Europe is not ready for drop-shipping

2012 October 26

I heard about drop-shipping for the first time a few months ago, when I stumbled upon an AMAA on Reddit with some guy claiming he was making $100k per month running drop-shipping websites. This guy also apparently verified the information with some mods of the AMAA sub-reddit, and provided a short introductory guide to drop-shipping that he later removed. Lucky me, I also bookmarked the link to the guide when I bookmarked the AMAA, here is the guide he made. The guide includes, at the very end, a list of the companies that he is using for his marketing. Some comments on Hacker News about this AMAA said that this looks like a scam aimed at promoting those companies.

After reading the post on Reddit, I started to look into drop-shipping as a possibility for creating a small business that would generate small but steady revenue. I already explored other options, as documented in a previous blog post about micro-ISVs. Here is what I found and what I think about drop-shipping.

What is drop-shipping

Drop-shipping is simple: you work with wholesalers, and every time you sell a product to a customer, you call your wholesalers, and tell them to ship this product to the address of the customer. The difference between the price you charge the customer and the price you pay the wholesalers is your revenue. I also learned about private label products, which mean that a company packages its own products under your brand, for you to sell in your own shop. This is the ideal solution for a drop-shipping business, as you can sell products under your own brand and grow that brand, instead of just being a proxy for the development of another company’s brand.

The typical internet drop-shipping website is just a product listing page, and connects directly to the inventory of the wholesalers. The main source of traffic is either organic clicks from Google, or paid traffic from AdWords or any other form of online ads. So basically, you have no stocks to manage, the wholesalers takes care of shipping the product for you, and almost everything is on auto-pilot. It’s the perfect middleman business, but maybe too perfect.

Drop-shipping from China

Doing a bit of research, it seems that some people are operating drop-shipping businesses by selling the products on eBay while having them shipped from wholesalers based in China, mainly from Hong Kong. This implies serious issues, as the customers might be subjected to fines and unexpected tax fees if their packages are caught by the customs when crossing the border. In addition, a quick search on Google revealed many forum posts in which people talk about their bad experiences with wholesalers based in China, and how highly unreliable these wholesalers are.

Europe is just not ready

I am currently based in Barcelona, and I thought about finding a wholesaler in Spain or in my home country, France. I didn’t have any product in mind, I just wanted to see what kind of products were offered by wholesalers for drop-ship. So I started to look for wholesalers in France that would provide such a service as drop-shipping, but really couldn’t find much. Talking about it around me in Barcelona, I met people who told me they tried to find wholesalers in Spain that would drop-ship, but in vain. I also searched in the UK, and I did find more wholesalers offering drop-shipping than in France or Spain, but nothing that compares to what is available in the United States. Running a Google search in the United States, I could easily find thousands of wholesalers offering drop-shipping services. It seems that wholesalers in Europe are not ready yet to offer drop-shipping services.

A last option for Europe would be to find some well established wholesalers, and go on-site to explain to them the idea of drop-shipping and see if they would be interested. I might be wrong, but I believe that in France that would be difficult, as most businesses are very conservative. Also, if these wholesalers are not ready for drop-shipping, it might be a complete mess to integrate a website to their inventory system, and in the end, impossible to work with them.

The “get-rich-quick” delusion, all over again?

To be honest, this whole drop-shipping thing seems to be yet another get-rich-quick thing. The idea that by setting up a stupid website, we are going to make $100k a month is really attractive, but very few will make that much money it in the end. Most articles that I have found on the internet completely undermine the amount of work necessary to create a drop-shipping business, and how hard it will be to beat the competition. I would categorize drop-shipping as a delusional business type, along with iPhone apps, micro ISVs, and most startup companies. I am not saying that it’s not possible to make money with any of these business types. I am just trying to make three important statements:

  1. Looking at the statistics, the percentage of businesses that fail is extremely high, and it would be delusional to think that statistics do not apply to us because we have some special skills that others do not have. Drop-shipping is just a business.
  2. Just like for any other business, the amount of time, work and energy to put in a drop-shipping website is significant, more significant that what’s being advertised. It would be delusional to think that we will make it in a short time and/or with minimal effort.
  3. We must not forget to systematically reject the success stories relayed by the business and high-tech media. Those stories typically include teenagers who got rich in under three months with 100 lines of code, and while playing Call of Duty. The stories are true, but those people just got lucky, and their success is therefore not reproducible in a systematic way.

Conclusion

After various searches on Google, I still haven’t found any serious source of information about drop-shipping. All the things I have found look like scam websites, or personal blogs and amateur websites that talk about drop-shipping but seem to never have tried it or succeeded at it (just like my current blog post!). I still find the drop-shipping idea interesting, that is, the absence of stock. In addition, I still believe that it is possible to build a successful website with a drop-ship business model. It would takes time, effort, and a serious amount of luck, but it’s definitely feasible. This is what CandyJapan.com did, though after reading their story, I would argue that it was mostly an accident and they were just lucky.

I think that building a drop-shipping business is not worth it in Europe, as the time invested initially is very likely to be lost due to the fact that the wholesalers are not ready. Finally, there seems to be a lot of scams around drop-shipping, so I would recommend to anyone who wants to try this out to be careful with wholesalers and marketing companies.

5 Responses leave one →
  1. Dindo permalink
    February 27, 2013

    Salut Emmanuel, je suis entièrement d’accord avec l’idée de ton article. Actuellement, en Europe, on ne se donne pas vraiment la peine d’aller de l’avant avec le dropshipping. Moi aussi j’ai essayé de trouver des fournisseurs dans un domaine specifique que ce soit l’Espagne, l’Angleterre ou la France (…)
    Il faut reconnaître que les choses vont très lentement, mais les choses vont certainement évoluer. Il faut du temps, pour que les mentalités changent..

  2. ayula permalink
    April 2, 2013

    Hello Emmanuel,

    I am a new ecommerce entrepreneur also based in Barcelona. I already have a product in mind to sell on my commercial website(yet to be built).

    My sincere question is: Is it reccomendable to work with a UK based(or any foreign) drop shippers when my sales website is a Barcelona based one…….or do i just forget completely about the whole idea of drop shipping, meaning more stress about stocks,storage and shipping.

    Please advice as this seems to be the major challenge am facing at the moment. Thank you.

    • April 6, 2013

      Hi,

      Before reading, keep in mind that I’ve never started or managed a drop-shipping business, so what follows is not advice from experience, but just an idea of what I would do if I had to start such a business with the conditions you described.

      When getting started with drop-shipping, one of the biggest issues is going to be finding serious and honest wholesalers. For any new wholesaler, what I would do first is try to find feedback on the internet about them — there are a lot of drop-shipping forums with people trying start businesses too, and if a wholesaler is misbehaving, people will talk about it. Then if the wholesalers have a phone number, call them yourself to ask questions about the conditions and the prices, ask them for how long they’ve been doing that, etc. Also, find a way to verify that their physical address is indeed a real one. Most countries require that businesses be registered and also give them identification numbers, so find the numbers of your wholesalers and verify with the authorities of their country that these numbers are real and that the registered businesses are indeed the ones you are verifying.

      Once you’ve found one or several wholesalers you think you can trust, there is still a chance they will screw you over. A good way to limit risks is to start small and iterate. With drop-shipping, if your customers buy 10k euros of equipments and the wholesaler doesn’t ship it to them, the customer will sue you and you’ll have to pay! So don’t start by selling very expensing things, start with small orders of reasonable value, so you don’t lose too much money in case things go wrong. Starting small will allows you to test the full process with the wholesalers, and thus get a better idea at how trustable they really are. Then as they prove to be honest, you will start trusting them more and increase the volume of orders you place with them.

      Now regarding the fact that you are in a country and they are in a different country, at first there is not much you can do, but it is true that in case of problems, being in two different countries will make things more difficult for legal action. If your business starts growing, an important thing to do would be to fly to the UK and meet with the suppliers. That way you’ll be able to check out who they are and the conditions in which they work. It’s totally okay to do that, just tell them you are very happy with the service they are offering, and would like meet them on-site to talk about business face to face. And in case your business really grows a lot, then you’ll may want to create a small business entity in the country of your suppliers, so that if things go wrong, at least you’ll be in the same country and legal action will be simpler. I believe that the cost of creating a business in the UK is one of the cheapest in Europe — but that’s way down along the road.

      I hope that helped. Like I said, all this is just general advice of what I would do, because I have no experience in running a drop-shipping business. So don’t take my comment too seriously, and remember that there are no easy businesses, they all take a lot of time and energy.

  3. October 16, 2013

    Hi,

    I run Candy Japan. I was definitely lucky with the site, but somehow the idea seems to resonate with a lot of people, so it spread that way mostly via blogs. It is strangely catchy, many people I have met even in person at some meetups have told “oh, you’re that guy with the candy site!”. So there is nothing particularly tricky about how we grew, but I can see how if those initial blog mentions hadn’t happened, it would have gone nowhere.

    • October 18, 2013

      Hey!

      Thank you for your comment, I was certainly not expecting a comment from the creator of Candy Japan after mentioning it in this blog post :p

      I have read all your articles about Candy Japan with a great interest, and I was very impressed with all of it. My point about Candy Japan may have come across as judgemental, but that was not the intent. I was referring to Candy Japan in this article as something that was very successful, but that in my opinion could not be reproduced systematically, as the initial momentum was achieved mostly by chance — at least that is the feeling I got after reading your articles. Or maybe it’s just me being a nerdy engineer and not having enough knowledge of marketing and public relations. But I can only acknowledge that, once you got momentum, you made the right choices and managed to drive the whole thing into a successful business, “chance favors the prepared mind.”

      Thanks again for taking the time to drop a line, and for your articles about the whole Candy Japan adventure, I’ve found that very inspiring!

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