Drop shipping has been around for quite some time and is hardly a new idea, but it is becoming more popular. Instead of holding what could end up as excess stock, the retailer sends customer orders directly to the manufacturer or wholesaler, leaving them to complete the sale. It is easy to see the appeal, as it eliminates the need to hold too much inventory, freeing up more time to sell products. With drop shipping, retailers need to spend less time and money on warehousing and other costs such as logistics and shipping fulfillment, allowing them to concentrate on the consumer and on promoting and growing their business.
The approach has huge appeal for online retailers and especially for start-ups and small to medium-sized companies who cannot afford to hold large amounts of inventory. With drop shipping, retailers can use different suppliers, increasing their range of products, and it eliminates the need for them to purchase goods in bulk. Drop shipping holds appeal for more established online retailers too, and who wish to offer customers a more personalized service rather than the somewhat anonymous experience of using one of the e-commerce giants as their storefront.
Warehousing costs are another huge factor as there is a shortage of available and affordable space in North America, largely because of the massive increase in e-commerce. What little space is available is often unaffordable for smaller retailers, and on such a large continent, there is frequently the need for multiple warehouse locations to serve consumers more efficiently. A customer on the east coast will not want to wait for ages for goods stored on the west coast, and vice versa. Shipping speeds across the country can often seem slower than goods shipped from abroad.
The larger drop shipping companies have the resources to import products and will handle all communications with the manufacturer. Often, goods are shipped in bulk from the country of origin, reducing the costs of shipping them individually. In theory, this should reduce shipping costs, but some retailers have experienced problems with order fulfillment and delivery. However, these problems are unlikely to affect the growth of drop shipping in the future as it seems certain to continue to grow. It is estimated that up to a third of e-commerce companies use drop shipping to help manage the problem of warehousing costs.
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