Why ‘free shipping’ is a giant con | Innovation Tech

But according to one Aussie CEO, “free” is actually anything but for a huge chunk of the population.

Speaking at the 2018 Online Retailer trade event, Kogan.com founder and CEO Ruslan Kogan said the offer was little more than a gimmick — and that Sydney and Melbourne residents were paying the price.

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“People love free shipping, so customer-focused businesses have free shipping — but we know it doesn’t exist,” he said.

“We know that sending something to Broome or Cairns costs more than sending something to metro Sydney or Melbourne.

“But on the website, it still says ‘free shipping’ — so they punish metro customers and make them subsidise those Broome and Cairns customers.”

In a nutshell, the cost of providing shipping for customers across the entire country is absorbed into the product price — so the 10 million-odd residents in our two biggest cities pay the same slightly higher cost than regional and rural customers, even though the price of shipping to them is a fraction of what it costs to deliver items elsewhere.

Mr Kogan said that was the reason he had decided against introducing free shipping at his own business.

And he said Apple’s Genius Bars were another example of some customers — in this case, those who buy products but rarely if ever use the service — subsidising it for customers to visit the Genius Bar regularly.

Queensland University of Technology retail expert Dr Gary Mortimer said it was standard practice to charge a flat rate for shipping regardless of true cost.

“The term ‘phantom freight’ is used to refer to when everyone pays a flat fee of say $8 or $10, knowing that the true value of delivery to the Sydney or Brisbane metro area might be $4.60, while delivery to say Broome might be $16.70,” he said.

“They average it out and that way it doesn’t disadvantage people in regional areas, because a lot of growth in online retailing comes from people in rural areas because they simply can’t get to stores, they live in the middle of nowhere.

“If they were to be charged the real cost of delivery, they would be fundamentally disadvantaged.”

He agreed that free shipping was actually a myth.

“I would assume there’s no such thing as free delivery, because all logistics have a cost, so I think you’ll find the cost of delivery and logistics will be built into the product at some point,” he said.

Nevertheless, Australia‘s online shopping addiction shows no sign of slowing.

Speaking at the same event in Sydney today, Australia Post’s executive general manager business and government Gary Starr said e-commerce was worth an enormous $21.3 billion in Australia last year alone.

Citing the newly released Inside Australian Online Shopping report, Mr Starr said that number represents an 18.7 per cent growth from the previous year, and a 19.2 per cent growth in terms of the total number of goods purchased.

Around 80 per cent of that cash was spent with local retailers, and Australia Post expects that by 2020, one in 10 items will be bought online.

Mr Starr said customers were clearly looking for “convenience and choice” as well as simplicity and flexibility when it came to every stage of online shopping, including payment and delivery.

KOGAN.COM’S RISE AND RISE

The company’s revenue rose by more than 40 per cent in 2018, and is expected to rake in $405 million this year compared with $289.5 million in 2017, according to a quarterly cash flow and trading statement released earlier this month.

And Mr Kogan revealed that the business is so popular that several big Australian banks introduced a ban on employees having Kogan products delivered at work, as items were clogging up business mailrooms.

alexis.carey@news.com.au