dropshipment

Dropshipment, or dropshipping, is a retail fulfillment method in which a store does not keep the products it sells in stock. Instead, when a customer places an order, the retailer purchases the item from a third-party supplier who ships the product directly to the customer. The retailer acts as the intermediary, handling marketing and sales while transferring inventory and fulfillment responsibilities to the supplier.

In the typical model, the retailer markets products, sets prices, and manages customer service, while the supplier or manufacturer handles inventory, picking, packing, and shipping. The customer pays the retailer, who then pays the supplier the wholesale price, with the difference representing the retailer’s gross margin. Successful dropshipment relies on accurate supplier inventory data and reliable fulfillment processes, since the retailer often cannot physically inspect the stock before sale.

Advantages include low upfront costs, no need for warehousing, and the ability to offer a wide product range and scale quickly. Disadvantages involve lower control over shipping times and product quality, thinner profit margins, dependence on supplier reliability, potential stockouts, and complex returns. Branding and customer experience can also be compromised if suppliers do not meet expectations.

Best practices emphasize thorough supplier vetting, service level agreements, and automated order processing. Clear product descriptions and transparent shipping times help set customer expectations, while diversifying suppliers can reduce risk. Dropshipment is well-suited for new online ventures or those testing markets, but it requires disciplined supplier management and robust operations to maintain quality and reliability.