Drop shipping is a form of

retail business Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesaler, and t ...

where the seller accepts customer orders without keeping stock on hand. Instead, in a form of

supply chain management In commerce, supply chain management (SCM) is the management of the flow of goods and services including all processes that transform raw materials into final products between businesses and locations. This can include the movement and stor ...

, the seller transfers the orders and their shipment details either to the manufacturer, a

wholesaler Wholesaling or distributing is the sale of goods or merchandise to retailers; to industrial, commercial, institutional or other professional business users; or to other wholesalers (wholesale businesses) and related subordinated services. In g ...

, another retailer, or a

fulfillment house Fulfillment house and fulfillment center (in British English: fulfilment house and fulfilment centre) are modern terms for a packing warehouse. The terms were coined in the middle of the 1990s, and "fulfillment center" is usually used about an i ...

, which then ships the goods directly to the customer. The retailer is responsible for marketing and selling a product, but has little or no control over product quality, storage, inventory management, or shipping. By doing this, it eliminates the costs of maintaining warehouses – or even a storefront – purchasing and storing inventory, and employing necessary staff for such functions. As in any other form of retail, the seller makes profit on the difference between an item's wholesale and retail price, less any pertinent selling, merchant, or shipping fees accruing against them.

Procedure

A drop shipping business model does not require a

brick and mortar Brick and mortar (also bricks and mortar or B&M) refers to a physical presence of an organization or business in a building or other structure. The term ''brick-and-mortar business'' is often used to refer to a company that possesses or leases r ...

store. It may be eliminated entirely, or combined with drop shipped

order fulfillment Order fulfillment (in British English: order fulfilment) is in the most general sense the complete process from point of sales inquiry to delivery of a product to the customer. Sometimes, it describes the more narrow act of distribution or the ...

business model. A

physical Physical may refer to: *Physical examination In a physical examination, medical examination, or clinical examination, a medical practitioner examines a patient for any possible medical signs or symptoms of a medical condition. It generally co ...

retail Retail is the sale of goods and services to consumers, in contrast to wholesaling, which is sale to business or institutional customers. A retailer purchases goods in large quantities from manufacturers, directly or through a wholesaler, and t ...

er may keep potential drop shipped items on display, provide details on

mail order Mail order is the buying of goods or services by mail delivery. The buyer places an order for the desired products with the merchant through some remote methods such as: * Sending an order form in the mail * Placing a telephone call * Placing a ...

items via a catalogue, or maintain a

website A website (also written as a web site) is a collection of web pages and related content that is identified by a common domain name and published on at least one web server. Examples of notable websites are Google Search, Google, Facebook, Amaz ...

with information available only

online In computer technology and telecommunications, online indicates a state of connectivity and offline indicates a disconnected state. In modern terminology, this usually refers to an Internet connection, but (especially when expressed "on line" or ...

. A virtual retailer only has a website. Drop shipping retailers are not required to disclose the practice, nor, as with any other retailer, the wholesale source of the products they offer. This can be achieved by "blind shipping" (shipping

merchandise Merchandising is any practice which contributes to the sale of products to a retail consumer. At a retail in-store level, merchandising refers to displaying products that are for sale in a creative way that entices customers to purchase more i ...

without a return address corresponding to the seller), "

private label A private label, also called a private brand or private-label brand, is a brand owned by a company, offered by that company alongside and competing with brands from other businesses. A private-label brand is almost always offered exclusively by th ...

shipping" (having merchandise shipped from the wholesaler with a return address customised to the retailer), or utilising a

. The ultimate order fulfiller might also include a customised

packing slip A receipt (also known as a packing list, packing slip, packaging slip, (delivery) docket, shipping list, delivery list, bill of the parcel, manifest, or customer receipt) is a document acknowledging that a person has received money or proper ...

, including details such as the retailer's company name, logo, and contact information. In unusual circumstances drop shipping can occur when a small retailer (that typically sells in small quantities to the general public) receives a single large order for a product. The retailer may arrange for the goods to be shipped directly to the customer from the manufacturer or distributor. Sellers on

online auction An online auction (also electronic auction, e-auction, virtual auction, or eAuction) is an auction held over the internet and accessed by internet connected devices. Similar to in-person auctions, online auctions come in a variety of types, with d ...

sites such as

eBay eBay Inc. ( ) is an American multinational e-commerce company based in San Jose, California, that facilitates consumer-to-consumer and business-to-consumer sales through its website. eBay was founded by Pierre Omidyar in 1995 and became a ...

also use drop shipping as way of distributing products without handling the stocking the items sold. A seller will list an item as new, and have purchased items shipped directly from the wholesaler to the customer. The seller's profit is the difference between the selling and the wholesale prices, minus any pertinent selling,

merchant A merchant is a person who trades in commodities produced by other people, especially one who trades with foreign countries. Historically, a merchant is anyone who is involved in business or trade. Merchants have operated for as long as indust ...

, or shipping fees accruing to them. However, some of the drop shipping methods used by sellers are not allowed under the eBay terms of service. This includes drop shipping methods in which a seller fulfills an order by purchasing the item from another online marketplace and having the item shipped to the customer. Sellers who use this method can be suspended from eBay. Products may be listed by a drop shipping retailer as available but actually be back-ordered either with the wholesaler or the item's manufacturer. Such potential delays in order fulfilment are not always known, or even when known disclosed, by a seller. They also can be extended, beyond the control of the seller. Likewise order fulfilment and shipping delays are beyond the seller's control, yet can reflect badly on the purchaser's ultimate satisfaction with their transaction. This puts a premium on timely and accurate information provision by the seller on both sides of the purchase, both before and after it is made.

In China

The use of Chinese drop shipping companies has been on the rise in recent years by both companies and individuals. This is largely due to the increasing ease of

e-procurement E-procurement (electronic procurement, sometimes also known as supplier exchange) is the business-to-business or business-to-consumer or business-to-government purchase and sale of supplies, work, and services through the Internet as well as oth ...

and the growing part that the internet is playing in commerce. Drop ship suppliers based in China have increasingly been able to compete with same-country distributors because of improved logistics for small packets and the easing of trade barriers.

Concerns

There are a wide range of issues that may arise from engaging in the practice. At the forefront of these are ethical concerns, with many critics arguing that drop shipping relies on the exploitation of poor working conditions in developing countries to meet success. Others are opposed to its high risk of legal problems, potentially low profit margins, and inherent limited seller oversight, which places the buyer at risk for scams.

Scams

Drop shipping has also been a component of

internet The Internet (or internet) is the global system of interconnected computer networks that uses the Internet protocol suite (TCP/IP) to communicate between networks and devices. It is a '' network of networks'' that consists of private, pub ...

-based

work-at-home scheme A work-at-home scheme is a get-rich-quick scam in which a victim is lured by an offer to be employed at home, very often doing some simple task in a minimal amount of time with a large amount of income that far exceeds the market rate for the ...

s posted on

social networking service A social networking service or SNS (sometimes called a social networking site) is an online platform which people use to build social networks or social relationships with other people who share similar personal or career content, interests, act ...

s. Scam artists will promote drop-shipping as a

, in which victims will be sold a list of businesses from which drop shipment orders can be placed. These businesses may not be wholesalers, but other businesses or individuals acting as middlemen between retailers and wholesalers, with no product of their own to sell. These middlemen often charge prices that leave little

profit margin Profit margin is a measure of profitability. It is calculated by finding the profit as a percentage of the revenue. \text = = There are 3 types of profit margins: gross profit margin, operating profit margin and net profit margin. * Gross Prof ...

for the victim and require a regular fee for use of their services. In 2019, the Gimlet Media podcast Reply All investigated the drop-shipping phenomenon, exploring the way drop shippers microtarget their client, but also found that micro-shipping itself is a rather dubious industry in that, despite the promises of some of the most well-known drop-shipping proponents, few drop shippers actually make any profits. In 2016, ''

Buzzfeed News ''BuzzFeed News'' is an American news website published by BuzzFeed. It has published a number of high-profile scoops, including the Steele dossier, for which it was heavily criticized, and the FinCEN Files. Since its establishment in 2011, it ...

'' published an article exposing unscrupulous drop-shippers in China, describing how customers were receiving products that were not as those were advertised, or not receiving any products at all. One effect of drop-shipping is that customers who receive a drop-shipped package will realise that they overpaid for the item, return the item to the seller, then reorder the identical item directly from the manufacturer. The cost of processing the return and the loss of the unsalable returned product can result in significant losses to the drop shipper.

References

{{DEFAULTSORT:Drop Shipping Retail processes and techniques Supply chain management

Procedure

In China

Concerns

Scams

See also

References