Nomura Securities Retail Weekend Reading: Free Shipping Not a Free-For-All - Impact on Retailers’ Gross Margins
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Rating Summary:
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Up: 6 | Down: 5 | New: 17
Rating Summary:
4 Buy, 30 Hold, 6 Sell
Rating Trend: = Flat
Today's Overall Ratings:
Up: 6 | Down: 5 | New: 17
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Nomura Securities Retail Weekend Reading: Free Shipping Not a Free-For-All - Impact on Retailers’ GM from Free Shipping All the Time
Nomura analyst, Paul Lejuez, said, "Free shipping has been increasingly used by retailers year-round as a call to action (and these offers have been especially apparent this holiday season). Because it seems to work, we wonder if more retailers will choose (or be forced) to move towards using these offers on a more regular basis, whether to drive sales or simply to remain competitive. In today’s note, we consider the P&L and other impacts of retailers offering free shipping all the time."
"Nordstrom (NYSE: JWN) and Macy's (NYSE: M) have recently moved to free shipping, and while clearly driving topline, both have seen a reduction in GM as a result. Last quarter, JWN reported that the change to free shipping (available 2/3 of the qtr) hurt GM by ~15bps. Macy’s, which now offers free shipping on orders over $99 (as of Feb ‘11), indicated that the effect on GM has been ~20-50bps per qtr."
"Few retailers disclose their shipping revenues but Abercrombie & Fitch (NYSE: ANF) and Wet Seal (Nasdaq: WTSLA) both do, which (along with JWN/M comments) provide an idea of the GM impact if shipping revenues went away for good. If ANF and WTSLA were to offer free shipping year-round, it would result in a 40-60bps hit to gross margin."
"If Everyone Offers Free Shipping, Retailers Lose a Call to Action: The primary intangible impact of everyone offering free shipping is retailers would lose their call to action. We should not understate the benefits of free shipping. For now, when retailers offer free shipping, we believe it helps drive the top-line. But in a world where everyone has the same offer, it would lose its power. And it feels like we are moving closer to the day when customers come to expect free shipping all the time. We believe this is a good proxy for most retailers in our universe."
Nomura analyst, Paul Lejuez, said, "Free shipping has been increasingly used by retailers year-round as a call to action (and these offers have been especially apparent this holiday season). Because it seems to work, we wonder if more retailers will choose (or be forced) to move towards using these offers on a more regular basis, whether to drive sales or simply to remain competitive. In today’s note, we consider the P&L and other impacts of retailers offering free shipping all the time."
"Nordstrom (NYSE: JWN) and Macy's (NYSE: M) have recently moved to free shipping, and while clearly driving topline, both have seen a reduction in GM as a result. Last quarter, JWN reported that the change to free shipping (available 2/3 of the qtr) hurt GM by ~15bps. Macy’s, which now offers free shipping on orders over $99 (as of Feb ‘11), indicated that the effect on GM has been ~20-50bps per qtr."
"Few retailers disclose their shipping revenues but Abercrombie & Fitch (NYSE: ANF) and Wet Seal (Nasdaq: WTSLA) both do, which (along with JWN/M comments) provide an idea of the GM impact if shipping revenues went away for good. If ANF and WTSLA were to offer free shipping year-round, it would result in a 40-60bps hit to gross margin."
"If Everyone Offers Free Shipping, Retailers Lose a Call to Action: The primary intangible impact of everyone offering free shipping is retailers would lose their call to action. We should not understate the benefits of free shipping. For now, when retailers offer free shipping, we believe it helps drive the top-line. But in a world where everyone has the same offer, it would lose its power. And it feels like we are moving closer to the day when customers come to expect free shipping all the time. We believe this is a good proxy for most retailers in our universe."
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