With effect from Oct. 21, customers on Amazon (NASDAQ:AMZN) will have to buy products worth at least $35 on its website to qualify for free shipping, according to a company announcement.
This floor price is up from the $25 that the company offered its customers for more than a decade and, “helped spark the movement to cheap or free shipping by all online retailers, and cemented Amazon’s reputation as a cutthroat competitor,” as a New York Times blog post put it.
The change comes ahead of the busy holiday shopping season and just days before the Seattle-based online retail giant is set to announce its earnings on Thursday, when it is expected to report yet another quarterly loss.
"During 2012, Amazon reported almost $3 billion in shipping losses... or roughly 5% of total sales," Colin Sebastian, an analyst at RW Baird, wrote in a note to investors Tuesday, USA Today reported.
While Amazon did not give a reason for the hike, it’s widely believed that the profit-starved company, which is expected to generate $75 billion in revenue this year, is trying to get more customers to use its ‘Prime’ service and spend more on purchases on its portal.
Continue Reading Below
The Prime service provides quicker (two-day) shipping without requiring a minimum order size along with access to its TV- and movie-streaming service, for $79 a year, according to the company website.
"The service is so popular that more than a year ago we began shipping more items with Prime than with free shipping," according to Amazon, which is offering customers a 30-day free trial.
However, the company has attracted criticism for the move with some calling into question the oft-stated strategy of the company and its founder, Jeff Bezos, of putting the customer first.
According to one view mentioned in the Times blog: “This is the biggest rollback of benefits for Amazon’s customers ever. Amazon incessantly talks about how it is doing more for its customers; this goes in the other direction. Customers will notice.”
But, as another Times article notes, the move has not harmed investors’ view of the company’s stock, which has shot up 150 percent since the middle of 2010, and is now trading near a 52-week high.
Analysts are bullish on the company's future, ahead of its earnings announcement, citing a growing global market for online retailers, the company's Kindle business and its focus on sacrificing short-term gains for long-term returns.
However, this could change if what Paulo Santos, a columnist at Seeking Alpha suspects, is true. According to Santos, free shipping is a “central tenet” of Amazon’s business strategy and by raising the minimum purchase price to qualify for free shipping, the company is going against this tenet.
“It would not do so lightly, it's a significant change, so its decision must be informed by something the market is not yet seeing - that is, earnings are so ugly that they demand action, even at the risk of maiming growth or provoking customer backlash,” Santos writes.
Amazon is not alone in making such a move. At Wal-Mart (NYSE:WMT), the Associated Press reports, customers now have to spend at least $50 to qualify for free shipping, which is up from $45.
And some believe the move could end up harming Amazon by pushing away price-conscious buyers, and third-party sellers dealing in low-priced items, to competitors’ websites.
Has Amazon wronged its customers here and ended up harming its business? Or will the company manage to set yet another online retail benchmark? We’ll have to wait and see.