Apparel Ecommerce: The 3 F’s and Avoiding the Failing Grade

For some time, Free shipping has been the difference between me completing a purchase or abandoning my cart online.  Simply put, free shipping is table stakes.

Retailers don’t like it.  Whether you consider the cost of shipping an operating expense or part of the cost of goods sold, free shipping hurts the retailer’s margin – and contributes to the low profitability of the online channel.

But it has gotten worse for retailers.

Image Credit: Amazon

Testing out Buttoned Down, Amazon’s private label clothing line for men, I – appropriately enough – bought six white button-down shirts.  Three of one size, three of another.  If the quality was good, and the shirt fit, I would keep three and return three.

Simultaneously, I needed new jeans for work, so I purchased six pairs at Levis.com. I ran the same experiment… three of one size and three of another. Free shipping came as a given.  Prime membership had cost something, but I don’t remember paying for it, and at Levi’s, I had well-passed the threshold for “Free.”

My white shirts were delivered in two nights.  My jeans took…. forever.  It was probably only five days – maybe even four – but it felt like an eternity, and I was frustrated.

Fast delivery is now table stakes.

Five days – for clothes that I bought for myself – had never been a disappointment before.  Now it felt unbearable.  A few years ago, fast delivery would have been a service offered by a strategic retailer in order to position itself.   Now, fast delivery – like free delivery – is a requirement for me. How fast does fast need to be? Two days for fast, free shipping feels good – Amazon set that standard.  And it feels reasonable to pay more for weekend or overnight delivery.  Will two days feel reasonable for long?

Now – about those returns.

Buying multiple sizes of the same item meant that I would make a return.  And Free Returns are offered by many companies. In this case, Amazon provided this perk.  Levi’s did not.  But wait… are free returns really a perk or does the customer expect it?

The cost of the 3 F’s – Free Delivery, Fast Delivery, Free Returns.

Amazon defrays some of the cost of the 3F’s with Prime.  Even including the Prime revenue, Amazon still loses money on its shipping practices.  Over $7 billion in 2016 according to Geekwire’s analysis.

Levi’s doesn’t even try to deliver 3F’s.

Levi’s gives you a hurdle just to get one F, free shipping.  They rely on the brand and their own site’s exclusive products to get the sale.  They are ceding the majority of the potential channel revenue to their retail accounts.  The sales to their retailers could be more profitable than their own direct channel.  Is it unrealistic to believe Levi’s could view their owned ecommerce site as solely a marketing tool and vehicle for exclusive products in the near future?

Now let’s say you are a newer ecommerce apparel company… how much could the 3F’s cost you?  I don’t know.  If I make a personal shipment using UPS 2-day air, from Chicago to San Francisco, my ups.com quote is $34.00+.  Do companies get discounted rates?  Of course, but even $20+ cannot be borne by the company.

How do you avoid a fourth F – Failing?

Two subscription businesses that rely on the ecommerce channel – Stitch Fix and Trunk Club – defray the cost of free shipping and free returns with a service charge for the total transaction experience. Like Prime, the free isn’t really free.  Trunk Club goes further in its efforts to reduce returns and now provides the opportunity to review your trunk and decline items before the trunk ships.  There is no fast delivery.  Personalization and Convenience are the service differentiators that these two companies use to avoid the black hole of failure.

I just placed orders with both retailers in order to test the differentiation strategy. I can’t wait to see what happens.

David Weiss worked for Levi’s from 2010-2013.  He no longer has knowledge of the internal operations or strategy of the company.