"Our profit per piece obviously drops, which means that we have to ship a lot more merchandise to make the same amount of money," said Rebecca Nyhus, the store's co-owner. "Lowering price points has helped us weather the downturn, but it has really bogged us down because shipping is so time-consuming" and expensive.
Like many other small e-tailers caught in the holiday margin squeeze, Plasticland was forced to raise its minimum order for free shipping to $100, from $50 to try to recoup some of the lost profits.
Free shipping is becoming a painful imperative for all e-commerce sites. Three-quarters of online shoppers said in a comScore survey that they would shop elsewhere if a site did not offer free shipping, and nearly all sites offered it for at least some purchases.
E-commerce giants like Amazon.com, which offers free shipping on orders over $25 and eliminates even that minimum for customers who pay a flat annual fee, can easily absorb shipping costs. But small online vendors struggle. Powell's Books, a bookstore in Portland, Ore. with a site that competes for customers with Amazon.com, offers free shipping on orders over $50.
"In our business model, we could not afford to give free shipping on every package. It just would not work," said Dave Weich, director of marketing at Powell's.
To exacerbate matters, a major expense for online retailers seems to be rising: the cost to advertise products on the search engine Google, the source of considerable traffic and visibility for most e-commerce sites.
Over the last year and a half, prices for text ads related to women's fashion have quadrupled, say apparel retailers. In the popular gifts category, the price to advertise alongside results for common search queries like "gift baskets" jumped 50 percent from the 2006 holidays to 2007 and is expected to climb again this year.
For Delightful Deliveries, a 10-year-old company that was selling gift baskets online, that extra expense -- plus the challenge of competing on price against its own wholesalers, which also sell on the Internet -- proved too much. The eight-employee company, based in Port Washington, N.Y., closed in September.
Eric Lituchy, the founder of Delightful Deliveries, is now watching the Internet price war from the sidelines. "I think everyone is praying that this economy does not get any worse and that people find reasons for optimism and spend some money at Christmastime," he said.