Retailers have been quick to embrace direct-to-consumer drop shipping. And why not? Their customers go to their eCommerce store, see a product they like, and decide to buy it. But the retailer hasn’t assumed the upfront cost of stocking their warehouse—the products are still with the supplier. Stores avoid the expense of carrying inventory, while being able to offer a much wider selection of items for sale.
In a retail landscape that faces the challenge of ever-shifting shopper tastes, direct-to-consumer drop shipping is a retail practice that offers clear advantages.
It’s an obvious win for retailers. For brands or suppliers? Well, the benefits aren’t quite as clear.
Let’s start by looking at the drawbacks:
1) Adds complications.
Selling wholesale to retailers and shipping one large order in bulk is a simpler proposition than managing hundreds of different orders that are shipped to various locations. If your system isn’t automated, you could find yourself spending hundreds of additional hours handling the same number of items that you once shipped in bulk.
2) Shifts inventory risk to the brand.
Not only will you be forced to carry a larger stock and assume added expenses—additional labor, more warehouse space, higher overall shipping costs—you’ll also need to make sure your inventory is managed to avoid shortfalls. When a retailer features your products on their site, consumers expect to receive the product quickly. The store that sold it wants the whole transaction to be seamless—most will expect you to provide things like retailer-branded packing slips and shipping labels.
3) Changes staff needs.
When you commit to drop shipping direct-to-consumer, the demands on your people will be different. You’ll need to be able to pick-and-pack items in your warehouse with speed and efficiency. It’s a different operation than one that is only shipping large wholesale orders.
4) Makes financial security less assured.
A purely wholesale operation can count on consistent, large orders from retailers, providing a measure of confidence. Individual orders, shipped directly to the purchaser, don’t create that sense of security about your business.
But wait, direct-to-consumer drop shipping has plenty of upside.
Let’s not get mired in negativity—many brands have found real success with direct-to-consumer drop shipping. They include:
1) Provides an avenue into new, different retail outlets.
Without the drop shipping model, many companies would be shut out of certain stores. Managing risk is critical for retailers and there is always reluctance when it comes to putting a new or unproven brand on shelves. But virtual shelves? With no warehousing required? That can be a game changer. Brands that can deliver on drop shipping and meet the retailer specifications can suddenly find their products in new channels that may not have been available in the past. With eCommerce sales expected to make up 17.5% of all retail sales and reach $4.9 trillion in revenue by 2021, just getting more eyeballs on your products in online stores will be an important part of success.
2) Offers instant feedback.
When brands want to test a new product, drop shipping reduces risk. Instead of fulfilling one big order, an item can be placed on the eCommerce sites of various retailers to see if there is real demand for it among consumers. If it’s not, the costs are less—reduced shipping costs, a smaller production run— than they are in the traditional model.
3) Brings more balance to trading relationships.
Yes, you’re still the brand supplying products to the retailer. But just like in the best human relationship, it works a little better because the balance of power is closer to equal. The retailer needs you a little more. Both parties need to work collaboratively to succeed.
4) Develops direct-to-consumer capabilities.
Before eCommerce changed the retail dynamic, suppliers didn’t want to risk alienating their wholesale customers by selling directly to the public. Today, most brands balance their sales to brick-and-mortar retail partners with an eCommerce store and online marketplaces. It’s now an accepted model, and suppliers that begin by handling eCommerce drop shipping for retailers wind up with efficient systems. If they decide to sell their products directly to customers, everything is in place to make that happen.
Make the positives outweigh the negatives.
Love it or hate it, direct-to-consumer drop shipping is here to stay. So how can you make it work for your company? How do you take on the challenge of direct-to-consumer drop shipping without letting it overwhelm your organization? And how do you transform it from a time-consuming effort to a new, efficient profit center?
To be successful, you need a seamless order management process. Without that, direct-to-consumer drop shipping will be a burden—not a revenue booster.
Obviously, when you’re shipping hundreds or thousands of items to multiple addresses, while meeting detailed retailer standards, the possibility of errors increases. There are simply more moving parts compared to managing large orders in a purely wholesale business. If you don’t have an efficient system in place, drop shipping will cause mistakes, damage trading partner relationships, and cost you money.