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Drop Shipping Backlash
Anyone else seeing suppliers pull back from drop shipping?
pdivi




msg:3222919
 11:13 pm on Jan 17, 2007 (gmt 0)

This post [webmasterworld.com] reminded me of something I've been seeing lately. It seems like a lot of suppliers who were aggressively building their drop-ship business just a few years ago are now pulling back by limiting new accounts, raising drop-ship fees, ...

Is anyone else seeing the same?

Even as someone with ventures in manufacturing, wholesale and internet retail (both drop-ship and stocking), I still don't fully understand the source of the backlash.

Is it...
- Brands ending up on eBay, causing concerns about brand image?
- Brick & mortar customers applying pressure on suppliers to cut-off internet merchants?
- Suppliers having underestimated the time & expense of drop-shipping and now wanting out?

Any thoughts/observations?

 

abkbww2




msg:3222980
 12:09 am on Jan 18, 2007 (gmt 0)

yes I also noticed this.

RedWolf




msg:3223025
 1:14 am on Jan 18, 2007 (gmt 0)

I get requests from websites to dropship for them fairly often, in fact got one earlier today. I usually turn them down for an number of different reason, but foremost is that it is a pain to deal with shipping out small orders. That the reason I charge more than a normal 2x markup of my wholesale price on my retail website. The ones that I will deal with get a 30% discount on my retail price. I do not give wholesale pricing to non-stocking retailers.

Another concern is that I market my products as being unique and not found on all the other websites in my marketplace. I would lose that advantage if I had agreements with more than a couple of specific websites.

CernyM




msg:3223154
 4:57 am on Jan 18, 2007 (gmt 0)

We're getting and more requests to drop ship. It seems to be the latest "no money down" fad.

The vast majority of requests have been from "I'm starting a store soon... will you drop ship?" vendors. Why would I want to risk my time, money and brand reputation on a vendor who has almost no skin in the game?

Drop shipping is also a bit too close to affiliate marketing for our tastes. Which, for us, was nothing but a giant headache.

bwnbwn




msg:3224265
 10:44 pm on Jan 18, 2007 (gmt 0)

pdivi,
Brick & mortar customers applying pressure on suppliers to cut-off internet merchants?

This has cost me two accounts as they said we need to have a retail end to carry the product line, well we have been selling their line for 4 years now and all of a sudden this starts.

I am not a drop shipper ship and stock but I am as well getting all these emails as well.

lgn1




msg:3224344
 12:17 am on Jan 19, 2007 (gmt 0)

Brick & mortar customers applying pressure on suppliers to cut-off internet merchants?

except for books and a few other categories, 98% of the people still want to see the merchandise, so the loss to internet sales is not a major concern for most retail establishments.

If they are concerned, the retailers ussualy integrate internet sales into their business plans "ie click and mortar".

We have established several businesses based on drop shipping, but we have chosen suppliers with a large product selection so we can have "one website per drop shipper".

Also, since we have demonstrated, success in internet sales, companies are willing to take the risk, considering that we will be a large account for them.

Then again, we deal in niche areas, rather than competing in general merchandise.

We're getting and more requests to drop ship. It seems to be the latest "no money down" fad.

Why would I want to risk my time, money and brand reputation on a vendor who has almost no skin in the game?

Other than having no stock and shipping department, we have all the expenses of other businesses. Staff to pay, accountants and lawyers to consult, customer service, merchant accounts, phone bills, heat bills, etc etc etc. So
drop shipping businesses do have a lot of skin in the game.

If setup properly, and with the proper business model, drop shipping streamlines the supply chain, and improves the bottom line.

One thing to be carefull of; there are plenty of scam artists out their pretending to manufacuters and wholesalers, when in fact they are middlemen, taking the cut of the action. Always goes to the manufactuer first and get the authorized distributer for your area, rather than using drop shipping supplier lists off the internet.

jsinger




msg:3224427
 1:51 am on Jan 19, 2007 (gmt 0)

Our manufacturers are learning that drop shipping web orders to consumers is far more difficult and less profitable than they expected during the web mania days.

Small orders. Many shipping errors. Returns. No two ship-to's are the same. Sellers are very inexperienced (often requesting discontinued products, for example). Communication can be impossible all-around. And of course, distructive discounting where Ebay/hobbiest housewives undercut national B/M operations because "it's fun to have a business."

In e-commerce, shipping is the hard part

There's nothing a drop shipper does that B/M based stocking web sellers aren't doing now. Why not support the seller who plows his profits back into a B/M store presence?

CernyM




msg:3224520
 4:36 am on Jan 19, 2007 (gmt 0)


Other than having no stock and shipping department, we have all the expenses of other businesses. Staff to pay, accountants and lawyers to consult, customer service, merchant accounts, phone bills, heat bills, etc etc etc. So
drop shipping businesses do have a lot of skin in the game.

You are not describing your average drop ship hopeful. You are definitely not describing the type of folks that contact us on a regular basis.

wingslevel




msg:3226071
 4:37 pm on Jan 20, 2007 (gmt 0)

It costs a lot more to process small orders than lots of people think.

We pick, pack and ship hundreds of orders a day. Our average shipping person packs 40 orders per day. He or she might spend an hour doing other things like receiving, setting up boxes, loading the peanut dispenser etc. - then there is lunch and two breaks. Figure $10 per hour and ad 50% to allow for insurance, payroll tax matching, training cost, recruiting cost, unemployment tax etc. - that comes to $3 per package - now ad $1 for boxes, tape, peanuts, forms etc. - now you have to ad for handling the data and generating the label (most shippers are pretty automated here...

If you figure the minimum ups residential rate for a 1 lb. package is about $5 - you now have $9 - invested - pretty hard to make $10 orders work....

WiseWebDude




msg:3226836
 5:24 pm on Jan 21, 2007 (gmt 0)

<<We pick, pack and ship hundreds of orders a day. Our average shipping person packs 40 orders per day.>>

40 per day seems sort of low, but I guess it all depends upon product size mix. We do hundreds per day as well, and we expect our warehouse people to do around 80 each per day. During busy season that number goes up to 100-125 shipments per day per person by utilizing overtime.

And our product size mix is about as varied as you can get: One order might go in a 4x4x4 box while the next might be a 70x70x24 box that ships LTL truck freight. The next order might contain multiple boxes of all sizes.

Bottom line is you are exactly right: It costs a helluva lot more to process an order than most people might think. We just implemented a $2.50 small order processing fee for drop-ship orders under $25.00. Our drop-ship accounts whined about it, yet I'm sure it doesn't cover the actual cost to process those small orders.

jsinger




msg:3226879
 6:43 pm on Jan 21, 2007 (gmt 0)

We just implemented a $2.50 small order processing fee for drop-ship orders under $25.00. Our drop-ship accounts whined about it, yet I'm sure it doesn't cover the actual cost to process those small orders.

Did any take their business elsewhere? And why didn't you cover the actual cost?

What's a web retailer to do after investing heavily in developing a site to sell products he doesn't stock? He pretty much has to grin and bear fee increases.

We compete with some drop shipper sites. We emphasize to our suppliers that we don't want them subsidizing
shoe-string drop shippers at the expense of stocking B/M accounts like us. And when suppliers need to raise prices, we tell them they should start by raising drop shipping and small order fees

moose606




msg:3226914
 7:51 pm on Jan 21, 2007 (gmt 0)

Any successful business evaluates their customers and defines what their 'optimal customer' looks like. They want to be selective-ie: more of the optimal customers, and less of the service intensive/lower profit customers. Obviously, some of their drop ship customers are not worth it to them. It's up to you to convince them otherwise.

FalseDawn




msg:3227047
 11:35 pm on Jan 21, 2007 (gmt 0)

I see a lot of comments about the cost of processing orders etc, but bear in mind that websites that make use of a dropship service have overheads, too (or at least those that are serious do).

There's website maintenance, advertising costs, merchant account and transaction fees, time/money spent on SEO activities, creating content etc.

So basically the dropshipper, by entering into a relationship with a website to sell their goods is not paying a cent for marketing - if they price their goods appropriately, then every sale should result in a clear cut profit. For the retailer, it is much more of a juggling act.

I think (as has been mentioned), that there are a too many people with big ideas and neither the skill or business knowledge, who think that they can make easy money by knocking out a cookie cutter site and getting someone else to do the fulfilment work.
The internet is a graveyard of sites selling birdfeeders, porcelain figurines and other tat.
I understand why suppliers are not interested in having their goods hawked under such circumstances.

It is up to the supplier to weed out those who are serious about the business and those who are not. In a properly functioning symbiotic relationship, surely both sides should be happy?

sun818




msg:3228329
 3:23 am on Jan 23, 2007 (gmt 0)

To me, I find items that are low profit, labor intensive to pack, or awkwardly shaped are not good candidates for drop shipping. Its easy enough for suppliers to say they will not drop ship certain products. The drop shipper can decide to stock those items or not list them for sale on their web store. Please just charge what you need as a drop shipping fee and not make it a profit center.

oldpro




msg:3228363
 4:23 am on Jan 23, 2007 (gmt 0)

As a manufacturer of an actual product with strong brand recognition in our industry and our own website...we have always viewed drop shipping arrangements as competing with ourselves.

However, our company may be different in that our foray into the world wide web began in the mid 1990's. What may be happening with other potential "drop shippers" is that more and more of them have finally caught up on the learning curve and developed their own ecommerce potential.

plumsauce




msg:3228482
 9:12 am on Jan 23, 2007 (gmt 0)

In e-commerce, shipping is the hard part

exactly. and the suppliers are wising up to this.

oldpro




msg:3228605
 12:38 pm on Jan 23, 2007 (gmt 0)

In e-commerce, shipping is the hard part

exactly.

and the suppliers are wising up to this.

good point...we are looking to outsource fulfillment ourselves

FalseDawn




msg:3229629
 2:19 am on Jan 24, 2007 (gmt 0)


In e-commerce, shipping is the hard part

I would disagree - shipping may be an expensive part of ecommerce, but I don't think it's particulary hard.

IMO, the hardest part of ecommerce is getting targetted traffic and keeping positive ROI.

xalex




msg:3231994
 9:07 pm on Jan 25, 2007 (gmt 0)

We still do dropship for others. If it sells, it sells. If anyone is interested PM me. However manufacturers are cutting back.

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