Will drop shipping online orders deliver results for retailers?

Discussion
Source: Getty Images
Jan 27, 2017
George Anderson

A growing number of retailers are turning to their suppliers to drop-ship orders placed online directly to consumers, The Wall Street Journal reports.

Drop shipping provides a variety of benefits for retailers including lower inventory costs to warehouse products and having the ability to offer a greater selection of items.

The flip side of the drop shipping coin is that retailers will have reduced visibility into a supplier’s inventory than if they managed it themselves. This could mean out-of-stocks as well as issues with providing customers accurate shipping dates and delivery timeframes.

Other complications may arise for retailers turning to suppliers to drop ship online orders. This includes, the Journal reports, returns that may wind up going back to the retailer and “end up stranded at stores or retailer-run warehouses.”

There is also the matter of brand manufacturers selling directly to consumers. Having vendors fulfill orders gives them access to customer data while inadvertently making the case for cutting out the middle guy – in this case the retailer.

According to the Journal, Pier 1 Imports and Shoe Carnival have announced they will use drop shipping by suppliers as a means to expand product selection for consumers.

An RSR Research report published last year and previously reported by RetailWire projected that roughly 75 percent of retailers will take “advantage of their suppliers’ systems” to ship online orders within three years.

DISCUSSION QUESTIONS: Where do you see the biggest opportunities and challenges when it comes to retailers relying on vendors to drop ship online orders to customers? In your estimation, do the benefits outweigh the risks when it comes to having suppliers drop ship orders or vice versa?

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"The advantage is clearly to the retailer in this equation."

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13 Comments on "Will drop shipping online orders deliver results for retailers?"


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Ori Marom
Guest

Then why are retailers needed?

Online product discovery is usually done via online marketplaces or price comparison websites. Therefore, if in addition inventory risk is borne by the supplier alone there is no need for a retailer.

It is that simple.

Ben Ball
BrainTrust

Bingo!

The Trojan Horse has been foaled and stands quietly in the paddock, munching away and growing ever bigger and stronger as retailers prepare to throw open the gates of Troy!

Dick Seesel
BrainTrust

I’m not sure this is a new phenomenon. For awhile, retailers have added categories to their websites that they don’t have space for in their physical stores (or their own distribution centers) — think furniture or fitness equipment — and have counted on their suppliers to carry the inventory and ship the goods. This practice has extended to less bulky but more SKU-intensive categories like domestics or shoes, where a supplier will hold the goods and ship customer orders while making it appear that they are coming from Macy’s or wherever.

The advantage is clearly to the retailer in this equation. It gains a sale without any inventory risk or supply-chain cost (assuming it has negotiated these terms with its suppliers). And it is able to offer breadth of assortment, colors and sizes that it would not be equipped to handle on its own.

Bob Phibbs
BrainTrust

As I wrote in this post, What To Do When Your Retail Customer Service Fails Miserably, third-party vendors can be responsible for damaging a well-crafted service message. The problem often lies in transparency; the third party rarely lets the original seller into their system so they are blind to fix problems in as timely a manner as when they control everything.

Add to that, many vendors are looking to go direct-to-consumer so the information they glean from drop-ships can come back and help them do just that with laser-like accuracy.

Mark Ryski
BrainTrust

It’s a slippery slope. On the one hand, it makes good sense for a retailer who does not have a well-developed logistical capability to service customers directly by leveraging their suppliers’ capabilities. This enables these retailers to get in the online fulfillment business without having to build a fulfillment system from scratch. The other side of the argument, as noted in the article, is that the vendors have direct access to the retailers’ customers. All things considered, I believe the benefits out-weigh the risks.

Steve Montgomery
BrainTrust

Drop shipping allows the supplier to have direct contact with the consumer and vice versa. Suppliers who do not currently have an e-commerce presence may soon learn that having one a good idea. This would be especially true after they build a customer list. Bottom-line, I agree with Ori. In this scenario, why is the retailer needed?

Lyle Bunn (Ph.D. Hon)
Guest

Ship-from-supplier is the basis of eBay. It’s a portal, and the assurance of a quality experience is in the hands of the provider. Amazon, booksellers and others are also portals but they brand the experience. When retailers dis-intermediate themselves they risk marginalizing themselves. Ship-to-home removes the significant benefit the retailer could realize in ship-to-store. The question for the retailer is, what business are you in — are you a source of stuff, or a part of a consumer’s life? Working for the latter has brand equity and the profit margins that come with it.

Max Goldberg
Guest

Last I looked, the job of a retailer is to sell stuff. If a retailer is going to rely on suppliers to manufacture and ship items to consumers, why should that retailer exist? It’s easier and more convenient for a potential customer to shop on Amazon.

Kim Garretson
Guest
2 years 9 months ago

Minneapolis-based SPS Commerce offers a service to validate and monitor the quality of vendor drop shipping, giving retailers more information to avoid possible service issues.

Ralph Jacobson
BrainTrust

CPG suppliers are continuing to make a migration toward Direct-to-Consumer (D2C), so retailers leaning to drop shipping as described in the article may actually encourage that D2C movement over time. I think retailers need to continue to create even more supply chain transparency with the use of blockchain capabilities and others to help ensure the long-term viability of a true supplier partnership that benefits all players in the ecosystem.

Lee Peterson
BrainTrust

I think you’re just asking for it by having outside parties deal directly with your customers. If something goes wrong YOU get the blame, not the vendor. That happens with Amazon all the time and we’ve come to expect it, and I’m sure that’s where this direction is coming from (if Amazon does it, why can’t we?) — it’s all about not having inventory on-hand.

But when it comes to brand perception, I’d want control over that last contact with my customer. It may be “OK” for Amazon because they sell everything from batteries and shoe laces to TVs and cars, but for the rest of us more specialized sellers, that seems like risky business to me.

Shep Hyken
BrainTrust

Drop shipping has been around for quite a while. It’s a great advantage for the retailer. There needs to be a system in place to ensure inventory levels are good so there aren’t delays which will appear to be (and rightly so) the retailers fault. That’s easy to deal with. And also making sure orders are shipped in a timely basis. It needs to be a seamless experience for the customer, who really doesn’t care who ships it.

Adrien Nussenbaum
Guest
Dropshipping is a method that has been used successfully to expand assortment and mitigate cash flow issues in doing so. A marketplace strategy can scale those efforts in a more profitable way. A marketplace strategy is highly complementary if you’re already dropshipping because you’re already invested in low cost/risk assortment expansion. However, dropshipping does not scale the way the marketplace does: The complexity of sourcing: Merchandisers still have to touch/feel the products and decide if they want to own inventory. This is a labor intense/high overhead process which doesn’t go away. The price negotiation: In the marketplace model, the third party sellers control the price, not the merchant. This is a time-intensive process that is removed with a marketplace. Adding more sellers creates a self-sustaining price competitive model. Quality of service control – as sellers scale. Virtuous cycle of product, price, and service at scale not achievable with drop-ship. Dropshipping relies on outdated EDI technology, which slows down brining on new sellers. As a result of the EDI requirements, many innovative sellers do not engage… Read more »
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"The advantage is clearly to the retailer in this equation."

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