Please ensure Javascript is enabled for purposes of website accessibility

Instant Analysis: Amazon.com Increases Free Shipping Minimum on Orders

By Evan Niu, CFA – Feb 22, 2016 at 12:45PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The e-tailing giant really wants consumers to sign up for Amazon Prime -- either that, or start paying for more of their own shipping costs.

What happened?
E-commerce heavyweight Amazon.com (AMZN -1.57%) has quietly increased the order minimum required to qualify for free shipping. Orders of $49 or more now qualify for free shipping, up from the previous minimum of $35. Book orders of $25 or more will still qualify for free shipping.

This change does not apply to Prime members, who enjoy free two-day shipping on Prime eligible items.

Does it matter?
This change will have two effects for Amazon. First off, it gently nudges consumers to subscribe for Amazon Prime at $99 per year. Customers would then likely get free two-day shipping on those items since the vast majority of items on Amazon are eligible for Prime shipping. The second is that Amazon will marginally increase its shipping revenue by not footing the bill on all those orders between $35 and $49 that previously qualified for free non-Prime shipping.

Last year, Amazon paid a total of $5 billion in net shipping costs, so the expenses definitely add up. As a percentage of net sales, that figure comprised 5.1% of Amazon's top line, which was up from 5% in 2013 and 2014. An increase of 10 basis points may not sound like a lot, but that puts a little squeeze on profitability since Amazon's core North American e-commerce business has an operating margin of just 4.7%.

Evan Niu, CFA has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Amazon.com, Inc. Stock Quote
Amazon.com, Inc.
AMZN
$113.00 (-1.57%) $-1.80

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
332%
 
S&P 500 Returns
104%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.