Fill Er Up with E-Commerce, Please

Soaring gas prices may encourage shoppers to explore online alternatives this holiday season.

Soaring gas prices have been pushed by natural disasters and an unfriendly global climate. But some e-commerce players are looking on the bright side: Maybe this will push people to drive less in the fourth quarter and instead log in and buy more online.

Gas prices could impact e-commerce activity in two opposite ways: by increasing the out-of-pocket costs of driving to stores, making e-commerce a better option; or by increasing the costs of shipping packages, making brick-and-mortar shopping the more cost-effective route.

For this holiday season, it looks like both factors are smiling on e-commerce. Shipping giant FedEx this week announced that it was hiking rates 5.5 percent because of rising fuel prices.

But—and this is crucial—those increases wont kick in until Jan. 2, so holiday e-commerce activity will be spared.

The bigger question is what will happen after Jan. 2, especially given the probability that other shipping firms will follow FedExs lead and boost their rates a comparable amount.

Free shipping has quickly soared to the top of the consumer list of most-sought-after e-commerce attributes, and any hints that e-tailers will start pulling back from free shipping—most likely by increasing the dollar value of purchases that would qualify for free shipping—could have serious implications.

An NRF (National Retail Federation) survey released this week underscored the importance of free shipping.

Based on a late September survey of 1,891 consumers and 119 e-tailers, 79 percent of the consumers chose "free shipping offers" as most important when shopping online, which is just about as high as it was (80 percent) during last years survey.

Thats important, as it is one of the few e-commerce attributes that did not drop in importance when compared with last years survey, suggesting that its value to consumers might be as close to permanent as anything Web-related can be.

Other popular choices were "low everyday prices" (54 percent this year, down from 65 percent last year), "percent-off discounts" (47 percent this year, down from 59 percent last year), "unique products" (52 percent this year, down from 58 percent last year), "broad product selection" (52 percent this year, roughly the same as last years 53 percent), "brand-name products" (37 percent this year, down from 40 percent last year), "gift with purchase" (16 percent this year, down from 20 percent last year), "gift card with purchase" (15 percent both last year and this year) and "early morning specials" (5 percent this year, down from 6 percent last year).

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That same survey made it clear that retailers have no intention of pulling back from their free shipping, at least not in time for the holiday shopping season.

Some 79 percent of e-merchants plan to offer holiday shoppers free shipping, with the standard conditions, a sharp increase from the 64 percent who offered it last year.

So this years stocking stuffers appear to be safe from the Grinch Who Stole Free Shipping, but whats likely to happen to free shipping in January? According to most industry watchers, the most likely answer is "absolutely nothing."

Why? Beyond the clear importance of free shipping, the rationale is that margins and revenue for the next six months are looking quite strong, alleviating the business pressure and allowing most retailers to simply absorb the higher shipping costs and to take some very public bows for doing so.

Scott Silverman, an NRF official who serves as the executive director of NRFs network and who was in charge of the survey, said even long-term contracts wont spare retailers from fuel-forced shipping increases.

"I just spoke with one very large retailer that I would assume would have substantial leverage. FedEx has the right to place surcharges based on fuel charges," Silverman said. The retailers "are going to have to absorb it. You simply cant pass that along."

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Silverman said a retailer theoretically could increase the threshold to qualify for free shipping, or increase product prices to cover the costs, but the large number of e-commerce sites selling identical products and price comparison sites with constantly updated databases make such a move unlikely.

"There is just too much price transparency on the Internet today," Silverman said.

Strong business predictors would also make such a move unnecessary, he added.

"Theyre expecting a strong holiday season. Across the board were looking at operating margins at 28 percent," Silverman said. "These are very healthy businesses and they will continue to grow. I think they can afford to absorb this a little bit."

Next Page: Will consumers see driving less as an e-commerce advantage?