Aug 22, 2022
Kohl’s said its online sales in the second quarter benefited from higher conversion rates, driven largely by a move to lower its free shipping threshold on order size to $49 from $75.
On the retailer’s analyst call, Michelle Gass, CEO, said the company made the threshold reduction “to be more competitive.”
Among competitors, Macy’s currently offers free shipping with a minimum $25 purchase, down from as high as a $99 threshold in 2019. Free shipping kicks in at $49 at Belk and Boscov’s, $75 at JCPenney, $89 at Bealls and $150 at Dillard’s. Among upscale stores, shipping is free with no minimums at Neiman Marcus, Nordstrom, Saks and Von Maur.
The free shipping threshold is $35 at both Walmart and Target. Amazon in 2017 reduced its requirement for non-Prime members to $25 from $35.
Among more niche sellers, free shipping starts at $35 at Best Buy, $39 at Bed Bath & Beyond, $40 for Barnes & Noble, $45 at both Home Depot and Lowe’s, $50 at L.L.Bean and $65 at Dick’s Sporting Goods.
Formulas have been developed to calculate the free shipping threshold by measuring the degree to which the cut-off order value motivates consumers to add more items or abandon their shopping carts. A Wharton study estimates shoppers will spend 30 percent more to qualify for free shipping.
For many retailers, the calculation has to take into account loyalty and credit card programs that use free shipping as an incentive. Kohl’s credit card holders earn free shipping without any minimum order required if they spend at least $600 or more annually. At Old Navy, shoppers earn free shipping on orders over $50 only when joining the free Navyist program.
Some membership programs, such as Amazon Prime ($139 per year), Walmart Plus ($98 per year) and Barnes & Noble’s B&N Membership ($25 annually), employ free shipping as a primary perk.
Waiving shipping fees has also been used as a promotion tactic during holiday selling periods. Finally, retailers may lose some benefits of in-store pickup if a low free shipping threshold acts as a disincentive.
DISCUSSION QUESTIONS: How should the order size threshold for free shipping be determined? Should other factors (e.g., membership or credit card perks, potential free shipping promotions, incentivizing in-store pickup) count most in calculating the threshold order size?
“Ultimately, the order size threshold for shipping is individual to the retailer based on their costs and competitive dynamic. “
