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Rob Shaw, SVP Global Sales at Fluent Commerce, explores the benefits of drop shipping and explains what retailers can do to make it work.
Over the last two years, with consumers compelled to shift to online channels, retailers have had to supercharge their operations to respond efficiently to these changing demands. Delivering stand out memorable post-COVID shopping experiences in a way that is both profitable and sustainable is a mission critical priority. This means retailers need to have the ability to discover and deliver available stock fast and find smarter ways of managing inventory to maximise margins.
Retailers need to be able to show customers exactly what is available, where, and when. This means giving customers real-time inventory visibility and utilising a distributed order management system to route products from the most optimal inventory location.
Virtual inventory catalogues and dropshipping are two fulfilment strategies that enable retailers to have better control over stock availability, while minimising business risk, enabling retailers to grow in this ever-changing landscape. Here’s what the two strategies entail, and how they benefit retailers:
1) Virtual inventory catalogues
Virtual inventory catalogues offer retailers control and improve critical product availability. Retailers can use virtual inventories to segment stock data in many different ways – including by channel, market, region and product. In addition, inventory rules can be set up, such as buffers or safety stock levels to categories, products or locations to ensure they don’t oversell and therefore have to cancel orders. This is essential for minimising customer disappointment and optimising the overall customer experience.
Taking further control of what is sold and where unlocks more benefits than retailers expect, generating crafty opportunities to cross and upsell. Here are some ways retailers can maximise the rewards from a virtual inventory in order to optimise their sales and create opportunities on an international scale:
Adapting to new social marketplaces
Purchasing via social media has become the newest trend for the connected customer. However, products sold via these channels may differ to those sold elsewhere, as it doesn’t make sense for every product to be sold on them. Virtual catalogues enable a retailer to control which products or categories are made Available to Promise (ATP) in their preferred marketplaces or social channels, in order to specialise for the right market. They can also set specific buffers and safety stock levels for each channel, meaning they will sell more of the right products in these spaces.
Upselling across multiple channels
These days, many retailers are balancing multiple banners or brands, and need to maximise visibility of these brands to the appropriate target markets. Cross brand experiences are becoming increasingly common, as the market leaders are making products from one brand accessible in the online store for another. But it’s not as easy as all products being suitable for this kind of cross promotion. Virtual inventory segmentation allows retailers to carefully manage which products are made available to each brand and then set custom buffers or safety stock for each.
Selling across multiple regions
Another challenge for retailers can be managing international sales. Not all products may be viable for international sale, particularly from a shipping perspective, with heavy or fragile items or restricted items unsuitable. Some retailers may only want to ship international orders from locations set up to handle customs processing. All of this is made easier with virtual catalogues. They allow retailers to easily manage product availability by region and set rules to manage product or category exclusions. For instance, a luxury retailer may sell in many countries, but want to focus products in one specific region. Only virtual catalogues offer the needed flexibility to adapt to these kinds of business needs.
Creating VIP experiences
Virtual catalogues can also help improve sales to a key customer group: VIPs and top customers. Retailers are able to create a special pool of inventory that is only available to the brand’s most important customers, in order to ensure this group is kept highly satisfied. This inventory can be used to offer VIPs exclusive delivery options or perks based on their preferences, and it’s possible to control back-end sourcing to expedite their orders. In leveraging and prioritising all pools of stock internally or with third parties, rapid fulfilment of orders will support customer loyalty goals.
Supporting market research
Retailers are often looking to expand into new markets, but they present many unknowns in terms of what products will be successful. In this situation, virtual inventory catalogues can help by enabling easy segmentation of a retailer’s inventory to test certain products or categories in this new market. Once proven, retailers can make more intelligent, fact-based business decisions. By testing out products before investing hook line and sinker, retailers have the agility to adjust as per the demand.
Visibility brings success
For retailers with multiple sales channels, being able to manage product availability across these is essential. Virtual inventory catalogues provide this information across all customer channels, meaning stock can be more easily controlled and sales fulfilled. This builds efficiencies within the business and meets the needs of customers who expect increasingly rapid and convenient purchases. Ultimately, delivering the most products through the right channels into the hands of the right customers will mean omnichannel retail success.
2) Dropshipping
Dropshipping is an order fulfilment method that doesn’t require a business to keep the products in stock. Instead, the store purchases items as needed from a third party supplier in order to fulfil sales. The third party supplier will normally ship the items straight to the customer.
It offers a number of benefits, and can be a great business strategy for businesses looking to create additional revenue from selling complementary items from other suppliers. However, it’s vital that you choose the right dropship partner, and ensure that your Order Management System (OMS) and ecommerce platforms are adaptable. Here are a few things to consider before implementing the strategy:
Start small
A key benefit of dropshipping is that it makes it easy to test products for a short trial period before commiting on a large scale. As well as demonstrating whether the product will sell, it will also give an estimation of the quantities needed for an initial stock. This reduces the inherent risk that comes with new product types.
Choose trusted partners
Before getting into any partnership with dropship vendors, do your research. It can be challenging to get recommendations for dropship vendors, as many will be used by competitors. However, starting conversations as early as possible will give you the time to ensure that they are a vendor who will deliver. If you can, start small to make sure they can handle your orders.
It’s also vital to test the products your dropshipper provides, and ensure that they are of the high standard you would demand of your own stock. Learn how your vendor handles returns and damaged products. How is their customer support? How long does it take them to fulfil an order?
Work with your Order Management Systems
One obstacle in the way of dropshipping can be Order Management Systems (OMS). Many can’t keep up the pace for dropshipping as they’re not flexible enough to handle company owned and third party stock. Thus, if you plan to use dropshipping to extend your business, ensure that your ecommerce platform or OMS is designed to cater for such a business model.
One approach is to use a MACH (Microservices-based, API-first, Cloud-native and Headless) architecture, enabling retailers to respond to market changes quickly and meet changing customer needs.
Consider high cost items
Some products – such as fragile or valuable items that might need additional security – cost more to stock and ship than others. Unless your entire company specialises in these types of products, it doesn’t make sense to pay additional storage and shipping fees for a small subsection of your business. However, you can still keep your customers happy by offering these products through dropshipping.
The risk of overselling
Market fluctuations aren’t always predictable. Having a dropshipping supplier as a backup allows you to avoid raising inventory costs by overstocking to meet unlikely maximums. You can cut costs by stocking up on only the inventory you know will sell, and if an unexpected demand for sales comes in, you can satisfy them with dropshipping.
It’s a great safeguard against the uncertainties all retailers face. It also provides an insurance option for extreme circumstances – if something like a natural disaster happens to your warehouse, you can still fulfil orders by dropshipping the products from elsewhere.
Retail fulfilment of the future
Optimising the online channel has become a top priority for retailers in a post Covid world, especially for those brands that have reduced their store count. Retailers that are able to make all their global inventory online will be the best place to boost sales and minimise margins through achieving an uplift in product availability and reduced stock outs – without having to spend more money on stock.
Utilising a single platform that integrates both inventory and order management will allow businesses to create an enhanced and engaged customer experience across multiple channels. Such platforms should be agile and flexible, in order to allow retailers to integrate innovative fulfilment options that will help to maximise profit margins whilst reducing risk.
Virtual inventories and dropshipping both allow retailers to stock a wider range of products across multiple regions, through multiple channels. They also help to reduce margins by reducing the need to overstock, or outsourcing the stocking and delivering process entirely. These advanced strategies will enable retailers to adapt quickly in line with changing market conditions and demands, allowing them to thrive and survive both on and offline.
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