Why retailers are copying Amazon Prime
What do Restoration Hardware, Land's End and Postmates have in common? They all want you to shell out money in exchange for an annual membership, a la Amazon (AMZN) Prime.
Given the success of Amazon's Prime service, it's no wonder that retailers are starting to ape the service by devising their own membership programs. Amazon's $99 annual service now reaches almost 40 percent of U.S. households, who pay up in exchange for free two-day shipping, streaming video and other services.
Amazon Prime offers a fairly wide number of benefits, including unlimited photo storage and Kindle e-book borrowing, which may help justify paying for the service. But companies such as Restoration Hardware don't have the same type of scope of services as Amazon, which raises more questions about the value of paying more for a yearly membership.
"Whether or not Prime-like memberships are worth it will be different for each individual consumer," said Courtney Jespersen, a retail expert at financial site NerdWallet. "Before deciding if you should sign up for such a membership, you need to weigh the pros and cons of the program."
Land's End recently introduced Canvas, a program that costs $50 annually and includes free shipping and free returns, as well as discounts of as much as 20 percent on clothing. Restoration Hardware in March started selling a $100 annual RH Grey Card, which offers a 25 percent discount on its furniture and other household goods. In the same month, Postmates started a $10 per-month membership for unlimited delivery of food and some merchandise.
Some consumers may like the idea of paying for an annual membership because of the incentives they receive in return, while retailers like the fact that the plans tend to encourage customers to shop more frequently.
The first step, Jespersen said, is to put a value on whatever the membership is offering, such as free shipping or discounted prices.
"If a membership is offering free shipping for a flat annual membership fee, consider how often you'll shop at the retailer within a year," she said. "Will you get your membership fee back in the cost of shipping? Or will you make only a handful of purchases that won't equal the membership fee? Retailers are banking on the latter."
Be aware that a membership may encourage impulse shopping, she added. Amazon Prime's 46 million members spend an average of $1,500 a year on the site, or double what non-members pay.
Read the fine print before signing up for a membership, Jespersen said. Watch out for exclusions on promotions, or whether some products don't qualify for free shipping. Another pitfall is automatic membership renewals, which means you could get charged at the end of the year even if you don't want to continue with the program.
"The Amazon Prime membership trend is most definitely catching on in the retail world," Jespersen said. "It's likely that retailers have seen the success of Amazon Prime and want in on the trend."