Drop Shipping Retail in 2016

The author of this blog has previously reported on hard lessons that he’d learnt when trying to do drop shipping (How-not-to-start-your-online-retail-business). Has anything changed with drop shipping since three years ago?

What is drop shipping?

Just a quick reminder what drop shipping is:

Drop shipping, according to Shopify, is an online retail model where a retailer doesn’t keep the products it sells in stock. Instead, when a retailer sells a product, it purchases the item from a third party and has it shipped directly to the customer. As a result, the retailer never sees or handles the product.

What are the advantages and disadvantages of drop shipping?

Joel Padi, writing in the Market Mogul has recently commented on drop shipping. He mentioned the following advantages and disadvantages:

Advantages:

  • It is easy and cheap to start an online drop ship business – you only need an e-commerce website;
  • No capital is needed to secure a premises and to buy inventory;
  • The costs for the retailer only starts when the customer has paid for her order;
  • The drop ship retailer can operate from anywhere at any time.

Disadvantages:

  • Low margins – because entry is easy and many of the products is from the same manufacturer;
  • Intense competition – thousands of websites offering the same products. Drop ship retailers must invest many dollars and lots of time for prospect customers to buy from them;
  • Lack of quality or brand control – drop ship retailers are totally depended on the drop ship suppliers for quality or brand control;
  • Availability – most of the drop ship retailers purchase their products from a few suppliers. Retailers can occasionally expect to find products are out of stock after an order has already been placed;
  • Shipping issues – the cheapest source of drop ship products is from countries such as China. Typically this results in a month-long wait on deliveries.

Has anything changed with online drop shipping retail the past three years?

To answer my own question – no! The alternative to drop shipping is for retailers to find a niche product to trade online. Customers are looking for niche products online because they have a specific need for them. Retailers may therefore ask a premium price for satisfying those specific needs…

Visit eBizplan for more on online retailing

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