The High Price of Free Shipping

When you get free shipping, you are more than likely deducting pay from someone else’s paycheck.  It’s not free for them.
One of the most frequent requests we get is “why don’t you offer free shipping promotions like other companies?” To understand the answer, it’s important to understand how other companies can do this using a combination of three tactics:
#1) If you’re large enough (many times larger than Fair Indigo), you can negotiate lower rates with shipping partners (UPS, Fedex, etc.).
#2) You can raise the price of individual items to cover the lost margin. For example, a company with a $29.99 shirt may raise the price to $33.50 to cover the “free shipping policy.” (As you may or may not know, you’ll sell lots less $33.50 shirts than $29.99 shirts…basic price barrier psychology).
#3) You can go after your garment suppliers for lower costs to make up the margin up front.
It is safe to say that #1 and #2 have largely been exhausted. With high fuel prices, shipping rates are becoming more and more difficult to lower and most consumers have little appetite for higher retails on clothing after years of falling prices.
So most companies are left with #3. Going after the price they pay the garment factory.
What goes into the cost of the garment? Primarily three things:
   a) cost of raw materials (e.g. cotton)
   b) cost of labor
   c) cost of transportation to get goods to
the warehouse or store
The cost of raw materials has done nothing but gone up in the past several years. Same with the cost of transportation.  So…the workers take the hit.
Let’s be clear. Despite the sweatshop scandals that started with the Kathie Lee Gifford line in the late 1990’s, and despite the Corporate Social Responsibility standards adopted by all major apparel brands, know this: widespread pay abuse of garment workers is real. It’s still happening. And it’s brutal. Here is an excellent and extensive article on the topic. While major apparel brands preach social responsibility, often with very good intentions, they mercilessly push for lower costs at the same time. They can’t have it both ways.
I know from my own connections in the apparel industry that many companies are paying $2 for their t-shirts. For t-shirts they price between $20-$35, except during a 50% off “sale.” (When I left the mainstream apparel industry in 2005, it was not uncommon to pay between $5-$10 per t-shirt).
Most of our t-shirts sell for $20 – $35 too. But we pay many many multiples more than $2 per shirt to our fair trade cooperatives in Peru and to our USA suppliers. And when we mark them down 30%, it’s because we bought too many or designed a not-appealing-enough shirt (we call these dogs). Not because we planned it into our marketing strategy like most others. When we mark things down, the garment workers have already been paid. We take the responsibility and we take the hit (as our finance guy can vouch for!).
The math doesn’t lie. Free Shipping is clearly brutal on the lives of garment workers.
This blog reaches a few hundred people at most. It is nearly impossible to compete with the multi-million dollar corporate “free shipping” campaigns you’ll see. Please forward this to anyone you think will find it at all valuable or interesting. Thank you!

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