Why Drop Shipping Should Be a Priority in 2016

It's no surprise that in today's competitive omnichannel landscape, retailers are looking for new and innovative ways to stand out in an ever-growing crowd of competitors. For many retailers, providing various shipping options offers a way to add convenience to a shopper's experience while not cutting the bottom line too deeply or at all.

In fact, when implemented correctly, robust shipping strategies can actually end up saving a retailer money. And in some cases, a more robust shipping strategy can increase sales while offering several other benefits.

Enter drop shipping.

Drop shipping occurs when e-commerce retailers utilize supplier and third-party inventory to directly fulfill orders, which increases the overall amount of product they are able to offer to customers. With drop shipping, when a customer purchases items from a retailer, the retailer has the suppliers or third- party vendors fulfill the order, and the products are drop shipped directly to the customer, never having been handled or even seen by the retailer selling the product.

For small and mid-sized omnichannel retailers and wholesalers, drop shipping offers an effective way to expand business and drive additional sales with very little additional working capital. When making plans for 2016, retailers will want to consider implementing a drop-ship strategy for multiple reasons. 
  • An increase in customer satisfaction. Drop shipping increases customer satisfaction in two ways. First, it allows shoppers to have access to more inventory than the retailer originally offered. More options allow for shoppers to be even more likely to find exactly what they desire. Second, by having third-party suppliers and vendors offer shipping direct from their locations, customers might receive their products sooner than if they were shipped from the retailer's distribution center (DC) or brick-and-mortar store because there's a chance the supplier is closer to the buyer's house.
  • A reduction of costs. Retailers that employ a drop-shipping strategy will be selling more product but not storing it. As a result, the retailer will save on inventory carrying costs. This is especially beneficial for small and mid-sized retailers in the beginning stages of business that often do not have ample cash on hand.
  • An increase in inventory. Apparel retailers considering drop shipping will likely find an increased inventory as the primary benefit. More inventory options mean retailers are more apt to land a sale. In addition to just offering more inventory quantity, retailers are also able to offer a more diverse product line than before, thanks to drop shipping. Perhaps a retailer that has exclusively sold clothing has been considering selling shoes and jewelry but hasn't wanted to commit to the risk of nearly doubling inventory size. By utilizing a vendor to drop ship select merchandise, the retailer can essentially test drive new products without a huge up-front commitment.
  • Accelerated order processing. By utilizing a drop-ship vendor, retailers are sometimes able to offer customers more efficient or faster order processing. For example, if the drop-ship vendor is closer to the customer than the retailer's DC is, it's likely that the customer will receive his or her order sooner than if a drop-ship vendor had not come into play.
While there are ample benefits to drop shipping, there are challenges to overcome as well. The primary reason drop shipping is not yet commonplace is because retailers have lacked a single platform that can support a large vendor that requires EDI integration, to a smaller vendor that is not EDI capable. Vendor capabilities vary, but this challenge can be overcome if the retailer implements a trading partner management solution to manage all vendors – small and large – in order to drop ship.  

Packaging is another thing to consider. If a drop ship vendor is using packaging that is not uniform to the retailer's brand, customers might question the authenticity of the product they ordered. Another challenge might be inventory visibility. Having more options of places where orders originate can make keeping track of inventory more difficult, though certainly not impossible. Finally, drop shipping items has the potential to reduce profit margins for retailers, as drop ship vendors often charge a fee for each item purchased.

The good news for apparel retailers looking to drop ship this year is that the challenges of drop shipping are surmountable. When considering a drop-shipping strategy, remember to take a look at buying behavior, the expectations of your customers, the opportunity cost to offering the drop-shipping strategy and what enabling technology, training or third-party assistance would be required to implement the strategy. While a drop-shipping strategy does not make sense for every retailer, for the majority of apparel retailers in the middle of 2016 planning and beyond, drop shipping will provide an opportunity to differentiate from the competition, bolster brand awareness, increase inventory and provide better customer service to existing and new customers.

Jim Barnes (@LogisticsOracle) is the CEO of Enspire Commerce, an enVista company that enables retailers to transcend traditional transactions via the retail industry's only cloud-based omnichannel enterprise commerce management (ECM) solution. The Enspire Commerce solution delivers a unified customer experience from shopping to fulfillment for retailers, distributors, manufacturers and third party logistics (3PL) providers.
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