6 Steps to Gauge If Drop Shipping is Right for Your Business

A seismic shift is occurring in the retail industry as consumers continue to turn things upside down with increased online shopping. For some retailers it has meant closing their physical stores. For SHOP.COM, however, it’s meant building an online marketplace filled with products from more than 2,000 merchants in segments ranging from apparel to housewares.

In 2010, when SHOP.COM’s online marketplace was acquired by Market America, the company found itself becoming more of a retail aggregator than a household name, often sending consumers to other retailer websites to complete their transactions.

“We came to the realization that we needed to become our own brand ambassadors,” said Eddie Alberty, SHOP.COM’s vice president of strategic partnerships. “We couldn’t do that if we were just passing the customer on to other retailers.”

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So SHOP.COM set out to capture sales by building its own vendor network, which meant one thing – drop shipping. The company focused its efforts on developing direct relationships with vendors that were willing to both stock merchandise and offer a seamless brand experience by shipping merchandise directly to consumers in SHOP.COM-branded packaging.

The results of this effort are impressive: The North Carolina-based company is now one of the world’s top 100 online retailers.

Is Drop Shipping Right for You? 

There’s no doubt about it; retailers are caught in a difficult balancing act of meeting consumer expectations while keeping costs in check. One way to do so is through drop shipping. In its simplest form, drop shipping makes it possible for retailers to sell products they do not own, warehouse or fulfill. Instead, suppliers handle these responsibilities.

When done right, drop shipping has the power to build a retailer’s ecommerce site and increase product offerings with little capital investment. But before you decide to add drop shipping capabilities, consider these six questions:

Do I Have the Infrastructure Needed to Support It? 

Drop shipping involves many moving parts and requires flawless orchestration between retailers and suppliers. Communication, collaboration and efficiency are key to meeting the promise made to consumers. A good first step is to evaluate where your business stands in terms of systems and processes for fulfilling orders. Healthy drop ship operations use reliable fulfillment solutions to manage purchase orders and order status information and to share this information in real time.

Do I Have the Right Internal Resources in Place?

Managing the increased document flow drop shipping requires may tax your internal teams, so it’s critical that you have systems and processes that can support increased volume. Before implementing a drop ship program, determine how it will impact order fulfillment and team resources. Take the time to determine if you need additional headcount to handle increased order volume.

Which of My Suppliers Have Drop Shipping Capabilities?

While having a relationship with a supplier that offers drop shipping makes it easier to add this component to your merchandising strategy, it is not a necessity. If you’re just starting to build your drop ship program, joining a retail network can help you quickly establish relationships, evaluate brands and onboard suppliers.

How Will I Receive Reliable, Accurate Product Information?

Today’s digital consumers rely on detailed product information when making purchasing decisions. To ensure you provide such information, gather item attributes from your suppliers. Also ensure that you and your suppliers are in agreement with how item attributes and other data will be managed.

How Will I Maintain Service Levels? 

Drop ship agreements require collaboration and trust in order to ensure customer expectations are met. From the start, foster and encourage open dialogue and set expectations, requirements and goals. Also define exactly which metrics you’ll use to evaluate success. Having all parties on the same page from the beginning will reduce mistakes and miscommunication and go a long way toward ensuring customer satisfaction.

How Do I Manage Returns? 

Even with accurate product information and a good shopping experience, returns are inevitable and must be planned for. First, determine what to do with merchandise that is returned: Will it go back to the warehouse or the supplier, be discounted and sent to store shelves or sold elsewhere? Since return rates differ by product category, you may even want to consider different return policies for each supplier.

As you can see, adding drop shipping to the retailer/supplier relationship only makes it more complex. However with careful planning and the right technology, you’ll come out on top of the seismic shift in customer behavior.

Peter Zaballos is SVP and CMO of SPS Commerce

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