Online retailers are now shifting shipping costs to customers to protect their margins
nline retail stores have been a big hit with customers over the last couple of years. And what’s the reason behind this trend? Sheer convenience — a few clicks and the product is delivered free of cost to the shipping address. Soon, this last bit will be history. A number of leading shopping sites have begun charging a shipping fee over the last 3-4 months. They are doing this either on a flat basis, or on products under a certain price slab. Flipkart started charging customers Rs 30 for all products under Rs 300 from July. Yebhi started charging Rs 49 for orders priced below Rs 349 a month ago; Myntra charges Rs 39 for order priced below Rs 500 since July. Flat shipping fees are being levied by flash sale sites like FashionAndYou (Rs 100 for orders below Rs 750) and 99Labels (Rs 75 for shipping within India). But why this about-turn?
Online shops say free delivery was eating into their margins and it’s time buyers started paying for the convenience. “Every site was offering free shipping to build the market in the early stages of online retailing,” explains Manmohan Agarwal, CEO, Big Shoe Bazaar, which owns Yebhi. “Now that people are buying from us, we feel they should pay for the shipping.”
|With increase in shipping costs, online shoppers have started clubbing orders|
Moreover, “Shipping costs form a large component of the order value, and almost 13-14% on orders worth Rs 500 and below,” explains Ashutosh Lawania, co-founder and head-marketing, Myntra, adding that the average shipping cost, including packaging, works out to Rs 70-80 on an order. “So, if we give away that much on orders having lower size, we lose out on margins.” Myntra’s operating margins hover around 35-40% and Lawania says the enterprise is working towards a business model where it can recover as much money as possible.
FashionAndYou says it now has shipping charges on almost every category and wants to keep it that way. “Free shipping was taking away 8% of our margins,” says Abhishek Goyal, CEO, FashionAndYou, who does not want to reveal his company’s margins but is happy to report that shipping charges now take away only 2-3% of margins.
What about the buyer? Online retailers insist they aren’t complaining. “The good thing is that customers have started clubbing orders,” says Goyal. “They are buying more than one product to avoid shipping charges.” FashionAndYou’s average order value has gone up 20% from its earlier Rs 1,500-2,000. Myntra’s average order value has gone up from Rs 1,200 to Rs 1,400 but Yebhi admits that while order values have gone up, it’s because of increasing cost of products.
The coming year could see online retailers stepping up shipping charges. “We might also have shipping charges on larger orders very soon, though we will do it gradually,” Yebhi’s Agarwal says with due caution. Myntra, on the other hand, is looking at extending shipping charges to orders delivered within a day. All that may be a little while away but for the customer, it looks like there’s going to be no such thing as a free delivery.