Dropshipping, most suitable for new business?

Dropshipping is a method where a retail shop doesn't hold all the stocks.When the shop gets a order. It purchases the item as per the requirement. The purchased product is then shipped directly. This all is done by the third party. The seller has no direct contact with the product.

The idea may sound very new and latest. But the history of Dropshipping model dates back to the 60's.

Dropping articles before the internet

The idea actually started way before internet. It came into existence in the 60's. This happened when the mail order companies were taking advantage of the mail order catalogue. Mail order companies were small booklets. They advertised a range of products. Customers could choose from them and order via phone. The product would then be delivered directly to the door.

JCPenney & Sears was a mail order company. It used this method on a large scale. It made them huge profits. But the bigger they grew, they came to know of some of the problems in the trade. The problem was the  huge customer demand. The company then came up with fulfillment warehouses. The warehouses had all the stocks already stocked up. All materials were ready to deliver.

Amazon still uses the same method. They call them FBA (Fulfillment By Amazon) warehouses.

Fulfillment By Amazon
Fulfillment By Amazon

Rise of e-commerce

With internet came the means for people to shop online. The concept of e-commerce and shopping online gained popularity only after the fear of giving away personal details vanished. This gave rise to companies that had nothing, no stocks, no warehouses and some not even a office.These companies would focus on branding, merchandising, and customer support. These companies would rely on drop ship distributors . The drop ship distributors were the only means to fulfill products at wholesale. A example for such was Amazon.com.


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How Amazon changed everything

Started slow then that little bookstore  became the Amazon we all know. Amazon became the true driving force for retail.

Customers started to expect more and more from the online buying experience of amazon. An average consumer today expects to see a large collection of items.They all demand fast shipping, free shipping, or both.

Amazon had set the bar by building warehouses everywhere. They named them  FBA ( Fullfillment By Amazon). Several metro areas have several Amazon pick and pack facilities.Now the company is an expert at accepting bulk orders and delivering.

Very slowly at first – and then suddenly – that little bookstore I previously mentioned became the Amazon we all know: the driving force in online retail.
Richard Jones,Co-founder, CTO and EVP of Operations at CommerceHub

Dropshipping model Market analysis

The global dropshipping market size is expected to reach $ 557.9 billion by 2025,. It is expected to register a CAGR of 28.8% by 2025. A study conducted by Grand View Research, Inc. stated that if the rise in number of customers going towards online shopping platforms is coupled with the number of internet users. This can be the indication of future profits.

Dropshipping market size (2015-2019)
Dropshipping market size (2015-2019)

The e-commerce market of the Asia-Pacific region has witnessed some serious growth over the last few years. The reason remains the increasing love for virtual currency and rising preference for online shopping. This growth across the Asia-Pacific sector is further expected to be in the favor the of dropshipping. As per the Ministry of Commerce & Industry, Government of India, the Indian e-commerce market was valued at $38.5 billion in 2017 .This is expected to rise to $ 200.0 billion by 2026, at a CAGR of 51.0%.

Pros

1. Startup Costs are very Low

A warehouse costs a fortune to get stacked. A person can go into debts even before starting the business. But the low costs of Dropshipping can help to eliminate the risks involved.

One can start a business with almost zero inventory with the help of Dropshipping model.


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2. Low  Fulfillment Costs of order

To fulfill an order one needs a warehouse that is tacked. It needs to pick pack and ship the product as well. Dropshipping enables the 3rd party to take care of all that. The only job of the seller is to get the orders from the customers to the 3rd party.

Cons

1. Need to rely Other People’s stock

A major benefit of dropshipping is to  stop  selling the slow selling goods and to quickly bring in a new good. But a major drawback of this is that the seller has no control over the 3rd party's stock. If they go out of stock, the seller too goes out of stock.

2. Less Profit

The hidden fact of dropshipping that no one will ever tell you is that there's a hidden cost. This cost is the lack of bulk pricing.

A seller pays more for selling than actually having items in the ware house. This leads to less profits. To make a lot of profits from dropshipping a seller has to sell a lot. The seller would have to sell more than he can actually sell by owing a warehouse.

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About Abhishek Gupta

I am someone who likes to code and hence writing is something that I love a lot. Brought up great with all the morals pre-installed.
  • Kolkata
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