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Drop shipping is a form of retail business in which the seller accepts customer orders without keeping stock on hand. Instead, the seller transfers the orders and their shipment details either to the manufacturer, a wholesaler, another retailer, or a fulfillment house, which then ships the goods directly to the customer.
The seller is responsible for marketing and selling the product, but has limited control over product quality, storage, inventory management, or shipping. It avoids the costs of maintaining warehouses or even a storefront, purchasing and storing inventory, and employing necessary staff for such functions.
Drop shipping has become a popular business model as it requires minimal initial investment and overhead costs. A drop shipping operation can be managed from any location with an internet connection. However, drop shipping also has its drawbacks, including lower profit margins, less control over the quality of the products sold and an increased risk of shipping delays or supply chain issues.
Amazon, the online shopping giant, found early success with a drop shipping business model where they could offer over a million different books to consumers while only keeping approximately 2,000 of the more popular titles in stock. Publishers and wholesalers would receive forwarded orders from Amazon and would ship the products directly to the customer using packaging from Amazon.
Drop shipping retailers are not required to disclose the practice, nor, as with any other retailer, the wholesale source of the products they offer. This can be achieved by "blind shipping" (shipping Merchandising without a return address corresponding to the seller), "private label shipping" (having merchandise shipped from the wholesaler with a return address customised to the retailer), or utilising a fulfillment house. The ultimate order fulfiller might also include a customised packing slip, including details such as the retailer's company name, logo, and contact information.
Sellers on online auction sites such as eBay also use drop shipping as way of distributing products without stocking the items sold. A seller will list an item as new, and have purchased items shipped directly from the wholesaler to the customer. The seller's profit is the difference the price the customer paid and the price the seller paid from the wholesaler, minus any pertinent selling, merchant, or shipping fees accruing to them. However, some of the drop shipping methods used by sellers are not allowed under the eBay terms of service. This includes drop shipping methods in which a seller fulfills an order by purchasing the item from another online marketplace and then has the item shipped to the customer. Sellers who use this method can be suspended from eBay.
Products may be listed by a drop shipping retailer as available but actually be back-ordered either with the wholesaler or the item's manufacturer. Such potential delays in order fulfilment are not always known, or if known disclosed, by a seller. Likewise order fulfilment and shipping delays are beyond the seller's control, yet can reflect badly on the purchaser's ultimate satisfaction.
Cost of goods is important as the markup from the wholesale price is the dropshipper's profit margin. Dropshippers do not physically handle their products, thus shipping and handling fees can vary depending on supplier and customer location. Suppliers may charge a flat rate or percentage of sales price impacting profit margins of the dropshipper. Furthermore, in order to attract customers, dropshippers invest in marketing and advertising campaigns such as social media ads, influencer partnerships and search engine optimization.
China's relation with the drop shipping business model is already well established with e-commerce platforms such as Alibaba Group and AliExpress having facilitated the growth of drop shipping by providing marketplaces for suppliers and drop shippers to connect. (2026). 9781665432221 ISBN 9781665432221 Subsequently, with these platforms continually expanding, China has experienced Economic growth, leading to increased disposable income for its citizens. Moreover, internet penetration and smartphone adoption have also increased quite drastically. The combination of these factors have manifested an extensive domestic platform for e-commerce, supplying greater opportunities for drop shipping businesses to expand.
The Chinese government has established the significance of e-commerce and cross-border trade for the country's economic development. Subsequently, the Chinese government has created Policy, initiatives, and to aid and promote the market platform of e-commerce. Such an example is the government establishment of special economic zones and to encourage e-commerce and Export.
In 2016, BuzzFeed News published an article exposing unscrupulous drop-shippers in China, describing how customers were receiving products that were not those which were advertised, or did not receive any products at all.
One effect of drop-shipping scams is that customers who receive a drop-shipped package may realise that they overpaid for the item, return the item to the seller, and then reorder the identical item directly from the manufacturer. The cost of processing the return and the loss of the unsold returned product can result in significant losses to the drop shipper.
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