Let’s face it, no retailer’s marketplace will be able to compete with Amazon (or Walmart) when it comes to general assortment size. It’s also very difficult to compete in terms of shipping costs, membership perks, and delivery speed. So what other value prop can retailers who are considering opening a marketplace offer their consumers?
In-house solutions can incur a lot of overhead to build and maintain, meaning costs can quickly skyrocket past any potential savings. Additionally, homegrown systems often aren’t as agile as partner solutions and can soon grow out of date without large, continual investment. Finally, since such solutions are customized for the retailer that builds them, trading partners incur significant overhead to make their own systems compatible.
Expanding your drop ship ecosystem can take a lot of time. Getting trading partners to agree to drop ship, onboarding them, and finally going live can take anywhere from several months to over a year per partner. This raises opportunity costs, hampers your ability to quickly expand assortment, and increases inventory risk when you’re forced to rely on wholesale buys to access the products you need.
Inventory has always been one of the biggest risk factors for retail. Even the best case scenario for unsold items involves significant markdowns and/or selling to off-price retailers to recoup initial investment. Just a few quarters of sales disruptions (like some retailers are experiencing with COVID-19) can lead to bankruptcy as capital remains frozen within unsold inventory and revenue dries up. Ascena and Brooks Brothers are facing that grim reality right now.
Without robust omnichannel programs, retailers have less assortment, sell less of their inventory, and offer much less customer choice. All of which translates into lower growth and revenue. And yet building a scalable omnichannel program is a labyrinth of financial, technical, and multi-team challenges that can quickly turn into a money-pit with little or no growth to show for it.
Drop shipping is not just another distribution method but an entirely different way of doing business that involves the integration of suppliers and retailers into many of the supply chain roles that are typically kept separate in wholesale. Despite its many advantages, therefore, drop shipping also has a lot of unique and complex challenges that must be navigated correctly in order to function at peak efficiency.
Check Out Our Guest Post on Shippo’s blog: Five Most Important Metrics for Monitoring Supply Partner Performance
Read the full post here.
In the coming year we’ll be adding some cool data features to the Dsco platform that will allow trading partners to not only access such data but perform just these types of correlations with their own data in real time to tackle issues such as excessive upgrades, late shipments, and cancellations.
The Power of Supply for Digital Marketing, Part One – Four Supply Woes that are Digital Acquisition Killers
If your performance marketing team isn’t pushing you for intelligent assortment and significant visibility to inventory, they are missing out on a step-change in their ability to allocate budget. Better quality differentiated assortments along with rich item data not only improve conversion rates but also have excellent value for building first-bid predictive models (more on that at a future date).
The Power of Supply for Digital Marketing, Part Two – Four Steps of Inventory Visibility to Lift EBITDA and GMV
This concept doesn’t just apply for seasonal offerings, it works for any product where demand is high and restock may have some latency. Where this is happening, having good supply partners who are 1) telling you restock timelines systematically and 2) are willing to drop ship from factories to bypass the full truck route, will make these sellout momentum playbooks smarter.