November 5, 2018 / 8:08 AM / 15 days ago

Amazon drops free-shipping minimum in race for holiday sales

(Reuters) - Amazon.com Inc (AMZN.O) said on Monday it would offer free shipping with no purchase minimum for the first time this holiday season, heating up the competition with Walmart Inc (WMT.N) and other rivals vying for customers’ Christmas shopping.

FILE PHOTO: The logo of Amazon is seen on a package at the Amazon distribution center warehouse in Saran, near Orleans, France, November 22, 2016. REUTERS/Philippe Wojazer

The U.S.-only promotion, effective from Nov. 5, waives the $25 minimum that customers outside Amazon’s Prime loyalty club must hit for free shipping. The deal lasts until Amazon can no longer promise items in time for Christmas with free delivery, which typically takes five to eight business days.

The company’s shares fell more than 3 percent following the announcement. One analyst, Colin Sebastian of Baird Equity Research, said the offer could shave 5 percent to 6 percent off Amazon’s operating profit this quarter.

Still, the news could help Amazon win more sales. That is important for the world’s largest online retailer since a revenue slowdown it forecast last month spooked some investors and sent its stock tumbling. The current quarter typically is Amazon’s biggest.

Amazon cut its order minimum for free shipping to $25 from $35 indefinitely in May 2017.

Monday’s news will add to pressure on Walmart and Target Corp (TGT.N), which in recent years have chipped away at Amazon’s lead with their own offers of free two-day shipping. While Walmart has maintained its $35 order threshold this holiday, Target has scrapped its minimum until Dec. 22.

Shares of Walmart and Target rose about 1 percent each on Monday.

“They’re forcing Amazon to react,” Wedbush Securities analyst Michael Pachter said. “That’s what today’s price action tells you.”

Just over half of all U.S. households have a Prime subscription, analysts estimate. Prime remains the cornerstone of Amazon’s business because shoppers buy more from the retailer once they pay $119 for the year-long membership. Perks include same-day shipping and video streaming.

Amazon is now courting those outside the club, hoping its brand and wider selection will set it apart. Free shipping can apply to hundreds of millions of items on Amazon, versus hundreds of thousands on Target. Target, however, promises to deliver the items more quickly.

Amazon last month touted improvements in efficiency, which could help it offset costs from more free deliveries. According to the Seattle company’s latest annual filing, shipping costs nearly doubled from 2015 to 2017, reaching $21.7 billion.

Reporting by Jeffrey Dastin in San Francisco; Editing by Sonya Hepinstall and Dan Grebler

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