What is dropshipping, and how does it work?

Love it or hate it, Black Friday has become a key date in the UK’s retail calendar.

Thanks to annual campaigns by Which?, there’s growing awareness that most Black Friday ‘deals’ are being advertised at higher prices than in previous and/or subsequent months.

Yet with the pound in your pocket buying less every week, savvy consumers are looking to obtain maximum value – particularly online in the run-up to Christmas.

Many Black Friday ecommerce deals keep prices down by relying on a process known as dropshipping.

This originated with mail order catalogues, before being turbocharged by the internet.

However, it’s not without its disadvantages – and it’s harmful to high street retailers, who aren’t able to capitalise on these economies of scale.

So what is dropshipping? Where might you encounter it, and does it really benefit consumers?

A drop in the ocean

At its simplest, dropshipping involves ecommerce websites removing themselves from the delivery process.

Imagine you’re placing an order with website X. Although items are listed as ‘in stock’, X don’t physically hold any items on their premises, which keeps their overheads down.

Instead, they rely on dropshipping company Y to handle distribution and returns. Y is usually little more than a warehouse with a packaging room where goods are parcelled up.

Your order is confirmed by X, who immediately contact Y, instructing them to dispatch the items you’ve ordered to the address you’ve provided.

Other than perhaps publishing a returns address on the invoice, you may not know company Y exists.

In some cases, dropshipping is handled directly by manufacturers. It allows them to focus on their strengths (making things) while outsourcing sales and marketing to third parties.

However, most dropshipping firms are wholesalers. They buy in bulk at considerable discounts, before supplying sellers at a modest markup.

What is dropshipping used for?

It’s used to supply online goods – rather than services – more cheaply.

It allows websites to undercut the prices you’d pay in a local shop, where unit prices are increased by business rates, staff salaries and unit rental, among other unavoidable expenses.

It’s a popular model among small businesses and startups, who might have identified a product they can sell but don’t make it themselves.

Ordering stock to their premises and then distributing it themselves adds an extra link to the chain – another stage at which items could get lost or damaged in transit, for instance.

Dropshipping companies will often handle automated communications on the seller’s behalf, such as email notifications confirming dispatch or delivery of an order.

The seller is responsible for advertising products through an ecommerce website where they set pricing, handle payments and manage customer service.

The dropshipper is responsible for providing the seller with real-time stock level updates, managing inventory, dispatching orders and (usually) processing returns or damages.

A seller can use multiple dropshipping partners, and dropshipping wholesalers (or manufacturers) can make their goods available to multiple sellers.

Are there any drawbacks?

From a consumer point of view, there are a few things to beware of.

If you’ve ever ordered an item listed as in stock, only to be told it’s not actually available, you may have experienced a communication breakdown between seller and dropshipper.

Sellers may inadvertently misrepresent goods if they aren’t holding them in stock, relying on third-party descriptions of items they might never actually see.

Dropshipping is commonly associated with China, and goods dispatched from halfway around the world can take a long time to arrive.

If an ecommerce website uses multiple dropshipping partners, a multi-item order might turn up in several consignments – far from ideal if you’re not at home to receive them all.

Disputes between seller and dropshipper may affect your customer experience. Whose fault is it that an item isn’t as described on the retailer’s website, for instance?

In truth, you probably won’t know when you place an order whether dropshipping is involved because this process is largely opaque to consumers.

You have to accept that dropshipping may be (literally and metaphorically) part and parcel of ordering cut-price products online…