Overview:
One form of retailing that has become very popular with the advancement of e-commerce is drop shipping. This is where a retailer will advertise, sell and collect the money for a product that is actually shipped from a manufacturer or suppler directly to the customer. The retailer's profit comes from the difference between the wholesale price of the merchandise and the price charged to the customer.Advantages:
The biggest appeal of drop shipping for the retailer is that there is no inventory to stock. This frees up cash as it allows the retailer to collect the money before purchasing the wholesale product. Because it is the supplier's responsibility to ship the merchandise to the customer, the retailer is free from any transport headaches that may occur. Not all drop shipping opportunities are limited to online transactions and many wholesalers provide point of sale materials for the brick and mortar stores to display to their customers.Disadvantages:
One issue retailers may find in working with a drop shipper is the lack of control. Drop shipping isn't risk free and when problems arise it can become frustrating simply playing middleman. Retailers may still be faced with back-orders, returns and customer refunds. Some drop shippers assess a drop shipping fee or even a membership fee to the orders which may erode profits.
