Retailers Are Drop Shipping to Save Capital

by Claudia Bruemmer

While retailers have been struggling since the recession started a few years ago, many of them are now looking for ways to increase sales without using precious capital. Drop shipping is a great way to save capital because retailers can take orders without having to stock inventory, and they can ship directly from their suppliers. The benefits are low overhead, zero investment, no warehouse and shipping overhead. Retailers can negotiate a confidentiality agreement with suppliers so their customers don’t know the difference.

With suppliers shipping directly to their customers, retailers can experiment with new products. They can branch out into new product categories without prior experience, and they can try new styles because they eliminate the risk of investing in inventory that might not sell.

Drop shipping is a real boon for start-ups in apparel, giftware, health and beauty products and many other categories. Retail merchants can try drop shipping 20 percent of their products, and then increase gradually if it proves successful. They can warehouse the products they have a high demand for and drop ship other products with less demand.

Drop Shipping Contracts. Setting up contracts with various drop shippers can be a challenge. Retailers must take into account the supplier’s payment terms and whether they have a set charge for warehousing and shipping costs versus charging a percentage of sales. There are other questions regarding whether the products are always in stock. Retailers also need to ensure their suppliers will pack things to their specifications and provide good customer service. It is important to spell out your requirements and have a person on the other end you can deal with directly.

Drop Shipping Fees. Depending on a retailer’s sales, some suppliers will charge a drop shipping fee on top of a shipping fee, while others don’t. If you are a new vendor, the supplier might want to test you, starting off with a drop shipping fee.  For small orders, suppliers usually charge from $3 to $5 for drop shipping.

The margins vary widely in different product categories, but some suppliers average 25 percent gross margins on small appliance items, for instance, and 30 percent on those stocked in the warehouse. Suppliers usually must sell at least 12 such items per month to justify stocking the item in the warehouse.

No Cash Outlay. The benefit of drop shipping for retailers is they don’t have to pay ahead for products advertised and sold. On average, they get the payment from their customers 10 to 15 days before they pay their supplier so they never have a cash flow problem. They can offer a wide selection in a lot of different categories, providing customers with anything they need without the risk.

The biggest challenge, however, is ensuring customer satisfaction. This takes a lot of coordination with suppliers to ensure orders are fulfilled to customer satisfaction. Some suppliers will pick, pack and ship an order, sending back the tracking number and shipping confirmation in 24 hours excluding weekends and holidays, while others take longer. In the beginning, it may take trial and error before finding the best suppliers.

Drop Shipping Demand. Because of the increased demand for drop shipping, some large retailers that hold inventory have become drop shippers for other merchants. They know that many merchants are tight on warehouse space and money and do not want to invest in inventory. This has been a win-win for both parties, with some retailers expanding their warehouse space to accommodate orders from smaller firms. The demand for drop shipping is high right now, and it actually exceeds supply.

Author:  Claudia Bruemmer

Claudia Bruemmer is a contributor to the TopTenWholesale Newsroom. Experience includes: Copy Editor SearchEngineLand (2012-present), Managing Editor ClickZ (1998-2001), Editor SearchEngineWatch (2007-2008) and freelance writer/editor since 2001 for SEMPO, ImediaConnection, SearchMarketingStandard, SearchEngineGuide, BruceClay and other sites. Prior to online work, Bruemmer was a Tech Writer for many years.

10 responses to “Retailers Are Drop Shipping to Save Capital”

  1. Your article says what I’ve been telling my retailers for a long time. The drop ship fee is worth every penny. They now leave my catalog out on their counter to take special orders which I drop ship directly to their customer- using blind shipping with USPS priority mail. Their customer never know it came from me. My internet customers show lots of products without the inventory. My B2B web site is set up so drop shipping is easy and fast.

  2. DropshipDEALS has been dropshipping handbags and accessories since 2003 — long before it was called – dropship:)
    We have more the 10K members world wide. Our average member profits $1000.00< a month. We buy the inventory, stock, pack and ship. Phone: 1-917-388-1701

  3. My company does not charge fees at all to dropship. No account set up fees, shipping fees, handling fees, return fees, nothing! Click on my name to go to our website and view our products then send me a message through our website contact form or call me at 719 598 5300.

  4. […] Retailers Are Drop Shipping to Save Capital Drop shipping is a great way to save capital because dropshipping belgie retailers can take orders without having to stock inventory, and they can ship directly from their suppliers. The benefits are low overhead, zero investment, no warehouse and shipping overhead. … Read more on TopTenWholesale News […]

  5. […] Retailers Are Drop Shipping to Save Capital: As retailers felt the recession, they started looking for ways to increase sales without using too much capital. The perfect solution for many was to use drop shipping because this allowed them to take orders online without having to stock inventory. The fact they could ship directly from suppliers saved them money, too. With low overhead, zero investment, no warehousing and shipping to worry about, many retailers went this route in 2011. […]

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