Etsy Expands Free Shipping Options to Compete with Amazon

Need to Know

• Etsy is looking to expand free shipping options to specific sellers in a bid to remain competitive with other large retailers.
• Many consumers consider shipping costs even before checking out, with 65% saying they look up free shipping parameters even before adding items to carts.
• Etsy currently has over 39.4 million active buyers and 2.1 million sellers.

Analysis

Etsy, an online artisanal craft marketplace, is hoping a new free-shipping strategy will ease investor concerns and help the marketplace compete with giants like Amazon. 

The retailer began testing its strategy ahead of the holiday season, a critical time of year for Etsy, as it pulls in approximately one-third of its revenue during its fourth-quarter. Understanding that free shipping will convert site visitors to buyers, Etsy is ready to expand on what it takes to make that happen. 

Free shipping first became available in July to US Etsy buyers who spent at least $35 on a seller’s items, and now the company is planning for an additional basic rollout during the holidays. 

“One of the really important things we felt as an e-commerce player was to better meet our customers’ expectations on what the shipping experience is like on Etsy,” said finance chief Rachel Glaser said in an interview with The Wall Street Journal.

Noted e-commerce powerhouse Amazon currently offers a variety of delivery options, all designed to suit the needs of the changing consumer behavior. Currently, they offer pick-up location options, no free shipping minimum with Amazon Prime, and a recently added same-day delivery service. 

“Buyers are accustomed to not paying for shipping because of Amazon Prime,” said Shweta Khajuria, an analyst at RBC Capital Markets.

A recent report by the National Retail Federation agrees, at least with respect to consumer expectations. Three-quarters of consumers surveyed expect delivery to be free even on orders under $50, up from 68% from only a year ago. 

Before the launch of the program, free US shipping was offered on approximately one-quarter of the items sold on Etsy. Today, about 60% of all items listed on the e-commerce site ship for free or qualify for free shipping to US buyers.

The majority of Etsy’s revenue stream comes from a 5% commission on the total sales price of its sellers’ transactions. Sellers set their own prices, including shipping costs, so they have long had the ability to offer free shipping. In an effort to persuade more sellers to adopt the program and remain more competitive in the market, Etsy gives priority placement in search results to those who offer free shipping. 

With the holiday season in full swing and 39.4 million active buyers on the site, free shipping places Etsy in a better position to compete for the consumer dollar.