The Rise in eCommerce Drop Shopping
In recent years, the number of orders being fulfilled via drop shipping has surged. In the last three years alone, approximately 23% of online sales last year were fulfilled using drop shipping, a spending figure that amounts to $85.1 billion.
So, what exactly do we mean by drop shipping, and why has it increased in popularity? We’re here to give you the good, the bad, and the ugly on this newly popular model.
What is drop shipping?
Drop shipping is a retail fulfilment method that doesn’t require the store to hold its stock. Instead, when a store sells a product using the drop-shipping model, it buys the item from a third party and has it shipped directly to the customer. The seller never handles the product directly, and therefore doesn’t have to engage in the storing, picking, and packing process. To fulfil orders, the seller will purchase only the necessary stock from a third party when it’s needed.
If you’re a business owner, the process looks a little something like this:
-An order is placed to your business
-You pass the necessary info along to your drop shipper
-The drop shipper charges you for the item sold, plus a drop-ship fee
-The drop shipper picks and packs the item and posts it to the customer
-The customer receives the item
The process of drop shipping is less expensive than other fulfilment methods. Perhaps the most valuable aspect of drop-shipping is that the seller only buys the item when a customer purchases it. Instead of investing in huge stock levels that stay abandoned and disused for months, the up-front costs are zero, an attractive price for any start-up. Entrepreneurs that are starting their eCommerce business from scratch typically don’t have the same funds to purchase huge stock levels, compared to those larger, more established brands. Choosing this method frees time to focus on other aspects of the business, as well as saving on the costs involved in manufacturing and storing inventory yourself.
For most businesses, the logistical aspect of selling products is headache-inducing. Drop shipping essentially outsources the fulfilment process by finding people to pick, pack and post your items for you. This also widens the scope of products available to the merchant to sell on. For example, large or perishable goods can be traded without the stress of finding a suitable storage unit or warehouse, which can be a fiddly and time-consuming process for smaller businesses and start-ups. Of course, without being tied down by a physical storeroom or depot you can work anywhere in the world…Barbados anyone?
However, it’s not all as great as it sounds, many alternatives are better than drop shipping.
Although no logistics journey is completely smooth sailing, there is an increasing number of obstacles that merchants selling via drop shopping face. One of the most prevalent hurdles being the merchant’s lack of control over the quality of the items being sold, and how and when they reach their buyers. As inventory rarely passes the hands of the seller, it’s impossible to accurately assess the quality of the products that you’re taking ownership of. Customers refer to friends, engaging in repeat customer, share on socials and hold on to items that meet their expectations. Not being able to physically scan the products you’re selling compromises this quality control and as a seller, your products represent you, one bad batch of products could lead to lost sales.
Forbes recently reported that 77% of online shoppers have abandoned a purchase due to unsatisfactory shipping options and 84% have specifically purchased because shipping was free. This is great news more those businesses that can offer such shipping options, but in drop shipping often lack of shipping policy for eCommerce businesses leads to insufficient communication, delivery times, and prevents customers from getting the constant tracking updates that fulfilment services provide. Given that each aspect of the logistics journey has a separate provider, there’s no way to track your items or to even know once they’ve safely arrived in the hands of your buyer. If a customer calls the merchant to make a complaint or locate an order, the process is lengthy and often lacks the desired clarity.
And lastly, your store could effectively be in a race to the bottom. With so much competition, retailers set lower and lower prices to compete with their rival until the profit drops to an obsolete amount, losing you money and a livelihood.
Drop shipping ultimately takes away the responsibility from the seller to their consumer. Overall, the disadvantages to drop shipping includes errors in the product shipment, shipping problems, inventory issues, miscommunication, and low margins, all of which can be avoided by investing in 3PL.
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