Companies announce free shipping for holidays

~ Retailers hope to increase sales in a challenging holiday season.

FREEPORT, Maine -- Hoping to drum up more sales of handsewn slippers, flannel shirts, sweaters and Christmas wreaths, L.L. Bean has dusted off a promotion it hasn't offered in three years: free shipping for holiday purchases.

And it will have plenty of company as other retailers use generous promotions including free shipping to get holiday shoppers to open their wallets amid a challenging economic environment.

A holiday survey by Shop.org and BizRate Research suggests 79 percent of online retailers will offer free shipping with conditions such as a minimum order.

The promotion resonates with consumers.

"It'll make or break a sale," Jason Carley of Morrisville, N.C., said while shopping with his mother down the street from L.L. Bean's flagship store.

Carley shops for his clothes in stores but he does the rest of his shopping -- for DVDs, music and electronics -- online. "I won't pay full price for shipping," he said. "If I'm not getting it free, I want to be getting it cheap."

Shipping incentives will come at a higher cost to retailers as FedEx Corp. and United Parcel Service Inc. have added fuel surcharges, but retailers are pressing forward with them either to drive sales or out of fear of losing customers to competitors.

Other promotions such as sales, free gifts and buy-one-get-one-free are augmenting free shipping as ways to get consumers to shop before their wallets are emptied by high gas prices and the first big heating bills of the season.

The national average gas price has dropped in recent weeks to $2.35 a gallon on Thursday, but it's still 36 cents higher than a year ago, according to AAA.

Energy costs and disposable income, along with the job market and consumer confidence, play a role in a holiday sales growth forecast that's lower than last year's.

The National Retail Federation has projected holiday retail sales will grow 5 percent, to $435.3 billion, compared to 6.7 percent last year. Those sales account for as much as 40 percent of annual sales for some retailers, said spokesman Scott Krugman.

Online retailers are expected to show much bigger gains this holiday season from a year ago, but their growth is slowing as the industry matures.

Jupiter Research is projecting online sales to increase 18 percent to $26 billion in November and December, compared to last year's 22 percent. Forrester Research says online sales will grow 25 percent, compared to last year's 30 percent, to $18 billion. Forrester's results cover the period between Thanksgiving and Christmas.

Against that backdrop, Jupiter Research reports that 56 percent of online shoppers say free shipping will be more important to them than last year.

"That hits my radar screen loud and clear," said Lee Warner of Kennebunk, Maine. She usually does half of her shopping online but found herself in Freeport on a recent day on an emergency mission to get a coat for her daughter.

L.L. Bean, which relies on online and catalog sales for 80 percent of its business, began its free shipping promotion early -- on Oct. 21 -- with no minimum purchase.

The company knew it needed to do something after sales began softening over the summer -- even before Hurricanes Katrina, Rita and Wilma, said spokesman Rich Donaldson.

"As it turns out, our decision to go with free shipping was a good one," Donaldson said. "From our point of view, one of the benefits of free shipping is that it does have a tangible benefit in terms of pocketbook savings."

A week later, Toys R Us Inc. -- which unlike L.L. Bean is mainly a store-based retailer -- came out with an offer of free shipping on purchases $49.99 or more. The company made the deal sweeter than last year with additional sales and buy-one-get-one-free promotions.

"T'is the season. We're in the toy business 365 days a year, but the holiday is really the time when we are able to put joy on a lot of children's faces," said Kathleen Waugh, director of public relations for the New Jersey-based toy company.

Macys.com has instituted free shipping for purchases of $125 or more. The spending limit makes the free shipping "rational" from a cost perspective, said Kent Anderson, president of the online division of Macy's.

"That's the quid pro quo. I'll give you free shipping if you're willing to spend a certain amount of money," he said.

This season, eToys.com is offering free standard shipping on selected items, which number about 500, according to Sheliah Gilliland, a company spokeswoman. Last year, eToys.com offered free shipping on orders of at least $99.

Free shipping doesn't come without a cost, though.

Many consumers mistakenly believe catalog and online retailers make money on shipping and handling, but the cost is usually subsidized by retailers, said George Hague, senior marketing strategist at J. Schmid & Assoc., a catalog consulting company in Mission, Kan.

Shipping and handling accounts for 7.5 to 10 percent of overall sales, so free shipping definitely affects the bottom line, he said.

L.L. Bean, which normally charges a minimum of $3.95 per shipment, anticipates that the shipping promotion will cost more than $20 million. "It's a cost of doing business for this holiday season," Donaldson said.

Despite the squeeze, most online retailers have strong enough margins that they can afford to offer free shipping, said Scott Silverman, executive director of Shop.org, a division of the National Retail Federation in Washington, D.C.

Still, high energy costs can cut both ways. For catalog and online companies, the impact of higher shipping costs could be partially offset by more people shopping from home instead of driving to the mall, analysts say.

Warner, from Kennebunk, plans to boost her shopping from home as she scales back using her sport utility vehicle, whose fill-ups cost $60 to $70.

She said that will probably translate into fewer trips to the shopping mall and no holiday shopping trip to Boston this year. And that means more purchases from her computer.

"It's inching up every year," she said.