Shipping News

premium

Amazon, Struggling in Germany, Limits Free-Delivery Offers

Amazon
Free delivery at Amazon will cost a little bit more in Germany. Source: Bloomberg
  • Why it matters

    Why it matters

    Amazon, the world’s largest online retailer, is nudging buyers towards its loyalty program Prime, and boosting its profits, by raising the threshold for free shipping.

  • Facts

    Facts

    • Amazon, the world’s largest online retailer, has introduced a higher threshold for free shipping in Germany, raising it to €29 ($38) from the €20 minimum.
    • Amazon’s move may improve its profitability and encourage customers to join its Prime loyalty program.
    • Amazon, a data-driven business, has already increased the threshold in the United States.
  • Audio

    Audio

  • Pdf

In Germany, Amazon this week started making customers order at least €29 ($38) worth of goods to qualify for free shipping. That’s €9 euros more than the old limit, as the Internet retailer seeks to boost revenue.

“This is the first change in 12 years of our shipping-free threshold,” Simone Thaysen, an Amazon spokeswoman in Munich, said in an emailed statement. “During this time, we have increased the scope of products which we ship without charges to a million products across 25 categories.”

Ms. Thaysen declined to say whether the price change was related to Amazon’s efforts to increase profitability amid its growing labor issues in Germany, a development that could potentially affect its sales.

The new minimum threshold for shipping, introduced on Wednesday, applies to all goods except for calendars, books and audiobooks.

“Amazon is under pressure to increase profitability, to increase margins,” said Kai Hudetz, the chief executive at the Cologne Institute for Trade Research. “It will likely increase the value of the average purchase order. Small orders are not so efficient.”

The change in shipping charges in Germany follows similar actions in the United States, where Amazon increased the free shipping threshold from $25 to $35 last October.

Germany is Amazon’s second-largest market after the United States and the move also helps to increase the retailer’s profitability in another way.

Observers speculate that Amazon is trying to win more customers to its Prime delivery subscription service. By paying €49 each year, Prime customers receive all goods shipped free of charge and also gain access to Amazon’s film-on-demand service Prime Instant Video.

Tested in the United States

One analyst said Amazon was seeking to recoup its sizeable investment in logistics. Prakash Mirchandani, a professor at the University of Pittsburgh’s business school, said the shipping charge changes stemmed from Amazon’s investment in its fulfillment and delivery network over the past decade.

Mr. Mirchandani noted that Amazon is also investing to reduce the time it takes for delivery and was aiming to provide same-day delivery to compete against department stores such as Macy’s as well as online providers eBay, which are both testing a similar fast service.

By expanding its distribution service, Amazon may be able to deliver parcels faster to customers, even those who may be unhappy about the higher threshold for free shipping.

Amazon has increased its sales in the last few years, but has occasionally recorded quarterly net and operating income losses. In the second quarter, the retailer booked a net loss of $126 million compared with a loss of $7 million in the same period last year. Sales grew 23 percent to $19.3 billion.

Shifting market

Germany’s market for online shopping is changing.

On setting up their platforms, online retailers tended to provide low cost services but now, besides the pricing, new laws are also shaping the market. In June, Germany introduced a new regulation which lets retailers pass on return charges to customers. Until this change was introduced, customers could return goods worth more than €40 within 14 days for free.

The change may have a knock-on effect on traffic if it changes the way that shoppers buy. In April, Green party politicians called for greater regulation of the online retail market in order to reduce congestion.

Online retailers generally charge for shipping. But the cost of free shipping and free returns is high. Zalando, a competing online retailer in Europe, announced it hoped to break even this year. The German firm’s announced revenues rose by 30 percent to over €1 billion in the first half of the year. But the retailer’s free returns policy has eaten into its profits, as shoppers send back half of the goods they order over the internet.

 

Want to keep reading?

Subscribe now or log in to read our coverage of Europe’s leading economy.