March 09, 2007

Victoria's Secret --- Free Shipping And Free Returns On Pants

Varien.com talks about Victoria's Secret, and their free shipping and free returns promotion on pants. Kudos to Victoria's Secret for trying an interesting promotion that can benefit customers. It takes courage to incur an average expense of around $10 per order, without $13.95 from the customer to offset the expected expense.

Many multichannel retailers make money on shipping and handling. Zappos, Endless.com and Piperlime are essentially applying enormous price pressure on all multichannel businesses.

This long-term pricing pressure will cause multichannel retailers to reduce expenses elsewhere.

The very same vendor community that is unified in its fight against the USPS will fall victim to the eventual cost-cutting that free-shipping/free-returns is guaranteed to bring to multichannel retailing.

5 comments:

  1. Anonymous8:55 AM

    Kevin,
    Forget USPS for shipping out of state orders. UPS/DHL and to some extent FedEx are the shippers of choice for many retailers. Much more secure, easier tracking, easier integration with your business, and so on, balance out additional cost over USPS.
    What you are seeing with free shipping/handling, and free returns, is the attempt by catalogs and online stores to balance out hesitancy people have of ordering via internet/phone. Obviously saving 6-7% sales tax is normally offset by s/h fees so eliminating those fees provides a 7% cost advantage.
    With regards to pants return, many people prefer to see clothing in a store and try it on, check it out in mirror (or in that projected new craze, have a virtual audience from Nordstrom's dressing room). If they can't return something purchased online, then they will still prefer a store.
    So...Victoria's is banking on creating enough sales to offset that $13 loss you mention.
    2 followup questions for you---1. Apropos to your costco argument, what valid return policy should exist for an online store, especially clothing?
    2. Why doesn't VS, which has numerous stores, tie an online promotion with its stores? This pants promotion includes a free return to sender label. Why not a "ticket" that allows them to return to the store? Once there, they see something else they like, feed their impulse and turn a return into a new sale. As your whole blog is based on, the true multichannel retailer feeds all their channels.
    K

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  2. Hey Anonymous --- the USPS issue I'm talking about is where the USPS will raise postage rates so much that it will become challenging for small catalogers to afford to mail catalogs.

    Companies that have a retail presence have to charge online sales tax. That is why you are seeing companies like Zappos go free shipping --- it gives them a 15% advantage on price.

    I've executed dozens of free shipping tests. On average, when evaluating the tests over a period of time (say six months), you don't increase sales enough to offset the cost of free shipping.

    Tying online promotions to stores --- there are two big reasons that this doesn't happen, pundits won't like either.

    First, the online and retail channels are frequently run in different silos. As a result, communication between silos is challenging. Even more important, the language used between silos is different, and the motives for success are different. This makes it hard to coordinate campaigns.

    Second, the online and retail channels usually use different order-entry systems, and do not have inventory systems linked between channels. This makes it very difficult to execute strategies across channels. It will take five to ten years for retailers to upgrade their systems enough to make cross-channel activity seamless, and it will be exceptionally costly to do.

    The average person would say, well, DUH, just fix both of those issues.

    If you put the average person in these companies, and asked them to fix it, they will fail. It is VERY HARD to get people and systems to all behave the same way.

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  3. Well I totally agree with you on this point, Kevin

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  4. I wonder how they reduced the fees for shipping so they can offer this promo.

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  5. Anonymous9:52 PM

    It's true, shipping and handling can create additional income for retailers. There's a reason why wholesale clothes are available at cheaper prices.

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