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Are Free Shipping and Discount Deals Hurting Amazon?

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Apr. 2 2019, Published 2:11 p.m. ET

Prime Now and Whole Foods stores

Since the acquisition of Whole Foods in 2017, retail giant Amazon (AMZN) has been offering customers lower prices and exclusive deals on Whole Foods Market’s natural and organic foods. The company has slashed Whole Foods’ prices three times since the Whole Foods acquisition and offered many discount deals to its Prime members. The recent rate cut averages about 20% and will impact more than 500 items at Whole Foods stores.

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Free shipping to its Prime members

Through its Prime Now service, Amazon also gives a free two-hour delivery option to Prime subscribers in more than 60 cities. Online grocery pickup service from Whole Foods stores within 30 minutes is also available in nearly 30 cities.

Amazon also gives free shipping to its non-Prime members on orders of $25 and up, whereas customers are charged up to $9.98 per item for same-day delivery. In comparison, retail behemoth Walmart (WMT) offers free two-day shipping on orders of $35 or more, with no membership fee. To attract shoppers during the holiday season, retailers Target (TGT) and Best Buy (BBY) offered free shipping with no minimum purchase requirement.

Amazon’s shipping costs

While Amazon’s free shipping and deep discounts have enticed many customers to become Prime members, higher shipping costs are weighing on the company’s profits. Amazon’s shipping costs totaled $9 billion in Q4 2018, up 21.6% from a year earlier. Amazon’s shipping costs hit nearly $28 billion in 2018.

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