E-commerce is constantly changing, but one business model that really does seem to be trending for everyone, from start-up entrepreneurs to worldwide companies, is dropshipping. Drop shipping provides a low risk to new and established retailers alike to expand product offerings and revenue without many of the conventional headaches associated with the inventory management process. This article is going to explain exactly what drop shipping is, how it works, and why such importance is attached to this strategy within the retail industry.
What Is Dropshipping?
In dropshipping, the retailer is not obliged to keep any inventories of products he sells.
Instead, upon the closure of a sale, the said product must be bought from a third-party supplier who, in turn, sends it directly to the customer. In effect, that would mean the retailer never handles the product directly. Another way to look at this would be to say the retailer is acting merely as an agent to represent the product to the customer for sale. One focuses more on marketing and customer service, while the actual making, warehousing, and shipping are provided by the supplier. Above all, this model radically decreases financial risks that might burden a retailer by not having to invest in inventory, bear storage costs, or logistical headaches concerning shipping.
How Dropshipping Works
The process of dropshipping is amazingly straightforward:
1. Customer Places an Order: The customer arrives at your online store, selects a product, and makes the payment.
2. Retailer Forwards Order to the Supplier: The retailer receives the customer’s order and then forwards that order to the Dropshipper supplier who does all the work, right from warehousing to fulfillment.
3. Supplier Ships the Product: Then, the supplier gets the product packed and shipped under his brand to the customer.
In drop shipping, the retailer never sees or touches anything releasing them to focus on sales, marketing, and scaling of the business.
Key Benefits of Dropshipping in Retail
- Minimal Initial Investment
The first and foremost reason that acts as a hindrance toward establishing a conventional retail business is that the person needs to bear a very high cost against inventory in the first place.
On the other hand, Dropshipping allows the retailer to start selling without any preliminary investment in stock. You pay for products only once the customer has placed the order, hence very little financial risk is taken. Because of this, a retailer can invest that money in acquiring more customers or developing the website. - Extensive Product Offering
Dropshipping now enables the retailer to extend the product catalog without investing in house space or inventory. This could easily be regarded as testing new markets and products with minimum risk, as one retailer can market many products from several suppliers. Such flexibility makes adaptation to the changes of consumer trends quite easy. - No Need for Inventory Management
Traditionally, businesses would have to manage inventory levels well, cater to warehousing, and hold shipping logistics- all of which tend to be very expensive in addition to being time-consuming. In dropshipping, there is complete elimination of these processes. The supplier will handle warehousing, order fulfillment, and shipping to free the retailer to attend to the growth of his business rather than manage stock. - Scalability
Drop shipping allows the retailer to scale their businesses to greater heights faster. With the supplier now taking up the physical aspects of business, it would be rather easy for the retailer to scale up in terms of volumes of sales without being worried about the logistical complications brought by trying to fulfill more orders. The business would be able to sell more varieties of products, engage new customer segments, and scale without the constraint of warehouse space or fulfillment staff. - Location Flexibility
Dropshipping does not tie the retailer to a location. If you are dropshipping, you can manage your store from anywhere in the world, so long as there is an internet connection. This therefore creates an opportunity for entrepreneurs who love the freedom of running businesses without concerns about either a storefront or space for an office. - Lower risk for testing out products.
That means it is a great way to test new products or new markets without financial and large inventory orders. In case something goes wrong with a product, you simply pull it from your catalog and move on with no financial loss. This gives a very easy way for the retailer to test new trends or niche products and to adjust their offering according to demand.
Retail Dropshipping: Applications and Avenues
- E-Commerce Expansion
Dropshipping is a way for brick-and-mortar retailers to extend into e-commerce without having to worry about dealing with any sort of complication when it comes to managing online inventory. They make a sale of the product even as this may not be in-store, hence their digital footprint increases, reaching more customers online. - Niche Markets
Dropshipping will work for those retailers who would love to take advantage of very niche markets with very limited upfront investment. Be it specialty beauty products, unique fashion items, or ‘eco-friendly’ home goods, a retailer can curate a catalog of niche products from specialized suppliers. In this way, it enables the targeting of specific customer segments and differentiates it from the crowd in a highly competitive market. - Omnichannel Retailing
It can be said that dropshipping complements an omnichannel retail strategy, as it allows seamless integrations between online and offline sales. This way, a retailer can let his customers enjoy the ease of ordering products online and getting them delivered at home, without having to keep any extra inventory in brick-and-mortar stores. - International Sales
The retailer can scale their business worldwide with help from international dropshippers, they will be able to sell their products literally in every part of the world and avoid all that hassle connected with international shipping, customs, and taxes. Global reach is, therefore, the substantial fortune that allows the scaling of the retailer’s customer base from the local market. - Reduction of Overstock and Clearance Issues
Traditionally there are occasions which lead to overstocking of the products, thereby forcing the retailers to give markdowns and clearance sales, an action that cuts down profits. In dropshipping, a retailer will only order the sale of the products once a customer has placed an order; this minimizes cases of overstocking. Thus, it cuts down the instances when clearance becomes an absolute necessity.
The Challenges of Dropshipping
Even while having manifold advantages, dropshipping has a number of challenges that the retailer has to attempt and go around. These include:
- Lower profit margins: Since most of the fulfillment process is dependent upon the supplier, more often than not, the margins for the retailer come out to be lower due to the cut of the profit margin taken by the supplier.
- Dependence on supplier: The retailer loses control of this model in terms of capability related to inventory and shipping times. Whosoever the fault is-whether because of a stock level or any other delivery problem at the supplier’s end, it spills over to hurt the reputation of the retailer as well.
- Customer Service: Customer service gets tricky when the retailer is not doing the order fulfillment. Especially pertaining to product quality issues on returns or on shipping, they will have to sort the problem from the supplier’s end.
Notwithstanding such challenges, dropshipping can become a highly profitable and scalable business model for retailers once the right suppliers and strategies are in place.
Role of POS System in Dropshipping
Integrating a POS system into your dropshipping will ease up the process of your business and make the processing of orders efficient. An online order through a cloud-based POS system will automatically sync with your dropshipping suppliers. It will keep sales data and customer information in one place. It helps to track dropshipping orders, manage inventories, and give insight into sales trends in real-time.
Also, with a fully integrated POS, multichannel sales both online and in-store can go for a comprehensive view of your business performance.
Ready to Optimize Your Dropshipping Business?
What it needs to give it that boost is an integrated POS. Here at Integrated Retail, we boast the most commanding POS solutions that make the running of retail easier, dropshipping with suppliers even easier, and give real-time insight into their sales performance. Call or write to us today for a free consultation and find out how our POS can help take your retail business to new, unprecedented heights!