Drop Shipping
Drop shipping can occur when a small retailer
who typically sells in small quantities to the general public receives
a single large order for a product. Rather than route the shipment through
the retail store, the retailer may arrange for the goods to be shipped
directly to the customer.
Some drop shipping retailers
may keep "show" items on display in stores, so that customers can inspect
an item similar to those that they can purchase. Other retailers may
provide only a catalogue or website.
Retailers that drop ship merchandise from wholesalers may take measures
to hide this fact to avoid any stigma, or to keep the wholesale source
from becoming widely known.
This can be affected by
"blind shipping" (shipping merchandise without a return address), or
"private label shipping" (having merchandise shipped from the wholesaler
with a return address customized to the retailer).
A customized packing slip
may also be included by the wholesaler, indicating the retailer's company
name, logo, and/or contact information.
Drop shipping is a supply chain management technique in which the retailer
does not keep goods in stock, but instead transfers customer orders
and shipment details to wholesalers, who then ship the goods directly
to the customer . The retailers make their profit on the difference
between the wholesale and retail price.
Many sellers on online
auction sites, such as eBay, also drop ship. Often, a seller will list
an item as new and ship the item directly from the wholesaler to the
highest bidder.
The seller profits from
the difference between the winning bid and the wholesale price, minus
any selling and merchant fees from the auction site. A seller is permitted
to list items that are currently not in his/her own possession, provided
that he/she follows eBay's policy on pre-sale items.
A new emerging trend in
the drop ship business is private label drop shipping, in which a manufacturer
produces a custom item for a retailer and drop ships it. The range of
private label drop shipped items varies from simple key chains and t-shirts
with custom logos or pictures to customized formulations for vitamins
and nutritional supplements.
The two main benefits of
drop shipping are - no upfront inventory to purchase and a positive
cash flow cycle. A positive cash flow cycle occurs because the seller
is paid when the purchase is made. The seller usually pays the wholesaler
using a credit card or credit terms. Therefore, there is a period of
time in which the seller has the customer's money, but has not yet paid
the wholesaler.
|
