Q&A - What is Drop-ship?

What is ‘drop-ship’? What are the pros and cons for a small brand?

As the retail world evolves and responds to new ways of doing business, more multi-brand stores and fashion brands are adopting at least a partial “drop-ship” model.  

In a traditional wholesale arrangement, a store buys product from the brand and physically stocks it at a fulfillment house for online sales or in the store for direct sales, and then sells it at a mark-up price. However ‘drop-ship’ is a model in which the store doesn’t own or hold the product at all.  They feature the product on their website or on their shelves, but when a customers places an order, the order is sent to the brand who ships the product directly to the customer.   

As with any arrangement, there are pros and cons of drop-ship.

PROS

• Brands typically make more money giving the store a lower commission of sales than with a wholesale arrangement.

• The store doesn’t own the product so the brand controls when and if products are marked down.

• Unsold merchandise is managed by the brand who can send it to another store, discount it or sell it on their own.

• The brand is able to offer a greater assortment of products.

• The brand gets some clients data by being the point of contact for shipping.

• The store and the brand share in the marketing and the photography and promotional content.

• There are no late order or cancelation chargebacks from the store.

• Usually the store pays for all shipping.

• Brands have a greater opportunity to test different online platforms and curated marketplaces.

CONS

• Its more work to manage and ship each order vs the store doing it all.

• The brand has to produce inventory for an unknown amount of sales.

• The brand has less options to finance production without a purchase order.

• Challenges with coordinating fulfillment and warehousing with different shipping centers.

• The brand must manage returns and accommodate different store policies.

• Store requirements for standardized shipping and packaging can include chargebacks for non compliance.

• The brand doesn’t own all the customer data as they would with their own online sales.

A designer must carefully weigh the pros and cons of each individual arrangement. The key is to look for retailers who really believe in your product and approach the arrangement as a partnership.  Everything should be negotiated to be mutually beneficial win-win for both.