Understanding how far dropshipping has come as a business idea can help you know how best to work around it to maximize your profits.
This article offers a succinct and detailed breakdown of dropshipping history, including when the dropshipping model started and how much it has grown over the years to accommodate the eCommerce market today.
To get started, we shall briefly discuss what dropshipping is and how it works:
目录
What is Dropshipping, And How Does It Work?
Courtesy: Shopify
Dropshipping is an order fulfillment model where retail sellers don’t stock the products they sell in their online stores. Instead, once customers make orders, dropshipping sellers use third-party suppliers —who could be wholesalers or manufacturers— to fulfill the orders directly to the customer.
Now:
Pros of Dropshipping
Dropshipping has advantages like:
- Low initial capital: Setting up a warehouse and stocking it can be costly. Dropshipping cuts down this cost since sellers do not handle inventory —they let their dropshipping suppliers manage that aspect of a dropshipping business.
- You can sell and test various items at a go: For most physical shops, you can’t quit on an item just because it isn’t bringing in the profit as expected without clearing the stock. Dropshipping allows you to change your inventory at a whim to showcase a more profitable item.
- Low order fulfillment cost: The supplier handles all the tasks involved in order fulfillment —like packing, labeling, and warehouse management. This reduces the retailer’s work, making managing an eCommerce store easier than ever.
- Low inventory cost: Since you don’t manage inventory, you never have to worry about the lack of products to sell or the need to clear dead stock. This gives you more time to grow your store.
- No location limitations: Being an online store, you have no location limitations. The point here is to pick a supplier willing to ship products to your clients wherever they are.
Cons of Dropshipping
Like most things, dropshipping —as a business model— has some downsides:
- Customer service issues: Even though you don’t see the products before shipment, customers will blame you for any issues with their products —since they don’t know the supplier. The lack of control on this matter may cost you your brand, especially if you receive a lot of bad reviews. Fortunately, you can void this by asking for test products periodically to test for quality.
- Lower profit: To make a reasonable profit, you must sell many products. This can be challenging, especially if you’re doing low-ticket dropshipping, which is usually very competitive.
- Reliance on a supplier’s inventory- as you don’t stock the items yourself, you can’t really control the availability or lack of products. This means that if your supply is low on products, so is your shop.
Let’s now get into the weeds:
When Did Dropshipping Start?
Dropshipping existed before the internet, but on a smaller scale. Dropshipping started in the 60s through mail orders but has changed significantly over the years.
Back then, fewer people were familiar with the model and hardly took advantage of it.
Dropshipping History
We can group the most significant changes in dropshipping over the years into five stages.
Stage 1: The 60s and 70s: Dropshipping before the internet
Before the internet came into play, companies like JCPenny and Sears used mail-order catalogs to advertise products. These mail catalogs were small booklets received via a mailbox.
Back then, many people would find an array of products listed in the booklets with a phone number they could call to place an order. The items ordered would be delivered to the customer’s doorsteps within a few days.
As the awareness of this grew, it became more profitable, but at the same time, it became too overwhelming for them to handle the incoming demand.
To work around this, JCPenny and Sears decided to create fulfillment warehouses that would help reduce shipping times. In today’s time, we can compare these warehouses to Amazon’s FBA warehouses because these two pioneering companies would use the warehouse space to store products in bulk such that when an order came through, it would be quicker to ship the items to the customer.
Over time, companies like Compucard —and others— decided to take advantage of these warehouses. Being a mail company, they would list the items on their mail catalogs. When customers made orders, they would have the warehouses deliver the items to the client’s addresses.
This started the first dropshipping model.
Stage 2: The 80s
In the 80s, more companies joined the bandwagon by establishing warehouses. The demand for this shopping method grew, and advertisers responded by advertising more products in different categories.
With more competition, the companies had to think of a way to get an advantage over the rest. Luckily, the internet was becoming public knowledge, and the idea of an online store for mass reach became enticing.
Stage 3: the 90s: Dropshipping and the Dot Com Bubble
By the 90s, people had become aware of the internet and were getting pretty good at using it. The companies introduced eCommerce stores to replace the mail-order catalogs.
Online shopping was slow to adopt because people weren’t all that comfortable with sharing their credit card details online. Even though online shopping was becoming more popular, people remained skeptical for a while. Eventually, as more people gave positive feedback, everyday customers started trusting the virtual shopping experience.
At the start of the ‘dot com’ —a term coined for a period of bullish internet adoption—wave, stores with fancy names would emerge and sell the idea of how profitable the eCommerce idea would be to investors. Due to this, the bubble began growing, and investors bought into the idea and made considerable investments to support this growth.
Unfortunately, by the end of the era, all the investments went down the drain as the companies realized no profits, primarily due to the higher shipping costs associated with drop shippers from the US, which had become very popular by this time. Unfortunately, the outrageous costs made the business model unsustainable, and most of the companies involved filed for bankruptcy and eventually closed down.
Stage 4: The 2000’s: The Rise of Amazon.com and eBay.com
However bad the times were for dropshipping stores, Amazon and eBay survived through this.
From past experiences, they decided to help their sellers cut down on costs by taking up the task of advertising for you. Earlier, the high cost of using drop shippers was because of the limited availability of advertising platforms. This was limited to the very expensive Google Ads till later years when FaceBook came into the picture and started offering PPC ads.
Facebook also allowed sellers to list their items without needing to create a store. With the reduced costs, drop shippers were now cheaper to use, increasing their popularity among eCommerce entrepreneurs and business owners.
Stage 5: 2010-2018: The Chinese Revolution with AliExpress, Shopify, and Oberlo
In 2010, the Alibaba Group decided to launch AliExpress, a platform meant to make dropshipping between China and the rest of the world easier.
Previously, most people found it difficult to work with Chinese drop shippers due to the language barrier and the difficulty of shipping from the East.
AliExpress solved the language barrier issues and offered many affordable products. At the same time, platforms like Shopify came into the picture, making it easier than it had ever been before to set up and run an optimized, successful eCommerce store.
In 2015, Oberlo came into the picture, making it easier for Shopify users to drop ship through AliExpress. Shoppers could now easily add items to their store and quickly scan products to find the most profitable ones. After much success, Shopify eventually bought the company, making shop integration even easier.
With the rise of social media platforms like Instagram and Facebook, creating awareness for your store is easier today than ever at any other time in dropshipping history, with more stores adopting this method.
With the development of shop integration using API, you can create a niche store that serves a specific clique or a general store with something for everyone.
Dropshipping Trends Worth Watching (and Taking Advantage Of)
Undoubtedly, as online shopping becomes increasingly integrated into our lives, dropshipping will continue to be a successful business model.
If we look at drop shipping history and use it to predict the future drop shipping, we can see the following dropshipping trends will only make things
#: Increased mobile shopping
As smartphones become increasingly popular across all ages, people have moved away from just searching for items to ordering through the phones.
To give your dropshipping business the best chance of success, your dropshipping eCommerce store needs to be compatible with mobile phones.
Drop shippers have noticed the mobile sales boom and are working with web developers to create more mobile-friendly websites. Other platforms have developed mobile apps usable on both Android and IOS. Given all this, failing to create a mobile-friendly eCommerce store can limit your success in dropshipping.
#: B2B eCommerce
This involves the sale of items between two or more businesses through the online space. This means that orders are fulfilled digitally without lengthy channels.
At this point, the consumer isn’t as involved since this mostly involves raw material exchange between businesses
B2B is becoming an increasingly popular trend because it helps businesses reduce most of the overhead costs incurred, which can help a business turn profitable quicker. Examples of such businesses include AliExpress and Alibaba.
#: Brand sustainability
As more people become aware of the need for sustainable and eco-friendly products, the demand for eco-friendly products from eco-friendly businesses will continue growing.
More companies have adopted environmentally sustainable business practices and started ‘going green’ in product production. Some of these companies include Jungle Culture, Green Dropship, and Bangalla.
If you’re in a niche where customers care about how your products affect the environment, failing to “go green” or outline your sustainability plan can affect your profits and bottom line.
#: Payment options
Most buyers are very wary of payment options, and, in the future, customers from all over the world want to be able to pay for their eCommerce orders using a convenient payment method. To remain competitive in the market, offer your consumers various payment options and make the checkout process easy and transparent.
The most preferred payment methods are PayPal, MasterCard, and Visa cards.
#: Use of Artificial Intelligence
A trend that will undoubtedly change the drop shipping experience in the future is a customized shopping experience for each shopper. eCommerce platforms have adopted artificial intelligence to monitor shoppers’ activities throughout the purchase process. These bots are helping dropshipping business owners monitor key processes like purchases, visited sites, and customer behavior. Dropshipping business owners then use the information gleaned from these AI bots to create ads and display brands that target shoppers’ interests.
Through this, there is a notable increase in sales as more people are more likely to buy something if they keep seeing it.
Using AI in dropshipping optimizes the process, making managing a profitable dropshipping venture easier and more hands-off than ever before.
#: Social media marketing
Advertising is no longer limited to Google Ads. Social media platforms have become a popular advertising medium, and now —and going into the future— social media advertising is one of the surest ways to reach your customers.
Is Dropshipping Still Worth It?
Yes, dropshipping is still worth it.
First, the low startup costs make it a more attractive venture than most other online businesses. Secondly, even though dropshipping has become immensely popular, it remains profitable if you pick the right niche, use a reliable supplier, advertise your business, and offer world-class customer support.
Our blog has a blog entry covering whether dropshipping is worth it in more detail.
Conclusion
Dropshipping keeps evolving, and as the eCommerce market grows, so will it. As the future of dropshipping takes shape, now is a great time to get into the market and create a successful dropshipping business.
Frequently Asked Questions Dropshipping Questions
Q1: Is dropshipping legal?
Yes, dropshipping is a legal order fulfillment process used across the globe. However, always be on the lookout for shady suppliers whose aim is to con you.
Q3: Is dropshipping profitable?
Yes. Dropshipping is profitable. Our blog has another article covering the profitability of dropshipping and how much sellers at different levels can expect to earn from the business.
Q3: How do I start a dropshipping business?
While the process is a bit more involved than this summary, you can start a dropshipping business by:
- Conducting product research to find the best ones
- Researching or finding the best suppliers for the products —you can also work with a professional drop shipping sourcing and fulfillment agent like Bestfulfil
- Establishing your store —Shopify is the easiest way to go
- Optimizing your store and listings
- Marketing
