What is Drop Shipping and What Does It Mean for You?

More online retailers are getting into this method of fulfilling orders. Unfortunately, it could make your favorite products more expensive.
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Odds are, when you shop at your favorite online stores, you're probably not thinking about where your items are coming from. Recently, more retailers are starting to use drop shipping — meaning they're giving up control of some customers' orders.

This fulfillment method allows retailers to offer more products on their websites, but many of those items ship directly from the supplier (instead of the retailer itself). Unfortunately, this can lead to less reliable shipping and higher costs for customers.

More Inventory (at a Cost)

Macy's and Home Depot are just two retailers who jumped aboard the drop shipping train early. This allows retailers like them to offer more items online, but without the need to actually keep them on hand in a warehouse. Instead, the suppliers, who would normally ship the products to the retailer to be sold, keep the inventory. When a customer orders something, it ships directly from the supplier instead.

A big problem with drop shipping is that products can end up being more expensive.

It's an arrangement that could make things more efficient for retailers, and many are making a move to employ this shipping method in 2017, including Pier 1 Imports and Shoe Carnival.

Sadly, a big problem with this fulfillment method is that products can actually end up being more expensive. Retailers can offer something like a sweater in more colors, but doing so means they pay more for the products overall, due to more complicated logistics. That cost then ends up getting passed on to the customer. More choices are great, but customers end up paying more just for access to that bigger selection.

Possible Customer Service Headaches

While a retailer might have excellent customer service, that doesn't mean the supplier does. In order to utilize drop shipping, "retailers must hand control over key parts of their supply chains to third parties, including inventory management and shipping." Orders will come straight from the supplier, but the shipping and tracking info tends to come from the retailer.

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Of course, when something goes wrong, customers are more likely to contact the retailer first. Nikki Baird, the managing partner at Retail Systems Research, LLC, claims that it boils down to "a big trust issue" for retailers. Handing over the reins to a third party means "the retailer then doesn't have control or visibility as to how that process is going." It's easy to see how a setup like this could mean that any problems with your order may take even longer to resolve.

Update: As reader PapaT pointed out on our Jet.com article, third-party shipping headaches can get truly ridiculous: "I bought two toilets and only received the tank on each. Well, Jet was just a middle man and the process to get a refund took weeks."

The reader had to ship the product back to the supplier via FedEx, but the supplier refused to accept the delivery. "In the end, I went through four customer service reps and had to watch the FedEx tracker and call the final rep when the toilets were in the city the [supplier] was located. Then the Jet rep contacted the [supplier] to tell them to accept the toilets." Because of all this trouble, the reader says they'll probably never shop Jet again.

Readers, is it worth it to you to have more choices at your favorite online stores, even if it means less reliable shipping and higher costs? Let us know in the comments below!

Julie Ramhold
Senior Staff Writer/Consumer Analyst

Julie's work has been featured on CNBC, GoBankingRates, Kiplinger, Marketwatch, Money, The New York Times, Real Simple, US News, WaPo, WSJ, Yahoo!, and more. She's extolled the virtues of DealNews in interviews with Cheddar TV, GMA, various podcasts, and affiliates across the United States, plus one in Canada.
DealNews may be compensated by companies mentioned in this article. Please note that, although prices sometimes fluctuate or expire unexpectedly, all products and deals mentioned in this feature were available at the lowest total price we could find at the time of publication (unless otherwise specified).


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I think the real benefit of "free shipping" is a clearer price. Few things tick me off more than seeing an advertised or posted price, only to discover there are "additional fees." (Airlines, hotels and cell phone carriers are prime offenders.) This makes comparison shopping extremely difficult. Taxes are less offensive because they *should* be the same regardless of who I buy from (I realize that's not always true).
yeah, "free shipping" really doesn't exist. i mean, i guess it sort of can, if something doesn't normally ship free, but they have a special sale where shipping is free, and all else being equal, you could then call it free....

but as for the places that always have free shipping, nah, it is just built in. i remember a mustang specialty shop i would order from, but pick up in person, because it is nearby, and they would give me a discount for picking it up... so, while i appreciated the discount... that pretty meant much meant shipping wasn't free for everyone else.
I had an experience similar to the one PapaT had that you mention in your article but with Home Depot. I ordered a shower door that had to be shipped from a 3rd party that arrived shattered the first delivery go around. I really wanted the shower door and Home Depot gave me 10% discount the second go around so I reordered. This time the trailer that the shower door was on somehow got "lost." I found it in a shipping yard in Texas after 15 phone calls. It had sat there for a week. I alerted Home Depot to the location and status of the trailer and they promptly got the door to my local store where I picked it up. I also got another discount.

I'm not upset about the shipping incident. I figure it was a fluke. I'd order from them again. (Home Depot & the 3rd party) Everyone in the supply chain was helpful and responsive to get me my shower door. In spite of all the problems, this was still a better experience than some of the ones I have had with Best Buy.
Amazon has been doing this for a while. When ordering products it tells you "fulfilled by". Some items are not "Prime Shipping" eligible from some 3rd parties.
I'm sorry Julie, but do you believe companies actually offer "free" shipping? That expense is just built into the retail price of the product somewhere in the process. The ability to offer items that the company does not have to buy and store allows them to offer it at a lower cost. What this does do is allow smaller companies the ability to sell items on a larger company's website without having to place product in every store. When it come to variety, I have no need for pink appliances, but it wouldn't surprise me it that was a direct from vendor option.