Packages ready to ship move along a conveyor belt at the Amazon.com 1.2 million square foot fulfillment center Monday, Nov. 26, 2012, in Phoenix.Ross D. Franklin/The Associated Press
As Canadians go e-shopping this holiday season, many will be looking to score an increasingly popular online perk: free shipping.
It's a benefit consumers love, but it leaves some Canadian small business owners facing a costly business decision. To keep up with the trend, some smaller retailers have taken the free shipping plunge, despite the bite it can take.
"My husband, who does our books, hates our free shipping," says Karla Barton, owner of Langley, B.C.-based jewelry website CharmJunction.
"'There go our margins,' [he says]. It's huge… That's the single largest expense doing business online – the shipping."
Charm Junction doesn't offer free shipping for all of its orders – just for purchases over $150, delivered anywhere across Canada.
But Ms. Barton says she definitely feels the pressure to offer some sort of free shipping option because of its near ubiquity on large North American retail sites.
"It's almost the standard nowadays," she says. "People are offering free shipping both ways. Amazon and Zappos [have] trained people: If it doesn't work for you, throw it in the mail and we'll take it back for free."
Free shipping, often with some sort of minimum purchase requirements, is becoming an increasingly common selling feature among large U.S. retailers and their Canadian operations, as well as some large Canadian sellers jockeying for market share in the highly competitive world of e-commerce, says Diane Brisebois, president and chief executive officer of the Retail Council of Canada.
But many small Canadian retailers are feeling the pinch when it comes to shipping costs, she says, and it's becoming an increasing challenge as consumers demand it for free.
"A small retailer is at an incredible disadvantage, because not only can they not afford to ship for free, the rates that they pay are usually much higher [than larger retailers] because they don't have the volume that would allow them to take advantage of discounts or reduced rates," Ms. Brisebois says.
Shipping is generally more expensive in Canada than in the United States, says Ms. Brisebois. One big reason is geography, she notes.
"If you're a Canadian retailer shipping solely in Canada, you have a much greater distance to get to key markets," she says.
"You could be a retailer in California and just ship in California and have as much market as you would in Canada, and you might be going 300 miles, instead of 3,000 kilometres. So the distance itself is a huge barrier. And the cost of fuel has constantly gone up, so that affects the price of the cost of shipping, too."
On top of that, Ms. Brisebois says, Canadians have less choice than U.S. retailers when it comes to carriers.
"There aren't as many courier companies," she says. "In the U.S., there are a lot more regional players that would be considered big by Canadian standards. So if you're a small- to mid-sized retailer in the U.S., you already have greater choice. The moment you have greater choice, it generates greater competition because every courier wants your business."
Calgary-based Babybot, a baby-merchandise seller, has been offering free shipping with all orders, regardless of the price, since its launch three years ago.
"Back in the day, we wanted to put ourselves on the map as a big store right away, and one of the things we did as part of our marketing budget was offering 100-per-cent, totally free shipping, which was unheard of at the time, except for Zappos doing it in the U.S.," says Renee Bender, managing partner at Babybot.
"Free shipping is still hard to find in Canada, and we're still using it heavily as a competitive advantage."
And she believes it has been an important selling feature. "We've definitely built up a customer base that loves it, promotes it, brings people on because we have it," she says.
Ms. Bender says that offering free shipping did cut into Babybot's profit at first.
"The percentage we were paying in shipping out of our total revenue was about 14 per cent, and we were expecting it to be 10 [per cent]," she says. But as volume increased, the company was able to negotiate better rates with a new carrier.
"Because we're shipping a lot, we've been able to get really awesome shipping rates," Ms. Bender says. "We would not be able to afford it if it were still at 14 per cent. Now that we've got it down to 7 [per cent] or 8 per cent, we're making as much as a brick and mortar [store] would because we're not having the same overheads."
Even though there are only a few big shipping companies to choose from – FedEx, Purolator, Canada Post and UPS Canada – Ms. Brisebois suggests that retailers shop around before settling on a shipping rate, especially as volumes increase.
"There are some emerging courier companies and some established courier companies that cater to smaller companies, and may have better rates than others," she says.
The big players do seem to be courting small-business customers with incentives and discounts.
For example, FedEx offers new small-business customers discounts of 30 per cent on its express service and 15 per cent on its international ground services for the first two months, then works with each customer to determine appropriate discounts going forward, says Adrian Grundy, manager of corporate communications and public relations for FedEx Canada.
UPS Canada is running a pilot project in Ottawa and Calgary offering small businesses 20 per cent off shipping costs, and is considering expanding it nationwide in the new year, says Paul Gaspar, small business director for UPS Canada.
And Canada Post offers discounts of 5 per cent in its retail stores and 8 per cent using electronic tools to small businesses under nine employees. Canada Post is also trying to gain new "e-tailer" customers by integrating its tools with e-commerce platforms such as Magento and Shopify, says Canada Post spokesperson Anick Losier.
"This is where our future is," she says. "In the past quarter, we're seeing about two million pieces of mail less per day. But we're seeing a small increase in parcels – about 14,000 or 15,000 more per day – so, as e-shopping and e-commerce take off, that's where we want to maximize our network and the customer experience."
Another way to minimize shipping costs is to go with a third-party logistics company, or 3PL, says Toronto small business consultant Karen Fischer of RK Fischer & Associates.
Also known as warehousers, these firms get lower shipping rates based on higher volume. "If you have a warehouse yourself and you're shipping [product] one or two at a time, it becomes very costly," Ms. Fischer says. "But if you can use one of those warehousers, you're paying on the volume that they get for all customers."
John McKenna, president of Mississauga, Ont.-based McKenna Logistics Centres, says that small retailers can save 35 per cent to 40 per cent on shipping by distributing their goods using such firms.
"We've been able to negotiate great rates because we have pooled volume," says Mr. McKenna, whose firm is a third-party logistics provider with locations in Toronto, Mississauga and Brampton in Ontario, as well as in Vancouver, which warehouse, distribute and transport products across Canada and beyond.
"We target small- to medium-sized businesses, so we've been able to say, 'I have 23 customers and here's their [total] volume,' and the Purolators and the UPSs say, 'Well, that's attractive.'"
Lisa Delorme, co-founder and chief executive officer of Toronto-based Rent Frock Repeat, says the business, which allows customers to choose, wear and return special-occasion dresses, "really struggled" about how to handle shipping costs when it launched last year.
"We knew the challenge would be how people would perceive it, because they do see a lot of those American sites" that offer free shipping, she acknowledges.
Ms. Delorme and her business partner, Kristy Wieber, decided not to make shipping free because "it would really cut into our margins," she says, and they hope that "good service" and the niche business will offset that in customers' minds.
"I might have a different answer if we were in a different business, but I think that what's going to save us long-term [is that] people will remember the service was good and they did get the right dress for the right event."
Still, she adds, "we're not naive to think if someone came in with really great prices and was undercutting us, we wouldn't have to reevaluate where we're coming from."
Top-notch service is what will draw customers, Ms. Brisebois says. Firms that may not be able to provide free shipping or next-day service will have to emphasize what it is that they do provide.
"It's about that intimate relationship you have [with the customer], and so stay focused on those things that differentiate you," she advises.
"And if they do differentiate you, the customer may very well agree to pay a bit more to receive that product."