Cross Loader

When a retailer does not have the space to keep a large inventory of product in stock, drop shipping is the solution for continuing to satisfy customer orders without inventory being on hand. In the drop shipping process, all customer orders are routed to either a wholesaler or manufacturer, who then ships the order to the customer, with the retailer making his profit from the difference between the wholesale and retail price.

Customers are usually not aware that their order is coming from the wholesaler rather than directly from the retailer, because the wholesaler uses “blind shipping” which is shipping without a return address or “private label shipping” in which the retailer’s customized shipping label appears as the return address. The illusion that the product was shipped by the retailer is further enhanced by customized invoices included in the shipment.

Drop shipping appeals to small retailers and many auction website sellers because there is no need to stock inventory and the retailer or seller receives payment before the item even ships, resulting in positive cash flow for the business. Drop shipping also relieves the retailer/seller from the time and labor of packaging and shipping the requested merchandise. Because inventory and shipping costs are lower using the drop shipping process, the retailer can offer cost savings to his customers.

The biggest risk in drop shipping is the occasional occurrence of back ordering, which happens when the retailer sells an order but the wholesaler cannot immediately fulfill it because they are waiting for additional product, sometimes causing long waits and disappointed customers.

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