a high-volume brand has increased by 71% in the last five years. 27% of the retailers in NRF’s top 100 list do not even offer standard shipping for free, much less at the speeds that consumers now demand.

The solution

7. Brands need local fulfillment operations

Within the centralized fulfillment paradigm that most brands rely on, even two-day deliveries are a tall order. There’s no way around it: brands need a distributed fulfillment strategy, close to where their customers live. This enables the fast deliveries that consumers expect and dramatically lowers shipping costs.

There's no such thing as "free shipping"

“There’s no such thing as a free lunch” is a popular adage exposing that even if something appears free, it always costs something to someone — the cost is simply hidden. It applies to everything from economic policy to the laws of thermodynamics, and is certainly true of free shipping.

In e-commerce, it’s widely known that free shipping is of paramount importance to consumers. But, of course, even “free” shipping has never actually been free; brands and retailers have just footed the bill.

When e-commerce volumes were steady and consumers were satisfied with shipping windows of three to five business days, brands were willing and able to absorb this cost. But with e-commerce skyrocketing since the onset of the pandemic, and consumers expecting their deliveries faster than ever, the free shipping proposition that remains so critical to consumers is becoming increasingly less tenable for brands to provide.

We surveyed 500 consumers to learn more about their expectations regarding cost and speed of shipping. We also analyzed the shipping options that the top 100 US retailers (excluding grocers) provide, in addition to surveying 200 brands, to establish the benchmark that has been set for consumer expectations.

We learned that providing free two-day shipping is now table stakes for all brands and retailers, and the expectation that they will provide free next-day and even free same-day deliveries is nipping at their heels. What’s more, we discovered a significant disparity between what the top 10 retailers offer in terms of fast, free shipping and what the other players on the market offer.

Read on to learn more about what consumers expect regarding shipping speeds, why they expect free shipping, why this proposition is so hard for so many brands to provide, and – most critically – what brands can do about it.

Fabric research

Free shipping is irrationally important to consumers, and brands know it

Free shipping is the #1 driver for consumers to complete an online purchase
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It’s unsurprising that the vast majority of the 500 consumers we surveyed cited free shipping as a non-negotiable expectation when shopping online. Eclipsing speed of delivery and even price, free shipping is the number one driver in motivating consumers to complete an online purchase.

The 200 brands and retailers we surveyed are in alignment with consumer expectations that free shipping is sacrosanct; they also cited it as the top driver in consumer conversion to purchase, placing it above customer service, price, and speed of delivery in importance.

The consumer desire for free shipping is deeply psychological. Shipping costs are one of the most acute sharpeners of the “pain of paying,” the discomfort that people experience when completing certain kinds of purchases. In fact, most people are willing to pay more overall just to clear a free-delivery purchase minimum.

What bothers consumers is not the total amount of the tab, but rather the feeling that they’re being nickeled-and-dimed to pay for an extra service when they’re already in the vulnerable position of forking over money for a product.

Customers now expect free shipping faster than ever too

Amazon Prime has set the standard for fast, free shipping – even when it’s not actually free

Consumer expectations are a one-way ratchet, and Amazon has long since been pushing them in the direction of increasingly fast delivery times. It’s estimated that roughly 70% of American adults are Prime members, which means that the vast majority of consumers have access to same-day and next-day delivery for millions of items.

While Amazon touts these deliveries as “free,” Prime subscriptions of course cost money. The e-commerce behemoth just raised its Prime prices for the first time in four years, with a monthly plan now costing $14.99 and the price of an annual plan reaching $139.

How consumers feel about shipping costs when making an order with expedited Prime Shipping
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Again, consumers aren’t rational when it comes to the pain of paying. Among the consumers we surveyed who subscribe to Amazon Prime, the vast majority admit that they barely feel the impact of their subscriptions. 50% of Prime subscribers report that they feel like they’re getting expedited shipping for free and don’t even think about the subscriptions they paid for, while another 36% report that they know they paid for the subscription and yet still feel like they’re getting the service for free.

“The trick Amazon pulled off was to divorce shipping costs almost entirely from individual buying behavior by charging an annual shipping fee, then further camouflaging matters by making video-streaming services and the like part of the package.”

– Amanda Mull, The Atlantic

While fast, free shipping is extremely difficult to execute, the top retailers in the market have risen to the challenge in a bid to compete with Amazon and provide their customers with amazing online shopping experiences.

Free two-day shipping is already table stakes for consumers, with 76% expecting it with a minimum purchase of only $40

76% of consumers expect free two-day shipping with a minimum spend
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76% of consumers expect free two-day shipping if they hit a minimum spend of $40, and another 16% expect it for a minimum spend of $60. What’s more, nearly 1 in 4 shoppers we surveyed consider free two-day shipping to be a “must-have,” meaning if the brand or retailer doesn’t offer it, they will shop elsewhere. Another 35% consider free two-day shipping to be very important; if the retailer or brand doesn’t offer it, the consumer will only purchase an item if they have no other option.

8 out of the 10 biggest retailers offer free two-day shipping, but most other brands don’t (or can’t)

8 of the 10 biggest retailers offer free two-day shipping
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We analyzed the services offered by the retailers on NRF’s list of top 100 retailers (excluding grocers) and discovered that only 29% of retailers offer free two-day shipping, and most require a minimum purchase of at least $50. Only 11% do so without requiring a minimum purchase. This would suggest that the offering is still far from standard.

Share of US retail sales of top retailers
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However, a closer look at the top 10 retailers tells a very different picture. We discovered that 8 out of the top 10 biggest retailers in the US provide free two-day shipping, and among them, six require no minimum purchase. Among them, only Amazon and CVS require a paid subscription to qualify. (While Walmart+ is a subscription service that offers expedited shipping among other benefits, the retailer also provides free two-day shipping on millions of products, no membership required.)

This is significant for two reasons:

1) It shows there is a significant power imbalance between the top 10 retailers and the rest of the market

While the Walmarts and Targets of the world have the resources and infrastructure in place to provide free two-day shipping — and with no purchase minimum, to boot — it’s a far more difficult proposition for other players to offer.

2) These top 10 players represent 71% of retail sales and span all categories; their ability to offer two-day shipping drives consumer expectations.

The top 10 non-grocery retailers take a disproportionate share of retail sales – 71%, in fact. What was once “the Amazon effect” is now “the top 10 effect” – across all categories, American consumers can get free two-day shipping on virtually anything. It’s no longer a tall order for Americans to expect free two-day delivery for outdoor power equipment, much less health and beauty or homecare products. A consumer who can have a tube of mascara delivered for free within two days from Sephora is much more likely to shop there than at Ulta, which does not offer the service.

It’s safe to say that free two-day shipping is already tablestakes, and brands that don’t offer the service are already falling behind the one-way ratchet of consumer expectations.

What was once “the Amazon effect” is now “the top 10 effect” – across all categories, American consumers can get free two-day shipping on virtually anything.

And there’s already a sizeable appetite for free next-day and even same-day shipping with a low minimum order

61% of the consumers we surveyed expect to get free next-day shipping and 52% expect to get free same-day shipping for a minimum purchase of only $40 – meaning the majority of consumers expect lightning-fast deliveries for free without exceeding a very high minimum purchase benchmark.

40% of the top 10 retailers offer free next-day delivery, a proposition that’s nearly impossible for other players

Once again, it’s the big guys that are shaping these consumer expectations. 4 out of the top 10 (non-grocery) retailers in NRF’s 100 list already provide free next-day shipping, and among them, two of them still have no purchase minimum. When Best Buy provides free next-day shipping with a minimum purchase of $35, it becomes the consumer standard that an iRobot or speaker system should be delivered within one day. By contrast, less than 5% of the remaining retailers on the list provide free next-day delivery.

Shipping at any speed is an increasingly difficult and expensive proposition for most brands and retailers to provide

Since the onset of the pandemic, FedEx and UPS have been grappling with surging volumes and undesirable unit economics for residential deliveries. Both carriers have significantly raised their rates as a result. For high-volume shippers like the most popular brands and retailers, the cost of shipping a two-pound package via standard ground shipping skyrocketed by 71% in just five years, based on our estimates in collaboration with Crossroads Parcel Consultants.

That means that even providing standard shipping for free is now a highly costly endeavor. 27% of the (non-grocery) retailers in NRF’s top 100 list currently do not provide standard shipping for free, an indication that the cost of doing business is so burdensome these days that free standard shipping is no longer a given.

“No matter what business you’re in, stable supplier pricing is critical to the success of any enterprise, and today, it’s not a given for e-commerce brands. The integrated parcel carriers have initiated dynamic pricing initiatives that have resulted in unparalleled, variable, and increased shipping costs. This is especially true for e-commerce brands that are subject to costly surcharges specific to home delivery.”

– Dean Maciuba, Crossroads Parcel Consultants

To provide the fast deliveries that consumers expect for free, brands need to go local

Brands and retailers are in a bind: just as consumers expect free deliveries faster than ever, shipping prices have skyrocketed. Even providing the bare minimum — free standard shipping — has become incredibly expensive. Providing two-day or faster delivery for free is a cost that most players in the retail market cannot absorb. What’s more, fast deliveries, whether they’re free or paid, are extremely difficult to execute from a logistical and strategic perspective.

Most brands and retailers still rely on a centralized fulfillment paradigm, where e-commerce orders are processed in large warehouses located hundreds of miles away from consumers. In this centralized fulfillment paradigm, even two-day deliveries are a stretch to consistently provide. Packages must be loaded into trucks, transported across multiple shipping zones, channeled to a sortation center, and finally transferred to a van for the last mile journey to a consumer’s doorstep. Next-day deliveries are even more complex, requiring two stops in two different sortation centers, two journeys in vans, and an overnight flight – all of which becomes absurdly expensive quickly. And same-day deliveries? These are essentially impossible for most brands and retailers to execute.

Consumers now expect fast delivery for free, and won’t hesitate to shop elsewhere if a company fails to provide as much. There’s no way around it – brands need to move their fulfillment operations closer to where consumers actually live. Augmenting existing fulfillment operations with a distributed fulfillment strategy allows brands to dramatically reduce the distance between their inventory and their customers. The end result is the fast deliveries that consumers expect at a dramatically lower shipping cost.

Yet there’s a reason that centralized fulfillment has always existed, and that’s the economies of scale. Distributed, local fulfillment operations tend to be inefficient and expensive, especially when they rely on manual labor. That’s why a fulfillment strategy that leverages automation with high throughput in small spaces is essential for brands that need to move their fulfillment operations closer to consumers but maintain profitability.

Retail is always changing, and it’s not easy to predict what the future holds. But the data shows that speed is going to be a core element of the customer experience — it already is! Forward-thinking brands must incorporate physical closeness into their fulfillment strategies moving forward, addressing the fulfillment challenges of today while already building the supply chain of the future.

The survey is based on 700 responses from the United States split between 500 consumers and 200 senior managers responsible for Supply Chain, Innovation, or Digital in retail companies and brands with online revenue of $30M+. The respondents were recruited through a global B2B and Consumer research panel and invited via email to complete the survey, with all responses collected during September 2021.