dickbaker - 4:05 am on Aug 5, 2010 (gmt 0)

In my niche there are three or four online retailers who do far more business than anyone else. Two of them I know for sure keep at least some of the products on hand.

The third has rapidly become very popular because their prices are far below anyone else's. In fact, their prices are in many cases just $10 or $20 above wholesale on items that cost $200 to $800 or more. According to reliable sources, they sell an average of 200 items per day.

The nature of the products prohibits drop-shipping. By law the product must be sent to the retailer first. In the case of the new low-priced retailer, they have a disclaimer on their site that says "please allow 3 to 7 days before your order is shipped."

Why? Because they're ordering products from the wholesalers when the orders come in. They're not stocking anything.

It costs money to maintain inventory. You either have your money tied up in the inventory, and are thus losing money on interest you could be earning elsewhere, or you're paying for borrowed money. Either way, you need to recover the costs of carrying stock, and that means higher prices.

If the consumer wants low prices, he's going to have to accept drop-shipping and/or retailers without inventory.