Why Dropshipping Is Still Worth It in 2022

Meg Donovan

Marketplace strategy and operations @ fabric. Previously at Modsy and FRONTGATE.

March 17, 2022
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Summary
  • The retail landscape is evolving as technology and shopping habits adapt and mature, necessitating changes to the traditional retail model.

  • Dropshipping is worth it in 2022 for both retailers and vendors, though success requires implementing an effective and multi-pronged strategy.

  • For dropshipping to be profitable, retailers and vendors must develop and nurture symbiotic relationships to expand product assortment and increase reach.

  • Platforms like fabric Marketplace help facilitate partnerships between retailers and vendors and offer a flexible and versatile framework to implement dropshipping into an existing e-commerce store or build and launch a marketplace from the ground up.

Dropshipping is a popular and viable means of driving revenue growth and increasing profitability for retailers and vendors alike. In fact, dropshipping is expected to attain a value of $476.1 billion globally by 2026 — an increase of $347.5 billion from 2020 and a CAGR of 32%.

Changes in customer expectations and shopping habits have contributed to retail transformations, especially in the realm of order fulfillment. Resultantly, dropshipping alters the value chain to mitigate logistics issues for both retailers and vendors.

It also lets retailers and brands scale without necessitating significant investment. Rather than maintaining and processing inventory (for retailers) or depending on a cycle of large one-off orders (for vendors), retailers and vendors may instead leverage dropshipping to diversify product lines and partnerships.

But dropshipping isn’t without its challenges, nor does it guarantee increased growth and profitability. Retailers and vendors must develop an effective approach to dropshipping before diving in. The tips below can help streamline the process to determine if — and how — dropshipping is worth it for your business.

Is Dropshipping Worth It in 2022?

Given the continued increase in the dropshipping’s market size, it’s no surprise that dropshipping makes for a lucrative and viable alternative or supplement to the traditional retail model. That retail model — which resembles a burnt turkey — is gone, says Raj De Datta, CEO of Bloomreach.

Changes to the retail calendar have also precipitated different approaches to fulfillment, inventory, and product allocation. The evolving retail landscape also contributes to why mainstay retailers like Crate & Barrel — which, in 2016, launched a highly-curated dropshipping marketplace — have embraced dropshipping as a strategic retail expansion model.

Other retailers have followed or are following suit in entering the dropshipping space. As of 2018, the global dropshipping market was dominated by five product categories:

  • Toys, hobbies, and DIY
  • Furniture and appliances
  • Fashion
  • Food and personal care
  • Electronics and media

In 2019, at least 40% of retailers used dropshipping, with many citing a desire to compete with Amazon. To accomplish this, some retailers and vendors moved to a marketplace model, fusing the benefits of dropshipping with the reach and versatility of a retail marketplace.

With the tumultuous years of 2020 and 2021 behind us, is dropshipping still profitable and worth it in 2022? For many retailers and vendors, the answer is a resounding yes, but care must be taken to overcome the complexities and difficulties of dropshipping as it matures and evolves.

Is dropshipping worth it for retailers?

is-dropshipping-worth-it-retailers

An overview of a typical dropshipping arrangement, in which a customer purchases a product from a retailer that then submits the order to the vendor responsible for fulfilling the order.

Many retailers find dropshipping a worthy endeavor — it’s not a method specific to small businesses or large enterprises. What matters most is a retailer’s approach to and purpose for dropshipping.

In many cases, retailers can excel via dropshipping by focusing on curating their product assortment vs. offering everything but (or even including) the kitchen sink. To accomplish this, retailers may want to consider emulating aspects of brands such as The Citizenry, which carefully and purposely curates its product assortment based on country of origin, style, and quality.

Or, in lieu of a curated model, retailers can rely on cultivating an expansive vendor network. This is the path taken by Overstock.com, which leverages relations with more than 3,000 vendors to dropship about 90% of its products. Even when discounting its revenue in 2020 due to the pandemic (in which the retailer pulled in $717.7 million), Overstock.com’s Q3 2021 revenue increased by 102% compared to Q3 2019.

Dropshipping doesn’t need to make up the entirety of a retailer’s business model, either. Consider Joybird, which used dropshipping to pair its bread and butter — the design, manufacturing, and distribution of its own branded products — with complementary products that fulfilled customers’ preferred aesthetic and needs.

This mimics the path being taken by retailers like Macy's. Reinforcing the traditional inventory and fulfillment model with the expansive assortment provided by dropshipping can eliminate some of the risks from stocking inventory while maximizing revenue potential.

Tips for making dropshipping profitable for retailers

Maximize your dropshipping revenue by implementing the following tips for your brand.

  • Identify your partners: Partner with vendors and suppliers that fit into, complement, and expand your product assortment, as exemplified by retailers like Crate & Barrel and Joybird.
  • Attend trade shows: Strive to attend a variety of trade shows — big and small — and make an effort to visit areas off the beaten path, including temporary booths or areas dedicated to new or emerging suppliers.
  • Vet vendors and their products in person: Meet with potential vendors and have personalized conversations with them to understand their business, products, market, and fulfillment capabilities.
  • Partner with a sourcing platform or sourcing agent: Maximize your time and investment by partnering with a platform like fabric Marketplace that can help you identify and connect with relevant vendors, speeding up your growth and minimizing leg work.

Is dropshipping worth it for vendors?

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An overview of the different methods through which vendors can sell their products beyond the traditional retail model, including direct-to-consumer (D2C) via branded online and physical stores or via dropshipping through partnerships with retailers and marketplaces.

Dropshipping isn’t just a benefit to retailers. Vendors are in the sales business as well, even if their buyers are more often brands rather than end consumers. Naturally, this echoes many of the same challenges and difficulties faced by retailers in that vendors must maintain inventory, fulfill orders, and market their products.

But the limitations of each can result in vendors sitting on inventory — which affects their spoilage rate — and makes it difficult for vendors to respond to consumer trends or introduce new products to their assortment.

Dropshipping can help vendors mitigate these risks. By developing strong dropshipping relationships with retailers, vendors can move more inventory faster and test new products since multiple retailers are selling the vendor’s products, rather than the vendor relying on large-scale orders from a limited number of retailers. In this way, vendors fulfill a third-party logistics (3PL) role.

Cuisinart implemented this model through a multi-pronged approach: it sells its products direct to consumers through its e-commerce site, makes its products available to retailers via dropshipping, and lists its products on marketplaces like Amazon and Walmart.

Other vendors have fused dropshipping and marketplaces, too. RevolutionParts, a vendor that sells OEM vehicle parts from its network of dealers and manufacturers, is partnering with Walmart to begin dropshipping products through the retailer’s marketplace, expanding its base to reach more customers — or those already comfortable with Walmart’s existing marketplace.

Additionally, successful logistics companies are interested in expanding their fulfillment capabilities and reach by acquiring vendors with established dropshipping networks and processes, as was the case with Amware Fulfillment’s early 2021 acquisition of Moulton Logistics.

Tips for making dropshipping profitable for vendors

Dropshipping is highly successful for vendors that leverage their existing capabilities and fulfillment networks by following these tips.

  • Partner with retailers who are already dropshipping or have an established customer base: Building a relationship with a retailer already familiar with dropshipping or that has an established e-commerce customer base lets you move inventory faster, increasing profitability and reducing the likelihood of sitting on dead stock.
  • Use dropshipping to experiment: Because dropshipping doesn’t require a large amount of inventory, it’s an excellent avenue to test new categories and styles of products. Leverage your connections with retailers to introduce and gauge interest in new products without requiring significant amounts of inventory.
  • Get listed on a sourcing platform or work with sourcing agents: Help retailers discover your business by adding it to relevant sourcing platforms and databases and connecting with sourcing agents.
  • Mix selling capabilities to expand your reach and customer profile: Maximize your dropshipping profitability by exploring D2C, working with dropshipping retailers, and listing products on a marketplace platform like fabric Marketplace.
Meg Donovan author Marketplace strategy and operations @ fabric. Previously at Modsy and FRONTGATE.

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