Definition of Drop-Shippers
Drop-shipping is a method of retailing in which the retailer never sees the product. The customer orders the product from the retailer, and the product is ships directly from the manufacturer or distributor to the customer. Drop-shipping is particularly common in the field of online retailing.
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How Drop-Shipping Works
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A customer finds a product online or, less frequently, in a brick and mortar store that uses drop shipping. The customer orders the product from the retailer. The retailer, in the case of the brick and mortar store, may only own the one example of the product that is on the shelf. In the case of online or catalog sales, the retailer may not own any actual examples of the product. The retailer, after receiving the order from a customer, puts in an order with the manufacturer or distributor, who ships the order directly to the customer.
Online Sales
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Drop-shipping is particularly well suited to online sales, because customers can't see and handle the product even if the retailer owns it, so it makes no difference in the customer experience. In a brick and mortar store, customers may find it strange that they can't simply take the product away with them when they buy it.
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Competition
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The ease in setting up an online retailing operation using drop-shipping means that many people are doing it. New entrepreneurs expecting to make large and rapid profits often discover that there is too much competition to make this a reality. One important element of success is in discovering a product that is popular enough to sell, but not so popular that there are vast numbers of other people trying to sell it.
Benefits
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Drop-shipping allows a retailer greater flexibility in merchandise choices. Retailers save huge amounts of money by not having to maintain expensive warehouse space and pay staff to pack and ship items. If a product becomes unpopular, a retailer doesn't run the risk of being saddled with a large and unsellable inventory to offload at a loss.
Drawbacks
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Drop-shipping can lead to hassles and confusion when a customer is dissatisfied and wants to return a product. Quality control can also suffer, as the retailer never actually sees the product that is sent to the customer. Not all manufacturers will do drop-shipping, so a retailer who uses only this method may not be able to get products from these manufacturers.
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References
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