Inventory costs money. Money tied up in products that, if they don’t sell, will go bad, get shop worn, undergo shrinkage and generally block growth because the money in them isn’t being used productively somewhere else . Customers don’t flock to your store because you have stuff in the back somewhere, they come because you have the stuff where they want it… right out front, ready to buy.
The idea of no inventory – which zero gravity commerce implies – is so appealing that much of the online world has rushed headlong into drop shipping. You build a store, fill it with products, collect the money and have it shipped right from the source to the customer. It’s a no-brainer, a sure-fire investment. So much so that there are endless ‘turnkey’ website solutions where you can have your own genuine [Your Brand Here] website selling an array of tasty products just like the big boys. Try searching for ‘drop shipping’ and see what comes up.
Entire e-commerce ecosystems have been built on the drop shipping model. Like anything else where you get something for nothing, someone is getting you in exchange for their efforts. If the product is free, you are the product. But it’s gone past that now – because drop shipping isn’t free. Imagine you sign up with a big web store outfit. They have a stable of drop shippers for you to choose from. You build the site, market the product (you can pay them for that, too), acquire the customers and they fulfill the orders. It’s a beautiful thing because you don’t have to tie up capital in inventory, just pay for what you sell… and all is gravy. A lightweight feeling, zero gravity. Which it would be, except that you pay a per-transaction fee, fees for the website, plugins, add-ons, card processing, advertising credits, the list goes on. And you pay dealer price for the product.
What’s a dealer price? In the old days, we used to talk about wholesalers and retailers, jobbers, dealers and so on. Basically, manufacturers sold to wholesalers who sold ultimately to retailers. You couldn’t just walk in and buy ‘wholesale’ – you needed the cred – big bucks, a wholesaler number in some jurisdictions and so on. Before the interwebs it was a tidy system that kept a lot of folks out of the business, keeping prices high for the end user. Gradually, depending on the industry, additional levels crept in. So the real wholesaler sold to a jobber (who bought ‘job lots’), this guy sold to a dealer, and they sold to you, Joe Public.
This system still exists. The outsider trying to get in, the guy signing up for this wonderful new web store, is led to believe that those drop shippers are selling to him wholesale. Well, it ain’t so, Virginia. The very fact that the ecommerce provider – the outfit that sells you the store, the credit card processing and access to the drop shippers – is mixed into the middle of this should tell you that they are one of the layers on the way to you. Here’s how it works: factory sells to wholesaler, wholesaler sells to (or through) the web store service, you buy, then you re-sell. It doesn’t matter in this scheme who owns the stuff at any point in the scheme. What matters is the mark up at each stage.
Now, this is a simplified view. For a real product, there may be more layers to this onion. But remember that when you sign up with [giant ecommerce provider/market place/shopping cart] you are way out from the profit core. Most of the money has been made before this gets to you. You might sell to Joe Public at a reasonable markup if you were the only guy selling this stuff.
But… you’re not. Because the barrier to entry (read: up-front investment) to get into drop shipping this way is pretty small, there are plenty of folks interested in trying their hand at this game. And the ecommerce provider pushing this scheme has every interest in getting as many online stores set up selling this stuff as possible because they get paid coming and going, from you and from the drop shippers (who they may even own, but that doesn’t matter to you, except to underscore how badly you’re going to get hosed doing this). Living on the outside of the onion, the markup layer – your profit – is very thin indeed.