Dropshipping is Out in 2020

Have you read our article about choosing between warehousing and opening a brick and mortar store? When it comes to selling in person and online, those are your more basic options. But in the last ten years, we’ve seen enormous growth in dropshipping. Dropshipping allows online retailers to use their digital space to sell merchandise that is made and distributed by someone else for a small cut. Think of it as renting digital space on a retailer’s website. You can expand your inventory indefinitely without ever having to keep merchandise in stock.

Why is dropshipping on the decline?

But the dropshipping bubble may have already popped. There are more than enough reasons not to incorporate dropshipping into your retail business plan. The profits are incredibly low. After all, most of the money is going to the person who makes, stores, and ships the merchandise, and rightfully so. The average brick and mortar store sees about a 40% profit margin, and warehouses may see slightly more by saving money on aesthetics, trained salespeople, and prime retail space. But dropshipping only sees about a 20% margin. That doesn’t take into account the highly competitive nature of the business. Virtually any other online retailer can carry that same merchandise and undercut you on price.

Dropshipping also might not be for you if you make guarantees in your supply chain. The quality of the product and speed of delivery are essentially out of your hands. Customers have grown to be distrustful of dropshipping companies for this very reason. Look at Amazon, for example. Amazon is a dropshipping powerhouse, but the parent company itself has no control over the quality of the product, the speed of communication, or if the products pictured are even the product that will be delivered. This, in turn, exacerbates the price competitiveness problem. Customers have to ask themselves, is it worth it to risk the quality and timeliness of their purchase? When drop shippers drive their prices down further and further, the answer will inevitably be, why not?

How can you dropship successfully in 2020?

The number one problem dropshipping will face in 2020 is trust. In the age of online reviews and easy returns, building up a good relationship with the customer is crucial in any business. But online shoppers have come to recognize drop shippers and know that what you see isn’t always what you get. The best way to dropship in 2020 isn’t to start a new dropshipping business, but to add dropshipping to your current business plan.

If you already have a well-established brand and a strong relationship with your customers, you can easily use dropshipping to your advantage. Prefabricated metal warehouses may be a cost-effective means of starting an online retail operation, but space can still be limited. Dropshipping allows you to use every inch of space in your warehouse for your “bread and butter” products. Meanwhile, you can dropship other products that may interest your customers.

Benefits of Adding Dropshipping to Your Warehouse:

• Reduce your risk of carrying new products when you don’t have to buy a full stock
• Keep your inventory costs low by only carrying your best sellers in the warehouse
• Conduct market research to see which products your online customers gravitate toward before deciding to carry them yourself

How do you warehouse and dropship the same products?

One of the best benefits of adding dropshipping to your business plan is the protection it can offer you from overselling your stock. When a product sells out fast, you could be missing out on hundreds of dollars worth of sales while people shop around to find the product elsewhere.

On the other hand, you can expect a product to sell like hotcakes, filling up your warehouse with an incredible amount of inventory, only to have disappointing sales. Dropshipping can cut the costs of stocking added inventory just in case the demand suddenly drops. If you sell out of your stock, you can simply drop ship the rest directly from the manufacturer.