No Kicking the Free Shipping Habit

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Earlier today, Wal-Mart announced it will provide free shipping on more than 60,000 online items during the holidays with no minimum purchase required.

This is big news for anyone in the e-commerce sphere. As Dow Jones Newswire reports:

"For the largest retailer in the world to lay down the gauntlet makes everyone in retail have to think about how what they offer compares," said Noam Paransky, retail strategist at Kurt Salmon Associates. "I would say at this moment retailers are evaluating just how economically they can provide something, or something similar, to what Wal-Mart is doing.'

It appears that free shipping is becoming to online shopping what zero percent financing is to the auto industry. If you need a boost in sales, flip that switch. (To illustrate how dependent that kind of relationship can become, an auto analyst once described zero percent financing to me as 'crack for car companies.')

And with the U.S. consumer so skittish, many retailers are turning that light on. A survey released today by Stamps.com found that 64 percent of respondents said free shipping, with or without minimum spend, is the most effective promotion they can offer during the holiday season, and more than half will be offering free shipping on more products this year compared to last holiday season.

The strategy, of course, can wreak havoc on margins. If that shipping cost isn't coming out of the consumer's pocket, it's coming out of yours.

But, in addition to increased sales, there's another upside: 52 percent of the Stamps.com survey respondents who use free shipping with minimum spend report their average order size increases by at least $4.

Perhaps the scariest thing for online shop operators is that shoppers don't just love free shipping; they expect it. A ComScore survey cited by Dow Jones found that 55 percent of shoppers said they would abandon their cart if free shipping was not offered.

So I hope you've got lots of bulbs, because it looks like this light might be on for a while.

Matt Quinn contributes to the Wall Street Journal's corporate finance blog. He has also written extensively about banking and corporate finance for publications including Inc., American Banker, and Financial Week. He lives in Brooklyn, New York.