OPINION: Tim O’Callaghan on drop shipping

Tim O’Callaghan is a partner in Druces LLP, specialising in advice to the fashion and luxury goods business. In this month’s column, he writes about the advantages and disadvantages of drop shipping.

If a lingerie designer from the 1980’s travelled by time-machine to an intimate apparel tradeshow taking place in 2014 and listened to the conversations between buyers and designers she would, in all likelihood, be very confused.

No longer, she would find, do buyers place orders for fixed quantities of a certain style, for delivery at a certain date and at a certain price. The talk at the stand would most likely be about drop-shipping, fl ash-sales and private label shipping.

If someone were to explain these new retailing methods to her, would she be more likely to burst her Vivienne Westwood corset out of sheer excitement at the prospect of new retail vistas opening up before her, or would she want to jump back into her time machine and return as quickly as possible to the safety of retailing in the 80s with its secure, welltrodden path of selling a collection and then delivering on that order?

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Are drop shipping and its variant, private label shipping, really the brave new world of retailing, a utopian land where retailers and designers both benefit from the arrangement and nobody losses out?

As my readers will already know, drop shipping is a retail method in which the online retail brand does not keep any products in stock. Instead, the e-tailer partners up with one or more wholesale suppliers that stock their own inventory. The e-tailer, once it
receives an order for the lingerie, transfers the customer orders and shipment details to the designer wholesale brand, and they ship the goods directly to the customer.

E-tailers love drop shipping because they don’t have to take a risk of buying stock from a designer that might not sell and which they are left with at the end of a season. It takes the risk out of retailing for them as they do not commit to buy a garment until a customer has placed an order. It means they don’t have to worry about fulfillment or inventory issues – that worry is now placed squarely on the shoulders of the designer brand.

Despite these very clear advantages to e-tailers, there are nevertheless potential problems with this retail model. For a start, passing the responsibility for logistics onto the designer means that the e-tailer is at the mercy of the designer’s ability to arrange their inventory properly and deal with the other logistics in a timely fashion. What if the designer has actually sold out of a particular style and cannot have more produced for a long time? The e-tailer will suffer reputational damage if customers keep placing orders for goods that are no longer available.

There are, however, some potential benefits to drop shipping for designers, which include:

1. exposure into new markets;
2. the designer can benefi t from the e-tailers marketing, as e-tailers will typically invest in marketing campaigns, online newsletters and email shots regarding the brands they stock.

But the disadvantages of drop shipping for designers are the potential administrative burden of the logistics, having to arrange shipment on time to the customer and ensuring that the paperwork and packaging is all in the form pre-agreed with the e-tailer. 

There can also be some confusion about who deals with returns and post-sale product issues; I have had intimate apparel designer clients who, having drop shipped to an e-tailer’s end customer, find the customer addressing after-sales queries to them rather than the e-tailer. As with all such sales arrangements, a good and clear set of terms and conditions between retailer and designer is essential in ensuring that each party is aware of its obligations to the other. Private label drop shipping is the same in concept, but involves the e-tailer asking the designer to produce a line for them under their own label and packaging.

Sale or return is a dream scenario for retailers and can be a nightmare for designers. For the retailer, it means they get to have their shops stocked with great lingerie and swimwear products without any risk if nobody makes a purchase. If no one buys they make no real loss, they haven’t paid for the garments and they can just send them back at the end of the season. If they sell, the designer gets a cut of the takings.

The usual problems experienced by designers are; retailers not sending stock back or not paying promptly, stock getting ‘lost’ or lent out to shop-staff to wear and, when finally being returned to the designer, being in a worse state than when it was originally delivered. The benefit to designers can be summed up in one word – stockists. They have the opportunity of reaching the public and generating sales, and, if they are with the right retailer, a fruitful partnership can develop.

Perhaps, considering the above, our timetravelling designer should not immediately flee back to the old order-book model. There are opportunities in the brave new world of retail for both retailers and designers if the parties get the underlying terms right and choose their partners carefully.

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