Drop Shipping: 5 Tactics of Successful Retailers
Editor’s Note: Meet Jeremy Hanks at Ignite 2015, our conference on Sept. 16 and 17, in Dallas, where he’ll present two sessions: “Getting Started with Drop Shipping” and “Drop Shipping: Advanced Strategies for Success.”
In “Drop Shipping for Ecommerce, Part 2: The Basics,” I explained that one of the challenges with drop shipping is sellers believe it will be easy to implement. It sort of oversells itself, in fact. Think of the powerful terms that are often used to describe it: “Inventory Free Retail,” “Endless Aisle.”
Drop shipping has certainly become common, almost routine. But it is far from simple.
The following key tactics are what I’ve observed — over the past 15 years in the ecommerce supply chain — with the retailers and suppliers that are successful with drop shipping.
1. Be Transparent with Consumers
Drop shipping is not just another fulfillment model. It’s a much more nuanced partnership between retailers and suppliers to allow both to put more products in front of consumers.
Successful companies understand the structural change that involves differences in roles, finances, logistics, and data integration needs. They approach it as a partnership. Since the drop-shipping retailer is not going to box up a product and ship it, consumers need to know that there is a partner involved in the fulfillment. Years ago that was a negative.
Successful companies understand the structural change that involves differences in roles, finances, logistics, and data integration needs.
But in today’s world, with so much drop shipping and with the existence of major marketplaces, consumers are becoming used to transparency that the company they’re buying from isn’t the company that is holding and fulfilling the product.
Be transparent with the consumer.
2. Focus on Logistics
Ecommerce fulfillment is a unique skill set. It requires selecting items in a warehouse or fulfillment center, shipping them directly to the customers (who need the ability to track the product they’ve purchased), and then handling post-fulfillment problems, such as returns.
Historically, wholesale suppliers and manufacturers did not do any of this. Tens of thousands now do. Many suppliers underestimate the costs and complexity, however. So be cautious of those who promise to make the switch on your behalf.
Retailers and suppliers should agree on which carriers and methods will be supported, average time to ship, shipping restrictions, and handling fees. The retailers and suppliers that have the most success around drop-shipping logistics make these details a cornerstone of their partnership.
Retailers and suppliers should agree on which carriers and methods will be supported, average time to ship, shipping restrictions, and handling fees.
Retailers should choose carriers that are supported across all suppliers, for consistent options to their consumers. A quick poll of supported carriers and processes across a subset of your potential suppliers will help make that choice.
Consumers generally prefer simple shipping charges that are based on price. The best drop-shipping retailers work with suppliers who already ship to the consumer. The best drop-shipping suppliers also sell directly to consumers. It drives alignment around the most important part of drop shipping: a physical item showing up at a consumer’s physical location.
3. Endless Isn’t Infinite: Curation
One of the most important roles a retailer provides is curation. Consumers look to retailers to be selective. It’s a huge value to tell the consumer what to buy — by the product you did not select. Just because the product is available, doesn’t mean it makes sense for you to make it part of your selection.
Be wary of the idea of an “endless aisle of infinite products.” Successful retailers don’t just take a data feed of thousands of products from their suppliers and blast it unchecked to their ecommerce storefronts. Think “less limited” as opposed to “endless.”
Just because the product is available, doesn’t mean it makes sense for you to make it part of your selection.
Furthermore, successful drop-ship retailers generally work with niche suppliers, such as branded manufacturers. Wholesale distributors do not typically carry niche products. So if you think you can find several big distributors with hundreds of thousands of products and push all of that out to Amazon, you are just wasting your time.
As a rule, a category dominated by distributors requires much more effort to have a truly unique product assortment. Carefully select your supplier partners in a smart category, and then curate and limit their products as you assemble your product selection.
4. Select Unique Products
Curation of products addresses a complexity of drop shipping: the process of creating a consumer catalog for products you’re drop shipping. Successful retailers understand that the data they receive from vendors is a only starting point. Product descriptions from vendors could have been written for an audience of expert retailer buyers — not consumers.
The best drop-ship retailers start with vendor-provided data and then significantly enhance it — or completely replace it — to make their version of the product unique. There’s a huge difference between a list of product features and a unique, custom description a product’s benefits.
The best drop-ship retailers start with vendor-provided data and then significantly enhance it — or completely replace it — to make their version of the product unique.
Successful drop-ship retailers also understand that changes to the product catalog should happen infrequently. Think about your favorite brand, perhaps The North Face, for example. How often does The North Face introduce new products or update product lines? Maybe twice a year? Nearly all successful drop-ship retailers have a manual and high-touch process of curating products and then generating unique content to describe them.
5. Inventory Visibility Paramount
Drop shipping’s biggest challenge and potential for failure for the consumer is selling a product that doesn’t exist. It’s why successful companies make inventory data and its process a high priority. They spend much time and money to (a) understand vendor characteristics, (b) automate, and (c) make product availability as accurate and as close to real-time as possible.
… successful companies make inventory data and its process a high priority.
The biggest question retailers should ask is, “How clearly do I need to see into my supplier’s inventory data?” There are vendor characteristics that make this either critically important or far less so.
Inventory visibility requires that you understand every vendor.
- Does your vendor make products as orders come in? If so, its inventory may be almost unlimited.
- Does a vendor have long product lead times? If so, a product that goes out of stock and then to backorder may take months to come back in stock.
- How automated and accurate is the vendor’s system of tracking inventory? Don’t assume that the vendor really knows how much inventory it actually has.
- Does your vendor sell wholesale? An inventory update showing quantity available for an SKU of 10 at 1:00 p.m. can quickly go to 0 if a wholesale order for 10 comes in at 1:05 p.m.
- Does your vendor sell wholesale to larger retailers? If the retailer is Walmart, a quantity of 100 or even 1,000 for an SKU can go to 0 with one order.
- How many other retailers does the vendor drop ship for, and does the vendor sell directly to consumers? Your orders for a given amount of inventory may be competing with lots of others.
Success with drop shipping always follows close coordination between suppliers and retailers around product availability, product lifecycles, and technology integrations.