Volume of products dropshipped to customers on the rise
Order management and shipping has traditionally been a challenge for merchants, and it's one that has only grown more complex as eCommerce has surged. Thanks to the web, retailers can now reach a broader audience than ever before, but that also means that getting products and orders out to the clients is more complex because merchants need to deal with multiple regional distribution centers and warehouses.
As a result, dropshipping has quickly become a popular solution. While dropshipping isn't the ideal means of delivering goods for every business, it can be particularly beneficial in some circumstances. For instance, it's commonly used when merchants sell a large quantity of low value items or if they sell custom products. This allows them to quickly get the goods from the manufacturer straight to the end consumer in a timely fashion, thereby improving the shopping experience.
More than half of online merchants are now dropshipping goods, according to Multichannel Merchant's MCM Outlook 2013. Approximately 54.3 percent of this year's respondents are utilizing dropshipping to expedite delivery times and reduce costs. Additionally, when compared with last year, the average retailer is dropshipping 17.66 percent of merchandise, up from 12 percent last year.
"Dropshipping makes great business sense as it is an effective way for companies to meet customer demand for relevant products that are not practical for one reason or another to stock within inventory," said shipping consultant Mike Elder.
"These reasons could include inventory carrying costs, amount of warehouse space required, or sporadic demand."
Elder was quick to emphasize that dropshipping doesn't make sense for every business. An ideal product for dropshipping is music CDs, Elder states. Everyone has a different musical taste and some genres and artists are more popular than others. Retailers could still offer a wide variety of CDs to their customers by simply dropshipping the more obscure albums and artists to customers. This way, they don't lose sales while they also don't have to worry about holding excess inventory that locks up capital.
Another point to note is that many companies don't dropship all of their products. They pick and choose according to what makes financial sense. In the above example, retailers may keep in-demand CDs and albums in stock while relying exclusively on dropshippers to get these select goods to customers.
"The survey shows less than 5 percent of the companies dropship 90 percent or more of their product," Elder said. "The amount of dropshipping represented by such companies is most likely not surveyed because they don't necessarily have operations and fulfillment staff in their companies."
ECommerce software, such as SalesWarp, can help retailers execute on their dropshipping initiatives by integrating their dropshippers to improve and automate more of the order management process.