Recently, CNBC put out a Youtube video talking about how Shopify dropshipping works. A lot of comments go like this “A mainstream media talks about dropshipping. Now, everyone knows about this business model. Dropshipping is dead.”
We’re not here to judge people on what they can say. However, is it true that dropshipping would be dead, even if everyone in the world knows about it?
In this post, we’re going to address the question with statistics and facts. By the end, you’ll be able to decide for yourself whether dropshipping is dead or not.
What Really Is Dropshipping? You Probably Understand It Too Narrowly!
If you land on this post, we believe you already have a general understanding of what dropshipping is. However, do you really understand it properly?
Let’s first revisit what dropshipping really means.
Dropshipping (or drop shipping) is a fulfillment method in which a retailer sells a product without owning it. Instead, dropshippers purchase their buyers’ orders from another retailer or directly from a manufacturer. Then, they let those third parties handle the inventory, packaging, and shipment process to customers.
So, dropshipping, at its core, is not a business model. It started merely as a method of order fulfillment and has been around for the longest time. Until recently, people define it as dropshipping and see it as a business model to make money.
Most beginners think of dropshipping as buying cheap products from China (usually through AliExpress) and ship them to other countries. However, it’s only one way to do it. Many US/EU companies produce and source products in their own warehouses and allow for dropshipping. You can easily find and contact them through services like Spocket.
Dropshipping, Print-On-Demand, And Amazon FBA
If you really think about it, other business models like Print-On-Demand and Amazon FBA are also dropshipping.
With Print-On-Demand, your customers’ items are printed as soon as an order is made and fulfilled by the companies that offer the service. Your entire job is to come up with a design for shirts or mugs and start promoting them. Similar to dropshipping, you mark up the price to make profits.
In the case of Amazon FBA, you hold your inventory in Amazon’s fulfillment centers. If a customer orders your item, Amazon starts picking, packing, and shipping it to the customer. Again, your primary job is to promote your products. The only real difference here is that your products can be shipped faster to your customers. However, you have to buy a large inventory beforehand, which can cost you a lot of money.
At this point, to reply to the question “is dropshipping dead?”, you might have the answer already. But, we still want to expand on this question in more detail. Stay tuned with us a little bit longer!
Why Do So Many People Ask The Question “Is Dropshipping Dead”?
There’re couple of reasons why so many people ask the question.
First, many beginner dropshippers believe “dropshipping experts” stating that they make thousands of dollars per day on autopilot by dropshipping. Beginners take the bait and have the wrong impression that it would be a piece of cake to make money.
In fact, these internet gurus only try to sell their $99 dropshipping courses with some of the most basic knowledge you can easily search for. In the past, we actually took multiple courses, hoping to find gold, and ending up disappointing with no results.
Beginner dropshippers make the same mistakes. Take a 10-hour course, create an online store, run some ads here and there, and achieve nothing. Then, they blame the dropshipping model is dead.
Second, e-commerce giants like Amazon, eBay, or Walmart grow at a fast pace, making individual online stores seem irrelevant. To some extent, this is true. But it’s not the entire picture. Continue reading, and you’ll find out why.
Third, many dropshippers get banned for seemingly no reason by payment processors and advertising platforms like Facebook or Google. This further reinforces the idea that the model is dead. Again, it’s true that it’s easy to get banned doing dropshipping. But, we’ll explain why some get banned and some don’t in a couple of next sections.
Dropshipping Statistics And Facts
According to Grand View Research, the global market size for dropshipping was around $102.2B in 2018 and is expected to reach $167B in 2021. This growth is attributed to the rise in preference for online shopping, the increasing trend of cross-border trade, and how smartphones have revolutionized online shopping.
Below is the trend graph for the Asia Pacific dropshipping market.
Along with the rapid growth of dropshipping, major e-commerce companies are also expanding their infrastructure to provide dropshipping services. For example, in 2017, Shopify acquires the dropshipping service Oberlo. This allows the company to hold a competitive position as one of the biggest e-commerce platforms on the internet. Other major global players are eBay, WooCommerce, BigCommerce, etc.
How Dropshipping Stores Are Doing
Before answering the question “is dropshipping dead?”, let’s look at some of the best dropshipping stores and see how they’re doing.
Founded by Ben Francis in 2012, Gymshark soon became one of the fastest-growing fitness brands in the world. In 2018, the company generated over $128M. Nowadays, Gymshark has an amazing social media following and generates hundreds of millions of dollars in sales each year.
However, little do people know that the company actually started as a dropshipping store, selling supplements from other retailers. Ben said that he couldn’t afford to hold inventory at the time the company was just founded.
Once the company had made decent money from dropshipping, he gradually moved away from the model and went on to create his own products.
Actually, if you do a back-end check on the store, you can see that it uses Oberlo – one of the best Shopify dropshipping apps. It means that some items on Gymshark are still dropshipping products.
Another big name in the market that uses the dropshipping model is Daily Steals. Unlike the constant growth of Gymshark, Daily Steals went through a big crisis in 2015. As the CEO Ishai Reinfeld described, logistics were a mess, packages weren’t being shipped to customers, and he was threatened legal action. At some point, he had to shut down the site completely.
However, by re-intergrating with the best dropshipping tools, along with a renewed focus on customer service, suppliers, and Klaviyo email marketing for Shopify, Reinfeld was able to bring back the dropshipping store from the edge of death. Daily Steals now generates nine figures in sales each year.
Inspire Uplift seems to be the most famous and obvious dropshipping store on the internet. Founded in 2015, the site is a general store with over 700 products across various categories.
There is little information about Inspire Uplift we can find. However, it is estimated that it generates around $10M per month.
The store constantly tests new ad creatives to find winning dropshipping products and the best dropshipping niches. If Facebook and YouTube Ads are your primary traffic sources, you should use ad spy tools to inspect Inspire Uplift and get inspired.
Is Dropshipping Dead Because People Can Simply Buy Products Directly From AliExpress?
AliExpress is an online eCommerce website owned by Alibaba Group. Offering worldwide shipping and a wide variety of goods at a very low price, it has become one of the best dropshipping product research tools for many beginner dropshippers to find or even source products.
So, the real question here is why don’t customers buy directly from AliExpress instead of dropshipping stores? There are two main reasons for that.
First, not everyone knows about AliExpress. In fact, if we weren’t interested in the dropshipping business, we probably wouldn’t know about AliExpress ourselves.
Secondly, some customers know about AliExpress. But, they don’t feel comfortable buying products from the site. Or, they don’t want to spend time searching for the exact item they saw a minute ago. If you make your store stand out and provide great customer service, it’s natural that people will buy from you instead of AliExpress.
Is Dropshipping Dead Because Of Amazon, eBay, Or Walmart?
Another reason why people think dropshipping is dead is because of the rapid growth of e-commerce giants.
In reality, items on Amazon, eBay, or Walmart are usually priced higher than other online stores and retailers. This is due to the cost of transportation, warehousing, and taxes.
On the contrary, platforms like AliExpress consist mostly of manufacturing companies, meaning that products are priced without factoring in intermediate costs. Taking advantage of this will allow you to provide products much cheaper on your dropshipping store than Amazon, eBay, or Walmart.
Another reason why people don’t buy products from e-commerce giants is that not everything is sold there. Or, to put it more accurately, not every design of a product can be found. For example, a T-shirt style, a color variant of a mug, a specific design of necklaces, etc.
Payment Processors Don’t Like Dropshipping. Is It Really True?
It’s easy for dropshippers to promote their products or services misleadingly. For example, customers can be lured into buying fake items. Or, they might experience absurdly long shipping times, resulting in high chargeback rates.
As Stripe – a well-known payment processor – has noted: “Some types of businesses attract more fraud than others; others accidentally or deliberately mask the origin of funds, making them an easy venue for illegal dealings. Businesses in these categories are not inherently problematic but might need extra scrutiny or extra help in preventing fraud.”
In short, although payment processors don’t like dropshipping, they might allow it if you have sufficient proof that your business provides exactly what you’ve promised your customers.
Facebook And Google Don’t Allow Dropshipping. Is It Really True?
In Facebook Advertising Policies, there is no explicit mention of dropshipping. In fact, you’re allowed to promote dropshipping products as long as you don’t violate its policies, especially the one on misleading claims. Also, Facebook allows users to submit reviews after a couple of weeks of buying products from Facebook ads. If your dropshipping ad gets too many bad reviews, Facebook might suppress your ad delivery or even ban you from advertising on the platform. Therefore, pay as much attention as possible to customer service.
Similarly, Google doesn’t explicitly say anything about dropshipping. According to Google Shopping Ad Policies, as long as you don’t deceive customers, you should be able to advertise on the platform. Additionally, Google actually has an article on How to use Google’s dropshipping solution for cross-border selling. It further proves that it allows dropshipping.
Would Dropshipping Be Dead Because Customers Know About Dropshipping Stores?
Most dropshippers are scared about customers knowing their store is dropshipping. They think that it would seriously hurt their store reputation. Worse yet, customers wouldn’t buy products from them ever again. As a result, their dropshipping business would be dead.
That is rational thought. After all, buying low-cost stuff and mark up the price seem deceitful, even though that’s how nearly every business model in the world operates.
However, do customers really react that badly when they know their favorite store is dropshipping? Let’s look at a Reddit post below about a customer buying products from NoteBookTherapy.
Even though she knows NoteBookTherapy dropships some items from AliExpress, she doesn’t mind buying its exclusive Tsuki collections. Regarding long shipping times, another person comments that she can be patient waiting for items to arrive.
So, the actual reaction of customers on dropshipping stores is not as bad as you might think.
In Conclusion, Is Dropshipping Dead?
Dropshipping is definitely not dead. And it would not go away anytime soon. The business is simply getting harder because of competition not only from e-commerce giants like Amazon but also other young aspiring entrepreneurs looking for ways to make money online.
Additionally, customers are getting smarter about where to buy products, especially when the dropshipping business becomes more and more popular.
The only way you can start a successful dropshipping business nowadays is to provide customers with real value and great service. In that way, you can justify your products’ price with what you promise to bring to your customers.
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