E-Commerce Dropshipping: The Risks by@MySmallStore

E-Commerce Dropshipping: The Risks

E-Commerce dropshipping is an easy way to start an eCommerce site - there is no stock to manage. Orders are sent to a third party (wholesaler) who pack and ship orders. The risks are at multiple levels and I'll show a few of the risks. Some "wholesalers" charge $1,000 to set up, then up to $225 per month per brand and/or channel. Some aggregators come with a high subscription fee, some charge $225*2*5 or $2,250 per month. The danger is that huge variation on popular products can be overpriced.
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I am a business owner, born and raised in Europe, lived in Africa and the Middle East for 15 years.

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As the owner of My Small Store, I receive many requests to dropship our luxury handbags. I feel honored, yet, I decline all of the requests. Let me explain the risks associated with E-Commerce Dropshipping.

What is dropshipping?

Dropshipping is an easy way to start an eCommerce site - there is no stock to manage, orders are sent to a third party (wholesaler) who pack and ship orders.

Keeping stock is an expensive operation with huge upfront cost to buy the products, recurring costs to store and manage it, plus insurance in case of fire, flooding, theft, riots, etc.

Most eCommerce platforms have tools to synchronize stock levels, prices, and orders. The "only" thing the eCommerce has to do is to bring buyers.

We do use dropshipping to test new products or the ones we have but we barely sell.

Dropshipping is a risky business

Risks are at multiple levels and I'll show a few.

Low Ethics Dropship Wholesalers

These have strictly no problem adding their own advertisement in packages - we tested several using employees as customers. They received a note in their package saying "Next time save more by buying directly from us @ abc.com with an example of prices." If these were real customers... they would never come back!

Pricey wholesalers

These have "wholesale prices" identical to retail. One we liked to use had over 1,600,000 SKU in stock but their prices are now so high, it is impossible to sell a single item.

Some items are "well priced" but we can't find any of them at a higher price on marketplaces (Amazon, eBay, etc.)

Some call themselves aggregators. They come with a high subscription fee, some are not ashamed to charge $1,000 to set up, then up to $225 per month per brand and/or channel. If you sell 5 brands on a website and Amazon it's a monthly $225*2*5 or $2,250 per month.

We compared their "wholesale" prices and we felt that on top of the monthly fee they also increase the price by a notch or two. But they are convenient and reliable.

Example of overpriced "aggregator"

  • Juicy Couture Perfume Spray  - 3.4 oz at $29.99 vs. the exact same product at FraganceNet for $29.24. Even without adding a margin your will be already overpriced.
  • The Drone Nerf DR-265 at $89.35 + shipping vs. the exact same drone on Google Shopping for $79,99 free shipping!etc.
  • etc.

Sub-wholesalers or multi-layer dropshipping

What?  yes, these are "wholesalers" who resell from wholesalers or other sellers. My lovely wife bought from an Amazon seller a big box of Belgian chocolates (my favorite) - it arrived after over 2 weeks.

The first package had a packing slip from a Walmart seller, the final packaging has a packing slip from a company in our hometown! Guess who will NEVER buy chocolate from Amazon :) - that was a 3 level dropshipping!

Funky "wholesalers"

Funky? yes, these people "omit" to specify that the products they resale are in fact AliExpress, Amazon, Walmart products. We have many names of those guys as they often contact us to allow them to resell "bulk dropship."

A very nasty story - a young single mom used one of them who had no problem paying the Amazon orders with stolen credit cards using HER address as a billing address. When the fraud was discovered, guess which door the FBI knocked at?

Not-fully Dropship Wholesalers

These are smaller manufacturers who dropship but do not have any integration with eCommerce platforms - they often provide a monthly spreadsheet to upload, orders are through email. 

The danger is that within the 30 days between spreadsheets, stock and price variation can be huge on popular products leading to over-selling or losing money on each sale.

One we used and loved manufactures organic baby products. We developed a tool (cost over $10,000) to grab their spreadsheet daily to update our store and to push orders.

We and others helped them grow until they decided to have their own eCommerce. We "dropped" them when they started behaving like "Low ethics Dropship wholesalers."

Complete lack of control

For me, it's the worse part as you have no idea:

  • what is shipped - one customer returned a brand new rucksack which had a "customer return" sticker on it
  • when it ships - they may say 1 business day but they don't specify which week :)
  • how it's packed - I think we saw everything from re-used cartons to damaged envelops!
  • where it shipped - we had a few mishaps with shipping to the wrong address.

These always mean refunds and very unhappy customers.

Dropshipper/Aggregator failures

Often, you rely on your service provider, publish and sell products they "manage." Until one day, an email shows up saying "Due to unforeseen events, we are shutting down our dropshipping services."

How many products did you import? Thousands? They have to be removed, all that work done for nothing. Finding another aggregator for the same products helps but all the great product descriptions have to be redone or manually copied keeping the same product URL - we have been there and it's not pleasant work.

Product description risks

Often, dropshippers brag about what you have to do:

  • Select products
  • Publish products
  • Sell products
  • Get the money

They take care of everything else. Unfortunately many eCommerces do that and it is a crowded nightmare.

For example, you sell drones, try to Google a part of your dropshipper description like - "ALTITUDE HOLD: When you focus on shooting images" - add the quotes to tell Google to look for the exact same sentence - the result is about 4,230 pages with the exact same words

Products with the exact same description as all your dropshipper's customers is a bad idea.

To avoid drowning in the sea, you need to rephrase - No results found for "altitude hold: great to focus while taking pictures" - making your description way more interesting for Google thus more interesting for potential buyers. 

This will be the subject of another article.

Product volume risks

Dropshippers recommend publishing as many products as possible. Another big mistake - Google hates it. Imagine you push 1,000 products in one day... Google will ignore most of them!

A store I tried to help but didn't listen, published in 2017, 1,500 drone-related products in a few days - three years later, only 30 of his products are cached by Google, meaning the search engine doesn't know about most of what the store sells and in fact, the owner is still trying to figure out why!

Lots of risks, yet, we still use dropshipping for some of our products because it's the only viable solution.

I looked at one particular handbag we dropship. We sold 4 in the last 2 years.

The minimum wholesale order is 10 bags to meet the manufacturer's $7,500 minimum order per bag - meaning we would have today $4,500 stuck in very slow-selling stock - not a good business practice.

In Conclusion, dropshipping does work but there are risks attached to it and it must be done very carefully with real wholesalers.

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