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The drop shipping business model allows you to list and sell products that you haven’t bought yet so you effectively don’t need start-up capital for inventory. When you sell an item, the supplier will deliver straight to the customer. Simple. So why then is it so hard to get right here in SA? Here are our five shortcomings of drop shipping in South Africa.
With the US customer base being so much larger than the SA potential number of customers, it seems like a no brainer to sell your products to US-based customers. Theoretically you could do this with your stock in SA or even stock based anywhere around the world. The two challenges here are:
The next appealing avenue is to set up suppliers in the East so you can list their products on your site and arrange deliveries straight to your SA customers as orders come in. In order to keep the cost low and to make this business case work, you need to ship the parcel via China’s local postal service who hand it over to the SA postal service. This is where this option falls over, with delivery times (if there is a delivery at all) taking up to 70 days. As you can imagine, your customers won’t want to wait this long, and they wouldn’t want to receive the parcel by courier to get it quicker as the cost of doing so is far too high.
The SA pricing laws dictate that wholesalers cannot tell retailers what price to sell an item at. This means that big wholesalers who have built long-standing relationships with all the big chains wouldn’t be able to stop a drop shipper from undercutting their biggest retail partners. This will damage their relationships and lead to a price war, ultimately damaging the big brands which are so valuable to them.
In international markets there are systems already in place which connect wholesalers’ inventory directly to the drop shipping websites, and there is even backward integration so that orders placed on these websites are automatically sent to wholesalers so that they know to create an invoice and dispatch the item. This works seamlessly overseas but is yet to be perfected in our own market. If your supplier is running Stock2Shop, they can push the products into your website which is fantastic.
As drop shippers aren’t investing money into inventory, many wholesalers give their drop ship sellers greatly reduced margins because the wholesaler is carrying the risk on the stock. In the US, many sales leave the drop shipper with 3 – 5% profit margins. Thin margins only work when you are doing massive turnover but our local market of potential customers is much smaller than that of international markets.
It’s not all doom and gloom though, as we are working with several SA-based companies who are aiming to improve the drop shipping market locally to help more entrepreneurs to be able to start and grow their online businesses. If you would like to get updates about the drop shipping opportunities in SA then join South Africa’s biggest community of eCommerce entrepreneurs by searching for “Insaka eCommerce Community” on Facebook.
About Guest Author: Warrick Kernes
Serial entrepreneur with 12 years' eCommerce experience in South Africa and Europe. Winner of London’s 2009 Young Businessman of the Year Award. Founder of the SA award-winning online store Action Gear (founded 2010, exited 2018). Guest lecturer on eCommerce at WITS Business School to MBA students and he has also talked on eCommerce for JP Morgan (S&P 500).
Warrick is a regular contributing author for Entrepreneur Magazine and in 2018 he published his book on South African eCommerce. He also sits on the Education Committee for the eCommerce Forum Africa. In 2017 Warrick founded the Insaka eCommerce Academy and is now dedicated to growing SA’s eCommerce industry.
Warrick has used the services of Stock2Shop for many years for his businesses, and recommends them to both his students and his consulting clients.
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