Retailers who currently follow traditional inventory management practices may not know about the advantages of drop shipping.
As an alternative fulfillment process in which vendors or wholesalers store and ship products, drop shipping lets retailers concentrate on more important concerns like improving the customer experience and boosting sales. Now that more retail companies are implementing drop ship, it's definitely time to talk about the benefits.
Reduces Inventory Costs
Inventory is one of retailers' biggest expenses. According to The Wall Street Journal, several large retail chains—including Home Depot and Target—have cut back on the number of goods they stock in order to keep inventory costs low. Brick-and-mortar stores have been trying to figure out how to succeed while also serving online customers, and tons of unsold commodities filling up backrooms only drag their margins down.
Think of all the costs of inventory:
- Out-of-date seasonal goods must be transported to another location (or be disposed of)
- Personnel must be trained to work in the stockrooms
- Insurance policies must be taken out to cover merchandise
Now imagine if inventory costs could be handed off to vendors or wholesalers—that's the promise of drop shipping. The retailer no longer needs to worry about these expenses; instead, another party takes care of stocking and shipping products. The benefit? Cutting down on the number of resources locked up in inventory liberates capital for investment elsewhere, such as wage increases, e-commerce operations and in-store improvements.
Maximizes retail space
If retailers switch to drop shipping, what can they do with the bonus capital they've gained as a result of reduced inventory costs? One option is improving the retail environment to enhance the shopping experience.
Thanks to drop shipping, brick-and-mortar stores can use their extra space to function more like showrooms or specialty shops. A patron can come in and take their time browsing display items and talking to staff about what products would best suit their needs. Then they can order the exact item from an in-store kiosk or tablet, which will be shipped straight to their home or preferred pickup location.
To make this vision a reality, retailers can employ a few tactics to upgrade their brick-and-mortar environments:
- Add floor space, which allows both customers and staff to move around more easily.
- Install digital signage so patrons can stay entertained watching videos while they wait in line.
Keeps customers happy
Another advantage of drop shipping is its ability to meet the expectations of today's shoppers. Specifically, it can help in two ways: fulfillment policies and endless inventory.
According to a UPS study, 66% of customers review an online retailer's return policies before making a purchase, and 15% won't continue with the purchase if the return policy isn't clear. In light of these facts, retailers should avoid trying to be fulfillment experts themselves and instead partner with other parties who specialize in the process. That way, vendors and wholesalers can manage fulfillment while retailers focus on creating a memorable shopping experience that will persuade customers to return for more.
In traditional inventory management, an out-of-stock item often means a lost sale. But with drop shipping, the item is essentially always available. The vendor or wholesaler can easily make the delivery, after the retailer has done their part to convince the customer that the product is the right choice. Customers are used to the near infinite choices that e-commerce sites provide, so they've come to crave an endless inventory wherever they look—online or offline. For retailers to stay competitive, drop shipping is a handy way to meet customers' expectations.
The value of drop shipping
Let vendors worry about the fulfillment process so you can build your business. With fewer costs, more floor space, and satisfied customers, your stores will continue to flourish for a long time.
To learn more about how this modern inventory management process can help your retail business, check out iQmetrix's Dropship solution.
Feature Photo: Michael Nivelet / Shutterstock.com