Dropshipping is relevant for all types of retailers looking to offer an expanded assortment and a reliable logistical infrastructure, but for independent jewellers expanding online, drop shipping could be the answer they need to boost their bottom line.
What is drop shipping?
Drop shipping is a supply chain relationship between retailers and suppliers that allows retailers to sell large assortments of items online that they do not independently own, stock or fulfil themselves. Drop shipping allows the supplier to send any online purchased items directly to the end customer, and when executed well, drop shipped items are fulfilled with the same branding, delivery performance and customer experience as if they had come from the retailer’s own warehouse.
This allows the retailer to take no inventory risk whilst enjoying the increases in demand, driven by offering a greater product range. The rise of the Internet and the desire to respond to consumer demand for more breadth of products has led to wide adoption in many countries over the past two decades, and it shows no sign of slowing for the retailer and supplier alike.
So where did it all begin?
Before the Internet, wholesale fulfilment was primitive. It was primarily concerned with bulk fulfilment and items were shipped in large volumes to a distribution centre (DC) and then to a store. Direct-to-consumer fulfilment was non-wholesale, with cataloguers fulfilling their own inventory in specialised warehouses that could pick and pack single items – think small boxes and UPS to your door.
Catalogue-only retailers and premium incentives vendors built their businesses by becoming a sales channel for products, helped by other D2C cataloguers. They took top line revenue and marked up the cost of the goods, plus delivery and handling. Four to six weeks delivery was standard, and communication tended to be on paper or via fax, so consumer expectation was lower than what we see today. And although SKU assortments were typically small, volumes could be very large.
Meanwhile, a class of distributors existed who specialised in replenishment for small businesses would buy products in bulk from manufacturers and pick relatively small shipments for these smaller stores. When early drop shipping retailers came calling, it was these distributors who found themselves well prepared to start shipping individual orders in high volumes directly to customers in a completely transparent way.
The rise of e-commerce
For all retailers it soon became clear that e-commerce was the future of retail. Many established retailers first began to dabble with e-commerce by setting up experimental teams separate from the main organisation. These teams would build primitive ecommerce sites to accept orders and ship out the products from the corner of a DC.
Later came the pure-play e-commerce retailers – a new type of retailer who were purely digital, owning no stores, warehouses, or stock. Their focus was branding, merchandising, promotion, and customer support. They would rely on drop-ship suppliers to pick, pack and ship products directly to the consumer.
Many independent jewellery retailers fall into the pure-play e-commerce retailer category, especially with the rise of social selling and Instagram stores, making drop shipping a highly effective way to offer customers a wider range without the associated warehouse investment and inventory risks.
So how can it result in revenue?
E-commerce is a fast moving, emerging market and as retailers scramble to keep their channels up to date and booming, drop shipping will only continue to become a way for retailers to invest risk free in their inventories. From getting products up on their website, to taking returns, the risks of investing in more inventory can be significant.
Those retailers who therefore think about drop shipping as an option may see sales grow even faster. They will be able to increase assortment without buying new inventory, which will directly affect the bottom line. How? An expanded assortment drives demand, which drives an increase in sales. Savvy retailers are the ones who will seek out new suppliers and products expanding their network to include thousands of drop ship suppliers.
Consumer demand and expectation will continue to put pressure on retailers, but this only enforces the need for them to expand smartly and understand the products their customers expect from them and offer the broadest assortment within their demographic.
Brands are also changing roles, moving into the drop shipping game as retailers offering their products directly to consumers. They recognise that controlling the direct-to-consumer distribution of their goods themselves is critical to combatting grey market sales and keeping control of their brand.
For independent jewellery retailers, drop shipping can become an essential tool for increasing their bottom line and increasing inventory size, risk free. The pressure is on for all brands and retailers to provide larger assortments. Retailers simply cannot afford the risk of building warehouses or investing in enough inventory to sustain growth necessary for survival.
Drop shipping is here to stay.