With the explosion in the number and variety of products available on marketplaces like Amazon, traditional retailers have come to realize that a strong online product assortment that matches the tastes of their audiences is a definite competitive advantage. Drop shipping is an increasingly popular route for retailers that want to rapidly expand product assortment.
Most data and commentary around drop shipping is focused on retailers and how they should go about setting up drop shipping processes, challenges they face and so on. Retailers that leverage drop ship typically use distributors or wholesalers as their drop ship partners. But what about brands themselves? Why don’t retailers go directly to brands that they already work with, view their entire catalogue and intelligently pick the best product assortment that has the best chance of growth and conversions online? More importantly, what stops brands from becoming drop shippers for large retailers that they already sell wholesale to?
Think about it. Apple is consistently ranked as one of the most valuable brands in the world. It also has its own robust, global retail network in the form of Apple Stores. Yet, you see a strong brand like Apple work with telecom companies like AT&T and Verizon that help them expand their reach and tap new customers through a completely different channel.
Why Become Drop Shippers for Retailers?
Put That Spare Capacity to Work
Most brands have times of the year when products pile up in warehouses, adding avoidable variable costs to the overall operating expenses of the business. Why not put that excess capacity to use and earn some revenue while you’re at it? Drop shipping is a great way to leverage existing relationships with retailers and move products that would have otherwise needed an extra push to sell through other channels. It assures a ready market for a larger chunk of a brand’s assortment than would have been possible via traditional wholesale channels.
Our own data shows that retailers typically offer just ~15% of a brand’s full catalog.
By offering to become drop shippers for retailers, brands expand the full utilization of their catalog and set themselves up for incremental revenues.
Avoid Channel Conflicts
When brands decide to sell via multiple channels, they typically play a tough balancing act to ensure that none of the channels they operate on get the short end of the stick. From maintaining independent SKUs for different channels, to maintaining price parity and fulfillment coverage, there are a number of factors that go into avoiding channel conflicts.
Nearly half (49%) of surveyed brands did not sell direct-to-consumer to avoid channel conflicts with their retail partners.
Source: CommerceHub Brand Insights Study
By expanding relationships with retailers via the drop ship route, brands can ensure taht they reach the growing community of online shoppers without having to invest in hands-on marketing and demand generation efforts.
Take Back More Brand Control
Strong brands invest years in developing their key selling propositions, crafting their unique brand personality and connecting with consumers on different platforms to bring them closer to the brand essence. When this level of TLC is poured into shaping the brand and its personality, how can brands lose control of the moment of truth, where a customer actually receives the product they’ve come to love?
By becoming drop shippers for retailers, brands retain control of their identity and final brand experience for the omnichannel shopper. The ability to personalize the final messaging and the contents of the package that reaches the shopper and, most importantly, to get access to customer data that they may never have had access to, are huge bonuses.
Increased Opportunities to Sell More and Grow Revenues
The trend of going direct to consumer and cutting out the middle man from the retail ecosystem is catching on among brands. Besides their own e-commerce websites, they invest in dedicated brand stores on marketplaces, social commerce websites, mobile shopping apps and more to maximize revenue opportunities as well as margins.
Despite this growing trend, we’ve seen brands repose a tremendous amount of faith in retailer relationships.
Data from the CommerceHub Brand Insights Survey shows that 67% of brands see selling more to current retail partners as their biggest opportunity for the year. Additionally, 62% view selling to new retail partners as a strong growth opportunity as well.
Drop shipping to retailers maintains and expands existing retailer relationships. What’s more, brands enjoy better margins for the same products with the same retailers when they drop ship for retailers as opposed to supplying them wholesale. How’s that for a win-win?
How Can I Get Started?
Expanding your market penetration by adding drop ship relationships to your existing distribution channels is a quick way to ramp up revenues. Once you’ve realized the benefits of this approach, get in touch with a distributed commerce network like CommerceHub that connects over 10,000 retailers, brands and suppliers together via an integrated platform. With such a solution, you not only open up opportunities to drop ship for your existing retail partners, you can also explore new retail opportunities by partnering with some of the largest retailers in North America. Drop us a line today to get started on your drop ship journey.