Stamping Out Small Business? Rising Shipping Costs Prove Challenge
The United States Postal Service’s (USPS) latest rate increase for mailing packages, which took effect last month, is putting price pressure on business owners, especially those who rely exclusively on shipping as a form of product delivery.
While e-commerce has long served to level the playing field for small businesses that can’t afford a retail storefront, the increasing cost of shipping products is proving a heavy burden for many.
Prices up, demand down
"In my history of doing this, I’ve never had this many complaints," said Lisa Lynn, founder of LynFit. A well-known personal trainer, Lynn has her own line of weight- loss products, nutrition supplements and gym equipment. She sells her products online and is noticing the impact of high shipping costs.
"I already get a lot of complaints from customers about the cost of shipping," Lynn said. "You just always have to offer discounts to keep them ordering online." Lynn used to offer specials on free shipping but now she’s finding it impossible to cover shipping costs and still maintain profit margins . Offering free shipping resulted in more sales, but there's a delicate balance between maintaining profit margins and drawing in customers, she said.
"Sometimes shipping is the same as the cost of the product -- like with gym equipment," she said. "I’m sure I have lost a couple customers and I hate losing customers ."
John Hye, New Jersey-based founder of The Kids Fishing Shop, has had similar problems. After founding his online business in 2008, Hye used USPS to mail products to his customers because it was cheaper than UPS, and because the post office provides an array of boxes and supplies. But with this increase in shipping costs, Hye predicts that customers may look elsewhere.
"If people are going to scoff at the shipping prices, they’ll just go to Walmart or Target,” he said.
Hye began his company when he noticed how difficult it was to find a fishing rod for his nephew in stores. His website creates an easy way for customers to buy fishing gear for kids, but a high shipping rate would negate the convenience of online shopping.
Passing the buck
The post office isn’t the only one raising its prices. Rising gas prices have forced all of the major shipping companies to increase costs and businesses are feeling it.
Another small business, I Love Blue Sea, a Bay Area-based company that ships fresh, sustainable seafood, uses FedEx for overnight shipping. Co-founder Jessica Bay said that since customers pay for shipping, any increase in cost is transferred to them.
"We’re hoping the increase in prices is so mild that we don’t feel the difference," she said.
Meanwhile, CellarThief, a small business that ships wine to customers, has a different strategy.
"Because shipping is such an expensive part of what we offer, it’s difficult to pass it on to the customer," said co-founder Ryan Bettencourt. "We’re competing with somebody going down the street and buying a bottle of wine."
CellarThief incorporates the cost of shipping into the price of wine, but in doing so cuts into its profits. The company uses FedEx, but Bettencourt complained that those shipping costs have also gone up.
"Prices everywhere are increasing, and anything that happens with shipping impacts our business." He said. "Ultimately, we take a very slim profit margin."