The Lowdown on Dropship

Apr 01, 2015 — Joanne Helm
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If you’ve been following the moves of some of the big-box retailers lately you’ve likely noticed the race to offer faster, cheaper delivery options is on. While industry on-lookers have been cautious about the effects that shipping costs can have on a retailer’s bottom line versus the benefit of attracting consumers, it’s clear that these “shipping wars” between the likes of Amazon, Walmart, and Target are making it appear difficult for other retailers to compete.

While it may be easy to point to the rising costs of shipping as a barrier for many retailers to offer similar incentives, there are many advantages and strategies that have proven to be successful. In particular, I’m talking about utilizing a drop-ship program.    

Drop shipping is a fulfillment model that allows retailers to buy products from a wholesaler and ship them to the store or directly to the customer. This strategy opens up a whole new realm of possibilities for retailers (and consumers).

Drop ship models can drastically reduce the cost of carrying large amounts of inventory and the ever-increasing cost of retail space as well as give retailers the opportunity to save the sale.

The biggest opportunity drop ship provides is the ability to show a limited amount of physical product SKUs while being able to sell a massive amount of virtual SKUs. Essentially, a retailer can display the products that are popular and proven to sell (standard sizes, maybe a few different colors) in-store while giving customers the option of ordering an item that is not regularly stocked (or perhaps just out-of-stock at that moment) from the retailer’s entire product catalog. This can drastically reduce the cost of carrying large amounts of inventory and the ever-increasing cost of retail space as well as give retailers the opportunity to save the sale.

Drop ship allows customers to buy whatever they want to buy, when they want to buy it.

Retailers can avoid the risk of carrying one of everything or multiple colors that can either go unsold or become stale but at the same time, they increase their opportunities to make a sale when a customer does walk in and is looking for a unique or perhaps more expensive item. The whole goal is never having to say “no” to a customer.

Drop ship has the potential to put small, medium and big box retailers on an equal footing and adds that “stickiness” at the point-of-sale – allowing customers to buy whatever they want to buy when they want to buy it.

Another note-worthy cost-saving advantage of drop ship is the reduction in security fraud: both employee and customer related. Reducing the worry around product being on the floor or in the store, in general, is a huge bonus.

The ability to sell to showrooming customers is a game changer. 

Drop ship provides an opportunity for consumers to showroom – something that used to be considered a bad thing. But now, with the ability to sell to those showrooming customers, the game has changed. There is a noticeable trend towards smaller retail stores acting as fulfillment centers and I suspect that drop-ship programs will become the new norm as consumers come to expect these options. 

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Topics: Retail Operations, Dropship, Retail Marketing, Digital Merchandising

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