OUTLOOK — What’s the Outlook for Drop Shipping?

Can you imagine having access to thousands and thousands of

dollars of inventory and never having to deal with shipping and

handling? All you have to do is choose the products that you

want to sell and then the manufacturers will do the rest.

As a drop shipper, you will have two major advantages

over retailers and wholesalers:

1) The large difference between what the item

costs you and what you charge for it.

2) Your low operating costs. (No inventory.)

So in a nutshell, your outlook is very profitable. Low cost, a lot

of inventory, and ease of business make for a powerful

combination.

How are they able to offer them so low?

There are several

reasons:

DISTRIBUTION CHANNEL

One of the main reasons products cost us so low is that

through drop shipping manufacturers can skip the many

distributions channels. (The main reason products cost so

much in America is the many companies and individuals

that have to make their money on the product.)

CLOSEOUTS AND MODEL CHANGES

Manufacturers are constantly making small changes —

such as the color of an item and slight upgrades — in their

most popular products. When this happens, their main

retail center wants these new and updated products out

immediately. This leaves the manufacturers with great

products that need to be moved.

BUSINESS/FACTORY CLOSINGS

When a business, outlet, or division closes, it needs to get

rid of excess inventory quickly, especially if bankruptcy or

loan foreclosures are in the forecast. The company will

drastically lower its prices just to get the items out.

OVER—PRODUCITON AND EXCESS INVENTORIES

Most companies experience times when they’re simply

overstocked. In order to free up warehouse space and cut

their losses, they will slash prices, sometimes to even

below production cost.

MISCELLANEOUS REASONS

Occasionally, labor or transportation difficulties prevent

manufacturers from selling as much as they had

anticipated. When this occurs, manufacturers are often

willing to sell their inventories cheaply and quickly, in

order to avoid further loss due to storage, insurance, and

other carrying costs. Or, a company may be introducing a

new product to the market and is willing to sell current or

old products at a low price in order to start word-of-mouth

advertising.

AN INDEPTH EXPLANATION

Even though most manufacturers experience times when they

want to move merchandise as quickly as possible, they would

rather not see their products nationally advertised as “liquidated

merchandise.” It looks bad for the company and may detract

from a company’s more profitable channels of retailing and

wholesaling. For instance in the pricier new lines the

manufacturer is currently promoting. Moreover, retailers paying

more than the “nationally advertised” liquidation prices would

get very upset with manufacturers if they saw the lower prices,

and perhaps stop doing business with them.

TYPES- What’s out there and how do I find them?

Manufacturers drop ship just about every product imaginable —

from bread makers, clocks, televisions, and basketballs to

computers, fax machines, baby grand pianos, and furniture.

Oftentimes you can get the same merchandise that the retail

stores are currently selling, but at a much—reduced price.

Earlier we briefly covered the 3 tiers of distribution: retail,

wholesale, and drop shipping. As a merchant you have the

opportunity to use all three of these channels as the means of a

drop shipper.

Typically when a person hears the word drop shipper the

first thing they think of is the third tier. The third tier

‘drop shippers’ focus primarily on just that, drop shipping.

They have no retail shop nor do they care to have one.

Focusing on warehousing items and shipping them out for

their dropshipee cliental base is top priority. Third tier is a

great place for a beginner to start. Establishing a

relationship with a straight drop shipping company is

usually a fairly easy process and requires very little to start

up.

While starting up with a drop shipping company is one of

the easiest routes to take, it isn’t the only one. While they

may not call themselves ‘drop shippers’ the other two tiers

of distribution may also be used for drop shipping. Any

type of retailer, large or small may be considered a drop

shipper if you can work out an arrangement like mentioned

above. Most large retailers don’t have time to do drop

shipping for you but often time smaller retailers will take

business in any form they can get it, including drop

shipping.

Wholesalers will work the same as a retailer when it comes

to drop shipping. You will have to work on building a

relationship with them but there are lots of wholesalers out

there that have wanted to enter into the realm of drop

shipping but haven’t had the means until you called.

UNDERSTANDING THE 3 TIERS OF DISTRIBUTION

Selecting a product to sell is one of the most important steps to

successful retail. No matter the experience level this can be one

of the most confusing and sometimes frustrating steps. In the

following pages you will find the in depth information you need

to get started in one of the most important areas of online

distribution, drop shipping.

In distribution there are 3 tiers you will want to be familiar with

before starting to find your own product(s).

1) Most shoppers are familiar with the first tier — retailing.

Retailing is when the manufacturer sells merchandise

directly to department stores, franchises, store chains,

shopping malls or any other retail outlet.

2) May bargain shoppers are also aware of the second tier

—wholesaling. Wholesaling takes place when the

manufacturer sells in bulk quantity to discount stores

and other wholesale outlets. Cosco or Sam’s Club are

good examples of stores who sell wholesale bulk items.

3) Our third tier, drop shipping, is generally the most

foreign of all the tiers. Drop shipping is a multi-billiondollar-

a-year product distribution business in which

manufacturers and wholesalers will ship or “drop ship”

their product to your customer directly.

Companies that offer drop shipping will generally sell their

products to you at or below wholesale prices. You, as a buyer or

registered dropshipee, may then resell these items at marked-up

prices to consumers, wholesale outlets, or even retail stores.

Drop shipping gives manufacturers the opportunity to quietly

distribute inventory without the overhead publicity tends to

incur. You are able to have accesses to thousands of different

products through one or more drop shipper without the worry of

storage or inability to sell the items.

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