Drop shipping refers to the practice of purchasing items from a third-party and shipping it to the customers directly. This implies that the retailer would not own the product but maybe like a middleman bridging the gap between the actual seller and the customer. It is a supply chain management method, i.e., its dealings are predominantly concerned with the ‘flow’ or movement of goods from the point of production or selling to the point of consumption. A significant aspect of drop shipping that differentiates it from the traditional retail model is that the seller does not stock the goods or own the inventory. Instead, goods are purchased from a third-party – usually a wholesaler or a manufacturer.
The business viability of drop shipping is quite multifaceted for both the sellers and for the business. There are some key points to be taken into account always. Firstly, a great challenge in drop shipping is to build a reliable network of suppliers which are compatible with the brand’s standards. So it is suggested to have small targets initially and then go on to increase. Secondly, it is also crucial to note that bridging the gap between customers and sellers can be quite tough. Although the responsibility for delivery, inventory etc. may not be that of the drop shopper but since he is the channel, he becomes accountable to the customers. This is probably a reason why companies like Amazon, Flipkart etc. have not entered this field since their business models prioritize quick delivery. However once these factors are controlled, drop shipping businesses can function smoothly.
A very popular business in the field of drop Shipping is Ali Express. Ali Express provides people with a great range of products varying from Clothing to Electronics, Jewellery to Home accessories etc. Ali express has become very popular for its drop shipping services and many sellers, resellers, retailers, customers etc. are getting appealed by it. Having established the model of a typical drop shipping business, we can understand Ali Express as a mediator between the customer and the seller of the product. It purchases items from the seller and delivers it to the customer.
Despite the economic restraints that a socialist economy like China could bring along, Ali Express has pulled off successful functioning. Being a virtual business, Ali Express does not rely excessively on many resources like the land which makes it quite independent on that front. Ali Express, being a product of socialist economy also involves public ownership and a higher level of equality in wages (as it is often set by the government). This may, in many ways, be appealing to the general public, adding to its value and goodwill. This becomes a crucial point in a customer-oriented business like drop shipping.
Emerging as a successful business, Ali express is a testimony to the fact that drop shipping as a business idea is only seen to be flourishing. There are some positive points that can be associated with drop shipping that aid in its growth as a business idea.
Since Ali Express, like any typical drop shipping business, does not personally own any of the products or their inventories, the investment involves only a little capital as there is no contract or warehouse to be run and maintained. This low capital investment is one of the greatest advantages of drop shipping as contrary to the traditional retail models where purchasing inventory involves capital.
Not having the responsibility of ownership of the products and inventories eases out the process of E-Commerce to a great extent. Ali Express only notifies the buyers and sellers and hence is free of taking charge of the packing, storing, distribution, tracking, handling etc. This also implies fairly reduced overheads for the business.
Drop Shipping also provides the scope for dealing with a great range of products as seen by the availability of products that Ali Express offers.
` Drop Shipping does not require a fixed location which is why despite Ali Express being a company based out of China, runs across several countries like Australia, Belgium, Canada, Denmark, India etc. As contrary to the popular belief, drop shipping is a trend that is emerging in India as well. Other than Ali express, companies like India Dropshipping Oberlo, Printrove etc. deal with deal with drop shipping in India. They may not be dealing with an extremely wide range of products but are popular in their own right.
Despite the many pros that Drop Shipping offers, there are some cons that inevitably come along. A major challenge that Drop Shipping websites face is establishing trust. Not many customers find Drop shipping credible since there is a huge risk of being delivered fake products. Ali Express also took eight years to establish a brand name for itself. Many drop shipping owners also face supplier issues like the unavailability of products or tracking issues etc. Another major drawback that drop shipping has is that customers do not have the option of Cash on Delivery and have to wait for uncertain time spans for the delivery of their order.
Drop shipping despite its several pros and cons is a concept that is emerging and is a trend that seems here to stay.
References:
https://www.shopify.in/guides/dropshipping/understanding-dropshipping