Drop shippers are wholesalers, suppliers or agents who “pack and ship” items for an online store from their own warehouse. This means that the online store does not buy or keep any of its own inventory and does not handle the products themselves.
There’s a lot of misunderstanding about what are drop shippers really. The drop shipper is the party that handles the stock, picks and packs it and ships it.
The online store is NOT the drop shipper but rather the party who uses the drop shipper to fulfil its orders.
Drop shipping is not a business model but rather a fulfillment model.
Drop shipping is also known as direct fulfillment and is becoming more and more popular because it is so cost effective.
It is a more modern approach to product fulfillment and grew naturally with online shopping becoming more popular.
The main benefits for an online store in using a drop shipper is that they do not have to invest capital in buying stock upfront, they do not have to pay for warehousing and they do not need to pay staff to pick, pack and ship products.
They also don’t have to risk their capital to invest in large amounts of inventory that might not sell.
The main downside of drop shipping is smaller profit margins and the online store have no quality control, very little control over shipping and often very little branding options with their parcels.
Returns and refunds can also be a real challenge with dropshipping. I’ve written a more comprehensive article about all the pro’s and con’tof dropshipping that you can read here.
The Difference Between a Drop Shipper and a Retailer
The difference between a drop shipper and a retailer comes down to who owns and handles the inventory.
Drop shipping is a fulfillment method that is the opposite of how retailers fulfill orders. As online shopping started taking off, most retailers had to catch up quickly.
Most retailers are fulfilling their orders themselves from their warehouse or from their retail outlets.
A retailer will buy products in bulk from a factory or supplier (usually from China). These large shipments will then be shipped to their own warehouse where it will be sorted and catalogued for online sales and distributed to their retail outlets for physical sales.
These bulk orders are usually much cheaper because of the volume which also gives them the option to brand their own products with logo’s and names on the products and custom packaging for the products.
Depending on the brand and/or retailer they will offer online sales which will either be fulfilled from one of their warehouses or from one of the retail locations.
For retail fulfillment there are a lot more moving parts involved – especially if they sell both in retail stores and online.
Distribution and managing inventory is not an easy job and requires careful planning and meticulous inventory management.
I think the reason why so many retailers are going under is simply because they are not set properly for online sales. They seem to be happy with 20% to 50% margins whereas drop shipping stores see margins upwards of 50% to 80%.
The drop ship fulfillment model is in many ways why Amazon has become so successful.
Is Amazon a Drop Shipper?
Most people don’t know this but Amazon is the biggest drop shipper in the world. What are drop shippers on Amazon? Amazon’s FBA (Fulfilled By Amazon) program is effectively a drop shipping program.
Anyone can sell products on Amazon. You can become an Amazon Seller and simply ship your products to an Amazon warehouse. They will then take care of everything in terms of fulfillment – and of course take their fees for doing so.
This allows Amazon to sell millions of products by leveraging the drop ship model. What may appear to be products from Amazon is in fact products from an Amazon seller BUT fulfilled by Amazon as the drop shipper for that seller.
Not all products sold by Amazon are drop shipped though. Amazon does have a massive inventory of their own products and there are also a number of Amazon sellers who still opt to fulfill their own orders.
Sellers on Amazon who fulfill their own orders are classified as FBM- Fulfilled by Merchant and Amazon sets very strict guidelines for these sellers to comply to Amazon’s standards of fulfillment.
Dropshipping on Ebay
Dropshipping on Ebay is also very popular but works very differently to Amazon. Unlike Amazon, Ebay does not have any warehouses and they do not handle any parcels themselves. Ebay is a C2C (Consumer to Consumer) business.
What are drop shippers on Ebay then? Drop shippers on Ebay refers to Ebay sellers who drop ship and who do not own or warehouse the products they sell.
This allows them to create listings and sell products they don’t own. Once they make a sale, they will buy the inventory from the drop shipper who will then fulfill the order for them.
This allows you to start an Ebay business with almost $0 and only fulfill orders once you make sales. It almost eliminates all the risks involved in starting an Ebay business.
The big challenge is that the large percentage of sellers on Ebay who use drop shippers are based in Hong Kong or China themselves and they are undercutting everyone.
To succeed with drop shipping on Ebay you will need to look much harder and try and find USA or EU based drop shippers with quality products and fast fulfillment.
Dropshipping With Shopify
Dropshipping with Shopify exploded in 2016 when Aliexpress became one of the main sources for sourcing cheap novelty products with cheap and trackable shipping worldwide.
With Shopify’s easy to use interface and a number of drop shipping apps like Oberlo made dropshipping with Shopify from Aliexpress really easy.
The Oberlo app would make managing and fulfilling orders almost entirely automated which allows Shopify store owners to focus almost all their efforts on marketing.
With hundreds of thousands of products on Aliexpress, the options are endless and you can sell almost anything you can think of by using Aliexpress’ drop shippers.
Fulfilling orders from Aliexpress comes with a lot of challenges though and low quality products and slow shipping times makes drop ship fulfillment from Aliexpress a fulfillment model that is not sustainable.
In recent years there have been a lot of warehouses, fulfillment agents and dedicated drop ship companies that stepped in to fill this gap.
Companies like CJ Dropshipping, Eprolo and Udroppy allow Shopify stores to drop ship from China with higher quality products, faster shipping and even custom packaging.
What Are Drop Shippers Going To Look Like In The Future ?
The drop shipping model makes a lot of sense in so many different ways. Retails is struggling and has been struggling for years.
One of the main problems with retailing is that they end up with millions of dollars worth of unsold inventory every year.
If you disregard all their physical expenses of having retail stores and staff, they still can not compete with drop shipping when it comes to online sales.
Amazon has proven just how effective drop shippers can be and how this is a mutually beneficial fulfillment model. Drop shipping can cut traditional wholesalers and distributors out of the picture completely.
Wholesalers and distributors will eventually become drop shippers for online stores.
These savings will be passed down to the consumers and create a vastly different ecosystem for eCommerce.
More and more big brands will start using and becoming drop shippers. Retailers who sell online will start feeling the pressure more and more as their fulfillment model simply can not compete with drop shipping.
While most drop shippers are still based in China, I predict that there will be many more starting up in the USA and EU.
There’s one more big factor to consider with drop shipping and retail and that is wastage. With retail stores being left with millions of unsold products every year there is a lot of wastage.
This is not just wastage of unsold products being discarded. It is also the wattage of products being distributed and re-distributed.
If manufacturers become drop shippers and all products move towards a “create on demand” model then we can almost eliminate wastage and stop the bleeding on this planet.