Wednesday, February 4, 2015

Online retail: who's making money at this???

I love shopping online. Good prices, good selection, and the occasional useful consumer review. Mostly, I love the prices. I wonder though, if the prices we see today are still somewhat unrealistic, and driven by an attempt to build market share. Lots has been said about this WRT Amazon, but other retailers have demonstrated that they don't particularly care about profits either, by spending way too much on shipping things to me.

I once bought a $3 mouse from staples, and it was delivered in a box that must have been 2x2x3 feet! I had added it to get free shipping, but the sent it separately from the item I really wanted. That was a Black Friday sale, so maybe they were just out of reasonable sized boxes. Better to ship the item than make the customer wait forever, might have been their thinking. Or maybe UPS only charged them by weight, so it wasn't that much more expensive for them?

More recently I bought a couple Net10 phones from Walmart (LG Fuel, just $20, which makes a great music player; I don't plan to activate it). To get free shipping I took advantage of a sale item that they were advertising: a 40lb (total) set of barbells, which cost only $15. Yes, they shipped that for free. Having shipped a few things myself I can tell you that I would have paid over $50 to send that package. Walmart certainly paid less than I would, but there's still a good chance that the shipping on that one item cost more than I paid for the entire order. The kicker is that they were damaged in shipping so I had to return them (to a physical store, so I didn't have to pay shipping). I cannot imagine a context in which selling the Barbells online makes any sense. Let alone advertising them. Somebody actually made the decision to promote that loss leader!

Not to dump on Walmart.com, but my 3rd story also involves them. I bought some blocks for my daughter, which only cost $10. Shipping would have been $5, so I looked for other items that would add up to $50 for free shipping. I added 3 other items I would have wanted at Walmart anyway. Today Walmart notified me that my order shipped. And then again, and again, and again, for a total of 4 separate tracking numbers. That means that each item I purchased is going to be shipped separately. Now, I can't really, really know that this means Walmart is losing money on this order. I can certainly suspect it, but who knows, maybe they have a great deal on shipping rates - certainly, they must have one of the very best deals. But separate from that is the idea that I somehow earned free shipping by buying enough stuff. If each item was shipped separately, they might as well have given me free shipping starting from the very first one.

So the "meet this minimum and you get free shipping" model doesn't really work that well if you have multiple fulfillment centers and differing stock at each center. A more realistic model might be too complex for consumers though. Imagine that the shipping price changed in a semi-random way each time you added an item to your cart? The only compromise I can think of is to add a free shipping icon next to an item when it's going to be added to a cart that has an item in the same warehouse.  But even that sounds pretty annoying to use. I don't know what the solution is, but the current system means that a lot of orders are going to cost more than they make.


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