L.L. Bean offers year-round, no-strings attached free shipping

Critique of L.L. Bean Free Shipping Article

In thinking about L.L. Bean’s decision to offer free shipping, no matter the order size or type of good, makes perfect sense for their retail business model which is based primarily on taking orders from their catalog, phone orders, and more recently internet based orders. Unlike most retailers that depend on reaching the public by operating hundreds of stores nationwide, Bean continues to stick by its original business model, which emphasizes high quality outdoor goods merchandised through its catalogs and online store front. Though Bean will experience higher shipping costs, it seems clear that the benefits of achieving higher sales and continued avoidance of operating in a multi-store retail environment will far outweigh these costs.

In addition Bean should earn increased goodwill from its customer base. If three quarters of consumers are abandoning their online shopping carts due to the lack of free shipping, clearly the market has spoken that paying for shipping costs on top of the costs of the good being purchased is more than a mere annoyance. Considerable sales are being lost for a reason that the company can control. By making this decision Bean removes a major obstacle to achievement of a sale. Most likely Bean will account for this increase cost in the pricing of its goods.

Since 1912, Bean has been operating on this mail order shipping model to achieve national and international sales. The article mentions that Bean uses UPS for its shipping services. Presumably, with an expected higher volume of shipments, Bean will try to negotiate lower shipping costs in return for the higher volume in order to manage the overall cost increase that the company expects. If UPS were unwilling to negotiate on price, Bean would always have the option of exploring what competitors such as FedEx would offer on substitute pricing.

In terms of the original blog, I agree that the customers will be happier with the free shipping. However, I am skeptical of whether or not the consumer will truly avoid paying for the cost of shipping. Unless Bean can manage its contract with UPS (or some other firm) it will be eating into its profit margin. While it is possible to achieve as much if not greater profitability on a smaller profit margin provided that sales increase efficiently, I suspect L.L. Bean might build in some of these higher costs in the pricing of its goods. I also agree that from going the free shipping route that L.L. Bean now does have a one up on other businesses. Customers will more often than not always go with Bean assuming that other competitors do not follow suit because no one wants to pay higher prices.

To an extent Bean is responding to zappos.com. It will be interesting to see if internet and mail order based retailers jump on this band wagon of free shipping meaning that Bean’s competitive advantage could be short lived.

http://www.usatoday.com/money/industries/retail/2011-03-24-ll-bean-free-shipping.htm?loc=interstitialskip

Ned Feldmann