Editor's note: This article originally published under the headline "Amazon Prime Is Slowly Losing Its Best Feature." The piece has been updated to include the number of Prime-eligible products on Amazon, and clear up some inaccuracies about Amazon's Prime offering. The Fool regrets these errors and omissions.
Unlimited two-day shipping is the main draw of Amazon.com's (NASDAQ:AMZN) Prime subscription service. For $99 per year, Amazon Prime members get fast, free shipping with few strings attached. Need a $6 pack of toothbrushes? Prime members can skip the store and have it on their doorstep in two days.
Free shipping is standard among online retailers, and free two-day shipping is becoming more common. But there's almost always a catch. You may have to spend $35 or more, which means that impulse purchases of small items are a no-go. Amazon Prime offers convenience that is unmatched by any other online retailer.
That could be changing
Amazon has steadily increased the number of Prime eligible products, from 20 million to over 100 million in the past few years. That larger offering has been great for customers, but shipping a lot small items individually changes the economics of Amazon's e-commerce business. The company's fulfillment costs surged 43.3% in 2017 to $25.2 billion. Revenue only grew by 30.8%. That gap is an expensive problem for Amazon.
Amazon has been working to fix this issue for years. Amazon's add-on program, where certain cheaper items are only available as part of a $25 order, reduces Amazon's costs at the expense of forcing all members, including Prime members, to deal with order minimums for some items. Some grocery and household items are only available though Prime Pantry, which tacks on a $5.99 delivery fee even for Prime members. And some items are only available through Amazon Fresh, which carries an additional $14.99 monthly fee for Prime members and requires a minimum $50 order to avoid a $9.99 delivery fee for each order.
If these initiatives don't make you start to wonder if Prime is actually a good deal, with layers of restrictions forcing Prime members to solve a puzzle every time they go to buy something, Amazon's next move certainly will. Bloomberg reported on March 20 that Amazon is getting serious about cutting costs. As part of its plan, Amazon will reportedly expand its add-on program. Most products in the health and personal care categories costing $7 or less will soon only ship with orders of $25 or more, according to Bloomberg's sources.
There's a tipping point somewhere
This move, which would subject a greater number of orders to minimum order requirements, comes at a time when other retailers are sweetening their own free shipping offers. Walmart rolled out free two-day shipping on orders over $35 early last year, and Target did the same earlier this month. Bed Bath & Beyond offers free shipping on orders of $29 or more, although shipping speed is not specified.
Amazon is adding more restrictions, while other retailers are making their own shipping offers better. Granted, Prime comes with other perks, like access to Amazon's streaming library. And Amazon's selection of products is still unmatched. But for Prime members who joined solely for the free shipping, the rationale for forking over $99 each year is getting weaker.
Each new restriction erodes the convenience and value of Prime. Add to that free shipping getting better at other retailers, and you have a recipe for a Prime exodus if Amazon takes its cost-cutting crusade too far.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool is short shares of Bed Bath & Beyond. The Motley Fool has a disclosure policy.