ShopRunner Wants to Give Amazon’s Free Shipping Program a Run for Its Money

ShopRunner is planning to give Amazon a run for its money when it comes to Amazon’s Prime membership service that offers free two-day shipping for $79 a year.

Last week, the six-month-old service’s profile received a big boost after eBay announced it was buying its parent company, GSI Commerce, for $2.4 billion.

As part of the acquisition, eBay plans to spin off a few of the company’s properties to create a well-funded entity.

The spin-off includes ShopRunner, GSI’s licensed sports merchandise business, and Rue La La, a flash sales site. EBay, which is retaining a 30 percent stake in the new entity, is also loaning it nearly $500 million in capital.

ShopRunner, which is headquartered along with GSI outside Philadelphia in King of Prussia, is positioning itself as a defensive play for retailers that are competing against the Amazonian e-commerce giant.

Amazon Prime members pay $79 a year for free two-day shipping on all orders, and more recently, Prime added additional perks, such as free access to 5,000 streaming movies. Similarly, consumers pay ShopRunner $79 for free two-day shipping, but it works across a number of retailers, such as Borders, Barnes & Noble, Toys R Us, Drugstore.com, PetSmart and 40 sites in all.

Mike Golden, ShopRunner president and co-founder of GSI Commerce, says the service is super relevant today as retailers try to defend themselves against Amazon’s increasing dominance.

Not only is it growing its market share online, but it is also becoming a threat in physical stores. He said consumers are increasingly looking at brick-and-mortar stores as showcases, where they can touch and feel products, but then use their smartphones to comparison shop and buy online.

With free two-day shipping, Prime has become the modern day loyalty program.

But it’s unclear how successful Amazon’s so-called Prime service has been since launching in 2005.

Golden claims he’s done his homework and believes it is one of the smartest moves by the Seattle-based retailer to date. And by tracking what analysts have said and by conducting focus groups with dozens of Amazon’s Prime customers, he feels he has a fairly good handle on how well Amazon is doing.

Amazon does not release data on Amazon’s Prime service, and a spokesperson did not return a request for comment.

So, with that in mind, here’s a bullet point list of Golden’s estimates, which he considers conservative:

• In nine purchases out of ten, a Prime consumer would have already qualified for free shipping because their order was above $25. Now, Amazon is collecting $79 a year and all they had to do was upgrade one out of 10 shipments.
• Out of the 25 million items Amazon sells, he believes only 30 percent are eligible for Prime (the item has to be stored in Amazon’s own warehouses to qualify). That means Amazon has an impressive seven to 10 million products that are eligible.
• There are at least five million Prime users in the U.S.
• After joining Prime, users spend two to three times more.
• Prime members were already some of Amazon’s best customers, who were spending on average $600 a year. With Prime, that goes up to $1,200 to $1,800.
• In total, Prime members spend roughly $7.5 billion annually.
• 88 percent of Prime members start their shopping experience on Amazon, rather than any other portal, like Google.

Golden said the three attributes that have made Amazon successful are: having a huge assortment of products, having a huge reach in terms of customers and being a place where people shop frequently. “We don’t think there’s any other retailer that has the strength to replicate the value proposition that Prime has,” he said. “How do you compete with Prime? You have to have a stronger value prop, not a weaker one, and all we’ve seen launch so far has been weaker and has failed.”

Other stores have tried one-off super saver shipping programs, including Sears, William Sonoma, Walmart and Overstock.

He said what they needed was a coalition.

While Golden was generously willing to share what he knew about Amazon’s Prime program, he was fairly mum about how ShopRunner’s math pencils out. Of course…

But roughly speaking, he said the membership fees consumers pay, along with the cost of two-day shipping, is split among the retailers and ShopRunner, which is then compensated for managing the program.

This week, ShopRunner launched a Marketplace where members can visit one location to search for products they want. This way, they don’t have to memorize which retailers are associated with the program. When searching for watches, you’ll see results from Toys R Us, Drugstore.com, Calvin Klein, Sports Authority and Lord & Taylor. Once an item is clicked on, the user is redirected to that retailer’s Web site to complete the transaction.

Next month, ShopRunner will roll out an iPhone application that allows people to search for merchandise in the store, but ultimately buy from one of the participating retailers online.

He said ShopRunner has more than five million items available overall. When they launch an additional 40 retailers soon, it will have 10 million items, which is getting close to Amazon’s scale.

Golden said the lines between brick and mortar and e-commerce are blurring. It’s no longer a weakness to have low inventory in a story if you can steer users to your online site, where they can get free shipping. A mobile application can help with that–and no longer be considered a threat.

“By using ShopRunner along with smart use of leveraging your store footprints and your e-commerce and distribution centers, they have a better chance of not making it a weakness or a threat, but a competitive advantage,” Golden said.