Oversaturated or Viable? Inside the World of Dropshipping | Feature

Written by Harry Chen ‘22

With the advent of the internet and the popularization of smartphones, commerce has been completely revolutionized. While brick-and-mortar businesses still have a place in today’s economy, the rise of Big-Tech companies such as Amazon and eBay are a testament to the profitability and power of e-commerce. Consumers can now make purchases worldwide in a matter of seconds, without ever stepping foot in a store or physically making a transaction. The unprecedented accessibility and sky-high ceiling for e-commerce have led many to turn to dropshipping. Dropshipping is a popular business model for e-commerce that allows businesses to sell products without keeping inventory or worrying about order fulfillment. For example, say you’ve found a supplier for an intriguing product. The product costs $50. You build an online store to sell it at a price of $60. With every order, you would receive $60, $50 of which you would give to the supplier, who handles the distribution and the backend of orders. The drop shipper, thus, is simply a middle man.

In 2018, the global dropshipping industry was valued at 102.2 billion USD, and it is expected to register a Compound Annual Growth Rate (CAGR) of 28.8% from 2019 to 2025. The market seems to be largely untapped, and with the perceived ease and flexibility of dropshipping, many have turned to dropshipping as a get-rich-quick scheme on the side. The idea that anyone can start an online store for no cost and quickly be making enough in passive income to pay the rent is intriguing indeed, but does this idea have some truth to it? Well, the answer is yes… but no.

Dropshipping can be highly lucrative—that is true. But is it easy? Not necessarily. For starters, while the potential for dropshipping seems to be limitless, in reality, the market often feels crowded and oversaturated. It can be hard to find a profitable niche to capitalize on because of the sheer number of people looking at drop shipping as a quick and easy source of passive income. Furthermore, like every other business model, dropshipping has its advantages and disadvantages.

Perhaps one of the dropshipping’s greatest strengths is the low upfront cost associated with starting your business. While traditional brick-and-mortar businesses require substantial amounts of upfront capital investment, dropshipping is less demanding. Compared to traditional business expenses, the cost of running an e-commerce store is low. And with platforms such as Shopify, Wix, and Squarespace, anyone can set up a store in a matter of minutes for little to no cost. Even as you scale your business, your expenses will mostly consist of advertising costs. Another advantage of dropshipping is simply the amount of freedom that it grants. Because a third-party supplier manages order fulfillment and inventory, you can focus simply on customer acquisition and finding a selling product. In the age of Aliexpress, this is made a lot easier. However, many of dropshipping’s greatest strengths are also its greatest weaknesses.

While dropshipping grants an unprecedented amount of freedom to sellers, this freedom comes at a cost: you are very dependent on your distributor. You have no control over inventory or shipping times, but your brand image is always on the line—just one bad review can ruin your business. Customer service is vitally important in e-commerce, but frequently you feel like a sitting duck. And thanks to Amazon Prime, consumers now expect lightning-fast delivery—something that is hard to match as a drop shipper, especially when you’re just starting out.

While dropshipping grants an unprecedented amount of freedom to sellers, this freedom comes at a cost: you are very dependent on your distributor. You have no control over inventory or shipping times, but your brand image is always on the line—just one bad review can ruin your business. Customer service is vitally important in e-commerce, but frequently you feel like a sitting duck. And thanks to Amazon Prime, consumers now expect lightning-fast delivery—something that is hard to match as a drop shipper, especially when you’re just starting out.

Graphic by Elton Zheng