What do Amazon, Wayfair and Zappos have in common? They all skyrocketed their business thanks to drop shipping.
But while Amazon and Wayfair continue to grow using this supply chain management method, Zappos was quick to turn its back on it.
Drop shipping isn’t for everyone. For some businesses, it could be the secret to rapid growth. For others, it could destroy their brands.
Here’s how to tell whether it’s the right choice for your established eCommerce brand.
How Drop Shipping Benefits Established Brands
Drop shipping offers brands a fast and inexpensive way to test new products, says Sourcify Co-Founder and CEO Nathan Resnick. Rather than buying stock and waiting for it to arrive, drop shipping lets brands start selling new products in a matter of minutes.
It’s also much less risky, says Google Shopping expert Dennis Moons. Manufacturing your own products is expensive, and there’s no guarantee that they are going to sell. By drop shipping other manufacturers’ products first, you can quickly work out what works and what doesn’t.
Moons explains this is the strategy that Amazon uses to test product lines. As soon as Amazon sees a product selling well, it will often start producing an Amazon-branded version of that product.
Furthermore, drop shipping lets brands quickly change their inventory to stay current with new trends and seasons, writes Spocket’s Isha Mandloi. It can also help stores offer products they wouldn’t normally sell, Content Marketer Julia Gifford adds. “This will save you from investing your time to implement a product [that], though nice to have, won’t bring you the bulk of your income.”
Finally, drop shipping can help brands reduce their operating costs, says Ellipsis Marketing’s Alex Denning. “By choosing to dropship, you can reconfigure your supply chain to remove tedious costs (and risks) associated with (shipping) hefting physical goods across countries and continents. You’ll be saving on the expense of freight services, port operations, storage, warehouse employees, packaging and labeling.”
Drop Shipping Isn’t Without Issues
Drop shipping comes with a lot of perks, but it isn’t without risks.
“The most common issues I’ve seen with dropshipping include slow shipping times, no tracking numbers for your customers and low-quality products,” writes Steve Tan, Founder of eCommerce Elites Mastermind. Any of these issues has the power to destroy your brand’s reputation. If you are going ahead with drop shipping, Tan says that performing product quality checks is essential.
Another problem is slow shipping times. This is the main reason Zappos stopped drop shipping, content editor Lyndsay McGregor writes. “And as far as your customers are concerned, if they’re left waiting three months to receive an order, the fault is yours—and you have to deal with the chargebacks.”
Drop shipping has very few barriers to entry, and therefore it’s incredibly competitive, adds Fundera’s Matthew Speiser. He also notes how all of those overhead costs you save on — warehousing, freight services, etc. — ultimately come out of your profit margins. “This is a vicious cycle, as you need to do a lot of business to compensate for your low profit margins, and yet you have a lot of competition for every sale,” he writes. “You are also at the mercy of the manufacturers or suppliers you work with, as they have control over fulfillment and returns, yet you have to deal with the customer.”
Your brand loses control of the product unboxing experience, too, Tracey Wallace writes at HubSpot. That means no branding materials or thank you notes in the box.
These 4 Questions Will Help Guide Your Strategy
Despite its pitfalls, many giant eCommerce brands such as Amazon and Wayfair continue to make drop shipping work for them. Here’s how to tell whether you should follow their lead.
1. Is Your Growth Being Stifled?
There’s no point turning to drop shipping if your current sales model is already helping your brand grow. Creating and branding your own product, while more work upfront, offers the highest ROI, says Ecommerce Fuel’s Andrew Youderian. If growth isn’t a problem, then focus on revenue.
Still, even established eCommerce brands might not be willing to spend time developing another product or money to support that product (e.g. with more warehouse space). “By adding dropshipping to your business, you don’t need tons of cash or larger warehouses to increase your offer,” says the team at ShippyPro. “You just need to have your online store set up, list your products, and focus on marketing and selling.”
2. Is Inventory Flow a Problem?
Some eCommerce brands may be struggling with inventory flow, says Wisemerchant’s David Zheng.
“One of the biggest challenges eCommerce store owners have is maintaining sufficient inventory. Most simply do not have enough money to pay manufacturers for the inventory, and do not have the resources to scale their business with their current inventory.”
These inventory problems can kill businesses in some cases. Turning to drop shipping should always be seen as a sensible solution in this case.
3. Do You Have Product Fit?
Not every industry or product is suitable for drop shipping. If you sell consumer electronics, perfect. If you sell furniture, however, you may want to think again.
Uber Brands Founder Jonathan Long says there are certain things to look for in a product you plan to drop ship. Perhaps the most important is high profit margins. The time you spend marketing a product is fixed, so it makes sense to focus on marketing products with better profit margins. You’ll also want to make sure that your product is actively searched for and appeals to impulse buyers.
The team at Magenticians recommend focusing on products people want rather than products they need. People aren’t going to wait several weeks for something urgent, but they will wait for something they want if they can get it at a better price.
Fit Small Business Finance Editor Ian Atkins urges eCommerce brands to consider the size, shape and weight of any items they are thinking about drop shipping. “Logistics should be one of your top concerns when shipping an item, so it is better to consider light and durable products instead of heavy and fragile ones.”
4. Do You Have Company Fit?
Drop shipping only really makes sense for online retailers in specific circumstances.
First, it’s going to be a lot harder if you’re based outside of the US, writes UK-based eCommerce expert Andrew Minalto. Thousands of drop shipping companies dot the States, but it’s a relatively new concept in markets like the UK and Europe.
Once you have found a supplier, you’ll need to get approved. This is considerably easier for branded retailers with an established online presence, says Dropship Lifestyle’s Anton Kraly. “Suppliers need to protect their brand and they want retailers who offer a ‘store’ that meets or exceeds their expectations,” he writes. “The better the store, the better your chances of getting accepted.”
You’ll also need to have a great customer support structure in place, writes Oberlo’s Daniel Threlfall. Problems are common in the world of drop shipping, and you’ll need a team to handle them when they occur.
“Even when things are going smoothly, you never know when your supplier is going to botch an order or when a customer will send you an angry email. There are lots of surprises in drop shipping, so try not to get caught off guard when these things happen.”
Drop shipping can make a big difference to some eCommerce businesses, but it’s not for everyone. For every Wayfair that builds an empire around drop shipping, there’s a Zappos who doesn’t. Which is your eCommerce brand?
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