Lower Risk When Testing Products with Dropshippping

Dropshipping is gaining momentum as streamlined supply chains become a significant competitive advantage in the home furnishings industry. Integrating dropshipping into furniture retail operations for vertically integrated retailers and those with traditional supplier relationships can have transformative benefits for retailers and manufacturers, making it an attractive model for both parties. This logistical strategy empowers streamlined fulfillment with reduced overhead for retailers while expanding product offerings with significant flexibility.

While often presented as an exclusive strategy for online retailers, the advantages of this fulfillment alternative for brick-and-mortar retailer businesses should not be overlooked. Dropship orders can be processed from a retail showroom, on an eCommerce website, or via third-party marketplaces or social media channels.

With all its advantages, let’s dive into what exactly dropshipping is.

Dropshipping is a supply chain management practice where retailers sell merchandise they do not own or stock in their warehouses. Instead, the retailer acts as the sales and advertising arm in this supplier relationship. Upon selling merchandise, the purchase order is directly transferred to the vendor, who is responsible for shipping or delivering the goods directly to the customer. The manufacturer then retroactively invoices the retailer for the sold goods. If a retailer is vertically integrated, their manufacturing arm can fulfill the order directly.

Dropshipping differs from traditional retail logistics, where a retailer orders a quantity of product from the manufacturer, purchases and pays for the goods, takes possession of and stores the merchandise, often before sales are written.

Another rising use of dropshipping is to aid home furnishings and appliance service departments. This method of procuring parts for service can expedite the ability to start service projects, leading to a better customer service experience. Retailers can send parts directly to a customer’s home for in-home service repairs or to a third-party service provider they are contracting with.

Pros of Dropshipping for Retailers

• Free Cash Flow

  For operational leaders seeking to streamline costs, dropshipping significantly lowers the upfront investment in inventory. In this model, the retailer never takes possession of the inventory. This reduces risks associated with purchasing potentially slow-moving products or unproven product lines, all while freeing up accessible cash flow.

• Reduce Overhead

  By eliminating the need for excess warehouse space, retailers can downsize fulfillment centers and save physical costs. Home furnishings, appliances, and mattresses are large-footprint items, meaning inventory overhead has an outsized impact on the square footage needed. Dropshipping is an ideal strategy for offering an expanded assortment without the upfront investment.

• Enhance Scalability

  Retailers can sell more products with fewer staff, space, and cash flow constraints, which can effectively scale revenue growth. Retailers can also allocate team resources more efficiently, focusing on core business activities such as marketing and customer engagement.

• Widen Markets

  For startup retailers, leaning into this model can help you test business concepts before making significant real estate investments. Likewise, retailers can expand into urban markets or smaller concept stores using dropshipping to maintain their product depth. This opens up avenues for store expansion and widens the markets retailers can serve.

• Test Product Lines

  Dropshipping is also an excellent option for testing new product lines before bringing them on as stock collections. This enables the retailer to gauge interest in various products or experiment with new trends while lowering risk. They also gather performance data to inform future buying decisions

• Remain Nimble

  In recent years, supply chain issues due to various global challenges have impacted furniture retail operations. Retailers can pivot by sourcing from different geographic markets. Even if dropshipping isn’t your primary fulfillment strategy, leveraging technology that can facilitate direct shipments in cases where it’s most efficient to fulfill backorders or custom special orders is ideal for flexibility.

The Role of Technology in Dropshipping

• From an inventory management perspective, dropshipping alters the fulfillment process compared to traditional stock inventory models. Rather than managing inventory levels and forecasting demand, retailers focus on efficient order processing and customer service. This shift minimizes inventory carrying costs and reduces the risk of overstock or obsolete inventory. However, effective coordination between retailers and manufacturers is critical to prevent miscommunications regarding availability and ensure timely order fulfillment.
  
  
• Retailers must seamlessly sync product data, customer data, fulfillment addresses, order details, and phone numbers to the manufacturer. Conversely, shipment tracking numbers must be returned to the retailer to close completed business and manage commission on delivered business.
  
  
• Electronic Data Interchange (EDI) solutions are ideal for dropshipping as they automate vendor communications, reducing manual errors and enhancing efficiency. This helps seamlessly track associated purchase order numbers and PO acknowledgments, which are vital to this relationship.
  
  
• Upon selling a product, software must autogenerate a purchase order. It is imperative to track the costs incurred after the sale. When this is directly tied to your accounting system, retailers can manage open liabilities on invoices that result from direct-ship sales orders since the goods are not prepaid. The software can maintain a running balance of invoices for a vendor to maintain a good-faith relationship.
  
  
• Technology is also pivotable to calculating sales tax. Using dropshippers can expand retailers to new tax jurisdictions outside their typical selling market. This is true if sales tax is based on the shipment location or point of possession vs. the point of sale state location of the merchandise. A retailer’s point of sale software can appropriately calculate and segment taxes for dropship products and their jurisdiction to ensure tax compliance.
  
  
• Finally, data analytics enable retailers to glean insights into customer preferences and market trends, empowering strategic decision-making and optimization of product offerings. This can include fully investing in high-performing dropship SKUs or categorical directions.

By leveraging dropshipping as a fulfillment tactic, home furnishings retailers can reduce inventory overhead, expand product offerings, and improve scalability. Manufacturers, in turn, gain access to new markets and optimize distribution channels. Through collaborative partnerships and advanced technology, dropshipping can drive retail innovation and growth in the furniture industry. Fill out the form or engage with our bot, TechXpert, to auto-book your product tour today.

Reduce Overhead with Dropshipping

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