Australia Post's 'free' shipping offer comes at cost to retailers

Australia Post’s new subscription-based ‘free’ shipping service highlights the cost pressures facing retailers and logistics companies as they prepare for the arrival of Amazon. Shipster, unveiled by Australia Post on Tuesday, is designed to help retailers compete with Amazon’s Prime subscription service, which is likely to be eventually rolled out in Australia when Amazon launches its full suite of retail products and services in the next 12 months. Under Shipster, consumers in Sydney, Melbourne and Brisbane will receive free shipping on online orders worth more than $25 at more than 40 participating retailers including Myer, RCG Corp’s The Athlete’s Foot, Cotton On, Harvey Norman, Wesfarmers’ Target, SurfStitch and Kogan. The initial Shipster membership fee for the three months to January 1 is $9.95.
After the introductory period, Shipster membership will cost $6.95 a month ($83.40 a year) and will entitle members to free deliveries as long as the shipping cost on orders would have been less than $20. Australia Post has released no details about how membership fees and fulfilment costs will be shared with participating retailers. Myer’s chief digital officer Mark Cripsey said retailers would pay the delivery cost but receive a rebate on their share of the subscription fee, which will be split based on the volume of orders retailers receive. “We already offer free delivery for orders over $100 – this allows us to get that down to $25,” Mr Cripsey told the AFR. Analysis suggests that both Australia Post and retailers will be subsidising the service because the subscription fee will not cover the cost of fulfilment, especially if consumers order online several times a week.
Members can order online and receive as many as 60 free deliveries in a three-month period or up to 160 deliveries a year, according to Shipster’s terms and conditions. Myer currently charges $9.95 for deliveries under $100, SurfStitch $5.95 for orders under $50, Harvey Norman $7.95 and Booktopia $6.95. It is understood that these fees do not generally cover the cost of shipping and retailers are already subsidising “last mile” distribution. As a result, many retailers including Myer, Woolworths, David Jones and Super Retail Group are heavily promoting “click and collect” to avoid bearing the cost of shipping.
Source: www.afr.com