The Wall Street Journal reported that Amazon spent over $6 billion on shipping last year. Retailers including Amazon, Best Buy, and the Gap have all raised free shipping minimums, not just because of the higher cost of shipping, but rather because it encourages shoppers to buy more. And from a game-theory perspective, that makes sense: Why pay the shipping fee when another $10 would get you free shipping and a pair of shorts? A cognitive bias called anchoring might also be to blame, as we still regard a shipping fee as the norm—free shipping seems like a discount in our mental calculations.
The National Retail Federation reported that 85 percent of online shoppers said free shipping is very important to them (though sales or discounts remain the most important factor). On the flip side, nearly half of the retailers they surveyed said they plan to increase free shipping offers. Down the supply chain, UPS, FedEx, and even USPS are promising retailers that they’re more prepared this year than last for the surge of shipping that will occur in the holiday season.
There are other reasons that free shipping is a good idea for retailers: One survey found that 74 percent of respondents abandoned their carts before checkout due to high shipping costs. Cart abandonment is a big deal, and has led Target to join the free-shipping bandwagon. It’s been speculated that free shipping can even build brand loyalty. Another study showed that higher shipping fees reduce store traffic.