Drop shipping in 2017: Is drop shipping the ‘holy grail’ for struggling Bricks Mortar retailers? Or is it a retail business model that goes against what online customers demand: An easy, consistent and seamless experience.
According to Joel Padi writing in The Market Mogal, the young people in the UK choose increasingly to become entrepreneurs. This is because of the unpredictable economy, high study fees and a fiercely competitive job market. Joel says that some of the young entrepreneurs consider drop shipping as a “risk-free, low start-up cost, and profitable business venture”.
Josh Wexler, CEO and Founder of RevCascade, posting in the MULTICHANNELMERCHANT says that “Thanks to its inherent flexibility and low-risk nature, drop shipping has the potential to be your ultimate tool for merchandising and product curation”. However, Ed Kennedy cautions that with drop shipping, a retailer may put his/her good reputation in another’s hands. A real concern…
The drop shipping in 2017 will be discussed – does it offers opportunities for retailers, or is it too troublesome?
The drop shipping distribution model
The drop shipping distribution model is usually contrasted with the traditional retail distribution model. Comparing the two models is not without a good reason. Traditional retail distribution models require the retailer to buy inventory, and to store and manage it. This practice needs a monetary investment that serves as an important entry barrier to the industry.
There is no need for a retailer to buy inventory, or to handle it when using drop shipping. Since the capital requirements starting a drop ship retail business is small, the barrier to enter the industry is low. Therefore, starting a drop ship business seems easy, but how easy is it to keep it open?
The pros and cons of drop shipping in 2017
Drop shipping, as with any other retail business model, has its advantages and disadvantages:
The advantages of using drop shipping for existing retailers are according to Josh Wexler as follows:
- Increasing volume with existing brands – launching a drop ship program largely takes the responsibility of shipping and fulfillment off your shoulders;
- Selling new products from new (and existing) brands – your product mix and brand offerings can be drastically expanded and diversified with virtually no risk;
- Testing new verticals – drop shipping can mitigate risk to the point where retailers can test out merchandising with entirely new verticals, not just products and brands;
The disadvantages for retailers using a drop shipping system are according to Strategy Plus:
- Processing your orders can become difficult. The time between selling a product and getting it shipped can take long. Also, there are many conversations and actions that need to take place before it gets sent off;
- Not having all of the product information is problematic. As you never actually handle the products that you are selling, you have no realistic idea of what they are like;
- Customer service issues. Drop shipping removes the responsibility of shipping but, sadly, it also removes a large part of the customer experience from your control;
- A vast amount of competition is everywhere. Finding great drop shipping products means they generally will come with competition from other retailers in your sector.
How should retailers practice drop shipping in 2017
In a time where many Bricks and Mortar retailers are closing shops because changes in the buying behaviour of their customers, a drop shipping distribution model may provide an outcome. Indeed, drop shipping has the power to build a retailer’s eCommerce site and increase product offerings with little capital investment.
However, Peter Zaballos, Chief Marketing Officer at SPS (quoted in the MULTICHANNELMERCHANT) suggests that before retailers decide to add drop shipping capabilities, they should consider the following six questions:
- Do I have the infrastructure needed to support it? Drop shipping involves many moving parts and requires flawless orchestration between retailers and suppliers. Communication, collaboration and efficiency are key to meeting the promise made to consumers.
- Do I have the right internal resources in place? Managing the increased document flow drop shipping requires may tax your internal teams. It’s critical that you have systems and processes that can support increased volume.
- Which of my suppliers have drop shipping capabilities? While having a relationship with a supplier that offers drop shipping makes it easier to add this component to your merchandising strategy, it is not a necessity.
- How will I receive reliable, accurate product information? Today’s digital consumers rely on detailed product information when making purchasing decisions. To ensure you provide such information, gather item attributes from your suppliers.
- How will I maintain service levels? Drop ship agreements require collaboration and trust in order to ensure customer expectations are met. From the start, foster and encourage open dialogue and set expectations, requirements and goals.
- In what way will I manage returns? Even with accurate product information and a good shopping experience, returns are inevitable and must be planned for. First, determine what to do with merchandise that is returned. Will it go back to the warehouse or the supplier, be discounted and sent to store shelves or sold elsewhere?
Although the start-up costs are low with a drop shipping business, it’s not so easy to run it. Websites such as Dropship.com and Shopify as well as other applications run by the wholesale suppliers will mostly give entrepreneurs a seamless start. However, what happens there after will require all the ‘guts’ and determination to keep going.
Then there is the ‘the paradox of choice’. Jeremy Hanks, CEO of Dsco said recently in Practical Ecommerce that “customers overwhelmed by product variety end up just window shopping.” Joel Padi writing in The Market Mogal advises that when starting with drop shipping, specialization in a niche market could prove to be the key to a profitable start-up. By reducing their focus, first-time entrepreneurs can narrow the target market, reducing advertising and marketing costs.
Finally, to do successful drop shipping in 2017, the retailer must maintain control over the entire customer experience, including how transactions and communications take place, says Adrien Nussenbaum, co-founder of Mirakl (Internet Retailing).
A well researched and written Business Plan helps to get your business started the right way.
Read also: Drop shipping retail in 2016