Dropshipping – Helping or Hindering the Retail Sector?

Dropshipping – Helping or Hindering the Retail Sector?

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In the ever-demanding retail sector, brands are having to work increasingly hard to differentiate their offering from that of their competitors. Consumers expect more – they want to shop when it suits them, browse an endless range of products and have their purchases delivered where they want, when they want, at minimal cost. Enter the ‘dropshipping’ model.

Post By Stuart Thomas -
Consolidation Director

What is Dropshipping?


In the ever-demanding retail sector, brands are having to work increasingly hard to differentiate their offering from that of their competitors.  Consumers expect more – they want to shop when it suits them, browse an endless range of products and have their purchases delivered where they want, when they want, at minimal cost.  Enter the ‘dropshipping’ model.

In essence, dropshipping sees the retailer act as a middle-man for purchasing; ultimately products are shipped directly from the manufacturer.  The retailer provides the opportunity to browse products through its stores and website, the platform to purchase and the system integration to allow direct delivery, often without holding any additional stock within its own business.  The manufacturer simply receives an order with payment, and arranges dispatch.

It is very similar in concept to the ‘direct to consumer’ model, in which shoppers knowingly purchase from the manufacturer regardless of whether a retailer is part of the chain.  A key difference is that DTC is fundamentally web-based shopping, allowing manufacturers and resellers to reach out directly to their prospective customer base through their website and some sort of e-commerce platform.  This model cuts out the need for a retail presence and with it, a myriad of associated costs.  In addition, for probably the first time, it allows the manufacturer to build a detailed profile of, and relationship with, its customer base directly using its very own data.  For the customer, they get a minimum-effort way to purchase at a lower price without compromising profit for the manufacturer leading to a win situation for all.

For dropshopping, it is the retailer’s strength of brand and in many cases the physical store presence that is the differentiator, alongside a strong online capability.  It is the loyalty in the main brand that gives customers confidence that they are still purchasing from someone they trust, with less credence given to the fact the product will be shipped direct from the manufacturer.

Amazon is of course the poster-brand both of these models despite having no physical stores of its own, allowing everything from global brands to highly-specialised niche producers to attract an otherwise impossible to reach market.  But there are some other great examples of where this works, including sectors such as health supplements, pet care and home cleaning products.  Interestingly, while early thinking pointed to these channels being particularly effective for non-emotional and very transactional purchases, it’s increasingly becoming a highly-personalised experience (think subscription boxes based on personal preferences).  This is thanks to the richness of data that manufacturers are able to benefit from either through direct contact with customers or through better levels collaboration with the retailers they work with.


Dropshipping Fundamentals


It is clear that there are some fundamentals that must be in place for dropshipping to be truly effective for all parties, as there are many operational and financial implications of setting up a partnership for success.  System integration is key; retailers must be able to communicate effectively with their manufacturing partners and trust that orders are being fulfilled and delivered as requested.  True system integration ensures that there is visibility of this, giving confidence and assurance that the retailers brand is not being harmed in any way through poor customer service.  In fact, according to a recent study into dropshipping, a lack of system integration is cited as the key barrier for retailers in establishing an effective partnership, followed by a lack of executive involvement/support and budget constraints.

For those retailers who are in a position to make it work, however, there are many wins to be had.  Dropshipping allows retailers to expand their virtual inventory without incurring additional carrying and fulfilment costs.  In turn, this helps minimise storage and stock costs whilst keeping capital available rather than tied up in stock.  This can be hugely advantageous for smaller businesses or start-ups, who can effectively set up a retail business from their living room with a laptop and wifi connection and little else as the middle-man role means there is little outlay on stock or fulfilment processes required.

For manufacturers, they have access to markets and consumer groups that would otherwise be potentially unavailable to them.  This could be for a whole host of reasons – lack of market credibility, no investment in customer-facing systems (website/ecommerce platform), an overly-crowded market place or simply a lack of desire to adopt a more customer-facing approach.  With this comes a need to have their part of the deal in place, meaning quality stock control systems so that a retailer can commit to a dispatch date, a logistics network in place for the movement of stock and excellent relationships with local fulfilment carriers to ensure end customer delivery is completed in a reputable way.

For customers, it is unlikely that dropshipping or even DTC will completely disrupt the way they shop, however what it can offer is more options, and shoppers today thrive on options.  These methods give the customer an element of control over the breadth of products they can choose from, the delivery service they expect and how much they’re prepared to pay for it which compliments the more tactile physical shopping experience that customers expect from bricks and mortar stores.


Conclusion


In conclusion, the concept of dropshipping will clearly provide consumers more choice, and a further enhanced range of products will provide retailers with additional revenue streams. The challenge is likely to come from ever more complex Supply Chains, with a need for specialist systems, bespoke transport offerings and just in time fulfilment solutions. Increasingly retailers are looking to outsource Supply Chains for this very reason, and in response 3PL logistics providers are having to react to this by providing a broader range of services that were not previously classed as ‘core’. This includes the ability to act as an ‘agent’ for retailers, and also offering sourcing and procurement solutions.

With over 100,000 sq/ft of warehouse storage and an integrated logistics facility, Sigma can provide bespoke storage and logistics services through our inhouse fleet as well as support with tail lift or moffett-equipped vehicles where required.  This allows transport solutions to be flexed on the specific volumetric data of the delivery, the distance to store and other possible site consolidations that can be achieved in order to fully support our customers ever changing requirements.

 

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