Dropshipping; what is it and how how does it affect you?
Recently, Karolina Laskowska announced she was giving up wholesale, and cited the number of requests for dropshipping as a large part of the reason. But what the hell even is that, and why is it a problem?
This is the face of a woman who is fed up of wholesale and dropshipping. And also has a new collection coming out here.
What is dropshipping?
In traditional fashion retail, stores order products 6-12 months in advance from a supplier, often paying a deposit to smaller brands (otherwise it's hard for indies to finance getting anything made). Suppliers deliver the products to their store in batches, then you see them and buy them from the store.
Dropshipping comes from online retail; stores put up images and product info, but the stock is actually still with the supplier. You order it from the retailer, they let the supplier know, the supplier sends it out direct to the customer.
Though if we'd always waited for stores to order, the args would never have been made.
Why do many indie brands hate it so much?
Small brands like us used to reply on advance sales to either get the cash to get things made or to show the bank we were like, totally good for it, honest, if they would finance us getting things made. Dropshipping means we just have to get things made and hope - it pushes the financial investment and risk all over to the supplier side.
There's a general sense that people who haven't invested much in a product don't then push it or promote it much, whilst claiming that it's great "exposure" for small brands. I can't speak for other people's experience but I would say out of all the people we've done dropship or SOR with, there are maybe two where it's worked out. Both of them have been personal friends as well as colleagues. That's not good odds. I abolutely refuse to do it now.
(What's SOR? Sale or Return - the retailer doesn't pay until after selling the goods. So still no risk to them and even more risk to the supplier, but it avoids customer service and stock control problems).
Many people who request dropshipping still want to take the 50-70% share of the retail price they would expect to get from normal retail, even though the supplier has made all the investment and done the bulk of the work.
"Look, how do you think our factories would respond if we said, can you make all this stuff but can we only pay you once we've sold it, which we don't know when, or even if we ever will?" said one brand owner.
And this is why it is known as "dropshi**ing* in our circles!
Our circles being ones where we do daft stuff at trade shows.
Why do customers get hacked off with it?
It causes unexpectedly late deliveries and unexpected costs; when a US company requests dropship from a UK company, not only will the product arrive more than a week after the customer might reasonably imagine, they will ALSO end up with an unexpected import duty bill.
Ever ordered from a company only to find that they didn't have the product in stock? Sometimes that's a stock control error - but sometimes you've ordered from a site that doesn't actually hold anything in stock, and they have to order it for you. Imagine how many things can go wrong then, especially when you have lots of size and/or colour variations. If you buy technical products you've probably had this happen to you repeatedly as for some reason it's rife in the land of photography, computers, etc.
Bad customer service? The retailer cannot give detailed feedback on a product easily because they can't just go find one and check. So you have to hope they at least went to the trade shows or met the supplier and saw the products, because otherwise they are trying to help you get more information than they wrote, about a product they've only read about and seen a picture of - exactly the same information you have access too.
The company have no idea where your order is? Something's gone wrong between them and the supplier. If the retailer doesn't hold the stock, there can be several layers of people between you and where your product is actually coming from.
On a bigger level, dropshipping works best for brands doing core basic products repeatedly that they hold lots of stock of - so if dropship is the norm, unusual and small brands get pushed out. If you're bored by what's on offer at the moment, dropship is one of the dynamics behind the scenes that's driving the homogenisation of the market.
So why do retailers do it?
Well, because they don't have to hold stock and can massively expand their product range without much risk. It's potentially brilliant for retailers if you can make it work.
And why do brands do it?
If you're holding lots of stock (like, if you're a really big brand and have lots of continuity products, that's when it works best) then its much better to have it out and a chance of shifting than to hoarde it like some sort of bra obsessed dragon.
Because if that's the only deal you can get it's better than no deal.
Because sometimes, just sometimes, it works out well, and there's nothing better to reinforce behaviour than the occasional major reward (that's why slot machines are addictive!).
Because if you set it up right, it can actually work well. Charge a premium for it, be super organised about holding stock and making sure its mostly continuity lines, make sure the retailers know the products, refuse to accept returns - these are all ways to make it work profitably.
Rago use a dropship agent in the UK for their products - which are based around a handful of styles with few changes.
Wait, hang on - you've always been crtical of dropshipping, but aren't you doing it?
Yes we are. We don't supply on a dropship basis, but some of our pop-ups have been done in a way that resemble dropshipping, and often involve sale or return. I'm also about to bring in some US brands using a company that pretty much just do dropship.
Well aren't you a giant hypocrite?
Probably a bit, yes. I have to say we don't always practise things in the way I'd like. Here's what I do to mitigate the problems:
We tell our suppliers our real numbers - visitors to the sites, people on the maiing list, open rates, how many people updates get seen by, all of that. So they can judge for themselves whether they really will get "exposure" and if its enough to be worth it for them.
We do publicise the hell out of guest brands pop-ups and suppliers. Generally it seems to work - most of them seem to get something out of it and for some people it's been key; Karolina once told me that KMD are one of her biggest referrers of customers, even though her style is totally different to ours.
We normally pay more than the usual wholesale price, so that people taking more of the risk get more of the money.
It's usually done as part of an ongoing relationship with the other brands; the world of smalls is indeed small and so people who guest brand are usually people I see or contact regularly; we know the products and the people behind them.
And in an ideal world we hold the stock, because seriously, that whole customer service thing is a right pain otherwise. Though the US brands we won't, largely because the appeal is their enormous size range, and I just can't afford to buy in 40 bra sizes and 8 dress sizes. I will, however, be telling customers in the USA and Canada that there is no point at all them buying this stock from us, because it would e much cheaper and quicker in your own country!
Amoralle are our current guest brand.
If there's big disagreements between retailers and suppliers at the moment, where will that lead?
I don't know. It feels to me like something is shifting big time for everyone; Karolina isn't the first person to stop wholesale, and she won't be the last. Though I suspect if Amazon have their way we'll all just end up with storefronts on there instead!
So did you know what dropship was? Do you think you've ever been sent a product by dropship, and did it work out well or badly? Let us know in the comments!