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IREU Top500 The Customer Report: 2018

IREU Top500 The Customer Report: 2018

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Amazon moves to restrict free delivery

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Amazon moves to restrict free delivery
Amazon moves to restrict free delivery
Amazon is restricting its free delivery for UK customers, in a move that could take the pressure off other online retailers to deliver for free.

From this week, consumers must spend at least £10 when buying goods in a wide range of categories in order to qualify for supersaver free delivery, which typically takes up to five days to arrive. Orders that include entertainment products from books and DVDs to video games and software products will continue to qualify for free supersaver delivery, irrespective of the order value.

Amazon says the move “will affect only a very small proportion of orders.” But, it says, “it will allow us to offer you a significantly expanded selection of lower-priced products.”

The retailer also points to a recent widening in delivery choices, including a growing network of Amazon Lockers as well as the option to pick up at Collect+ stores, as well as its delivery subscription, Amazon Prime. But none of these options is currently free. Delivery to a Collect+ store or an Amazon Locker is charged either as one-day or first class delivery, and Amazon Prime, which includes unlimited one-day delivery, currently costs £49 a year.

The move will be significant for retailers competing with Amazon who have found it difficult to compete with Amazon’s hitherto free delivery and low prices while remaining profitable.

Alan Braithwaite, chairman of LCP Consulting and visiting professor at Cranfield University, said: “The cost of delivery is a high percentage of sales with a low transaction value, even when it is sent by Royal Mail without the proof of delivery process. However online marketeers have learnt that free delivery has been a major driver of sales volume growth. So the provision of free delivery and the fact that it can rapidly erode margin has been a key commercial tension for the sector. The fact that Amazon is taking this away is either or both an indication of a move to more sustainable economics or a statement of its leadership in the online industry.”

The news came as Amazon announced a 22% rise in net sales, which rose to $15.7bn in its second quarter. But the company reported move into the red at the bottom line, reporting a $7m loss. The company also said that its top selling items worldwide were all digital products, from Kindles to digital content.

Our view: This is a significant move on Amazon’s part. Since Amazon first introduced its free delivery on everything in 2009, retailers have struggled to compete with the low-cost model. Now the emphasis will no longer be on free delivery, except on goods that cost less to deliver. It might be thought that consumers will start to opt a very cheap CD or similar item in lieu of paying postage on their cheaper orders – but the cheapest we could immediately find was £2.93, only 37p less than the £3.30 cost of postage for a toy costing £7.49 that would previously have qualified for free delivery.
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