How Shopify Dropshipping Works

There's a trendy e-commerce fad behind those obscure eye-catching products that fill our feeds on Facebook, Instagram, TikTok, and YouTube. It's called dropshipping. It's definitely an industry that is growing.

You're seeing companies going public now just based on this premise of dropshipping. The model relies on targeted ads designed to stop consumers from scrolling long enough to make an impulse purchase, usually from a Shopify store set up solely for that product. Many of those same younger consumers, they are also looking for creative ways to make money. And this really is the rise of the young merchant.

It's like salesmen. Salesmen are like the old school version of marketing. If you're a good salesman, you can sell anything to anybody. At age 21, Ka mil Sattar's dropshipping sales topped 1.

7 million dollars in 2020. You basically only buy the product when you get the payment. And then you get the product from a supplier in the U. S.

or China. Then they send the product directly to the consumer and you never see it or never touch it. Some sellers say dropshipping is a get-rich-quick scheme to make easy millions without ever leaving your couch. Others call it a serious business that takes major hustle to pull off properly.

There are more nefarious actors in this industry and there are legitimate ones. We talked to some big name dropshippers about how they made millions with viral products and asked e-commerce experts how copycats and cutting corners could tarnish the industry for everyone. Dropshipping in its simplest form is when the seller acts as a middleman without ever touching the merchandise. Nick Peroni does dropshipping full-time, sourcing sites like AliExpress for low-cost products available directly from suppliers, usually in China.

If you have a supplier you can trust, you can do the quality control with the supplier. They can send me pictures of it, 3D video of it so that I can see exactly how it looks. After a customer places an order on Peroni's Shopify store, he purchases the product from the supplier and has it shipped directly to the customer, which can take some time. If you find products that are unique enough, then people are generally willing to wait.

Take this laptop sleeve that I ordered on June 30th last year. It shipped directly from China and took two months to get to California. Products where it takes 30 days, 60 days, even 90 days to even get to you. Now, that is what I call poor dropshipping.

Where people really tend to get annoyed with dropshipping is if they waited for two weeks and then they get their product and it sucks anyway. I ordered these boots on October 28th last year and they arrived December 7th. I never got a shipping or a tracking notification. And when they did finally get here, they came in this ripped bag from China Post and they were stuffed loosely inside.

They smelled pretty awful and they were the wrong size. I thought about returning them, but returns with dropshipped items from overseas can be pretty complicated. I looked for a customer service number on the store where I bought these and I couldn't find one and I opted not to return them because I would have had to pay for my own return p ostage. False advertising is definitely a big problem in the dropshipping world.

The product is aligned with you, aligned with your interests, and you want to buy it. So you buy it. And it does not match up at all to the product you're getting. Dropshipping is also what's responsible if you order something from Amazon, but it arrives in a box from Walmart or any other major retailer.

The customer is confused, they're like I ordered something from Amazon, t his is not my product. I got so many messages like, why did you send me this? Bradley Sutton provides software for Amazon sellers and he test ed out dropshipping in the 2020 holiday season. He sold things like RC cars on his Amazon page, dropshipped from cheaper listings on Walmart and elsewhere. Part of Amazon's dropshipping policy is that you do not deliver with packaging t hat is from another retailer.

But my account didn't get shut down, I grossed over $500, 000 dollars, but I've kind of stopped that test because it's just not a sustainable model for me. Amazon has a long-standing policy against dropshipping from other retailers. And a spokesperson told CNBC, "If a seller violates our policy, we will no longer allow them to directly fulfill customer orders. " So you have Shopify, you have BigC ommerce, you have WooCommerce, you have Amazon, you have eBay.

And if you get banned on one platform, you can move up to the next one. The dropshipping that fills social media feeds isn't happening on Amazon. It thrives on Shopify. They made this one-stop shop for you to set up a store.

It's just super easy for you to start selling online. And a lot of these dropshippers know it. On Shopify's Help Center, there's an entire section devoted to tips and strategies for dropshi pping. The main advantage of dropshipping is that you don't have to worry about storing, packaging, or shipping your products.

In an analysis of more than 120, 000 Shopify stores, online consumer protection company Fakespot found more than 25, 000 that engaged in some form of fraudulent activity like counterfeits, privacy leaks, and buying fake reviews. Of those, almost 72 percent showed evidence of dropshipping tactics being used in their business. Fakespot has a Chrome plugin that alerts shoppers if a seller on Amazon, Walmart, eBay, Best Buy or Sephora can't be trusted. It recently added capabilities to detect untrustworthy stores on Shopify too.

Fakespot says most of the fraudulent stores appear to be China-based merchants posing as U. S. small businesses. You want to support the local mom and pop store, but these s ellers are not from the United States.

They're from around the world and they're just utilizing this to make a buck. Still, Shopify is home to the online stores of major brands like Heinz, Staples, Jenny Craig, and Gymshark. With more sellers than ever before signing up for a Shopify storefront in Q3 last year, Shopify shares more than doubled in 2020, and its market cap recently surpassed 150 billion. Thirty five percent of young Americans started a side hustle during the pandemic.

Most of them are doing it on Shopify, which is why you saw more signups in Q3 than ever before. But the way they're doing it is totally different. They're using avenues like TikTok. In a survey of more than 10, 000 consumers, Shopify found that 54 percent of shoppers age 18 to 35 discover brands on social media and 28 percent made a purchase there.

These young consumers are going to be the shopkeepers of 2021, and the way they buy is going to be the way they're going to sell. We're going for impulse buys with people that are not necessarily intending to buy something when they log onto Facebook or Instagram. Marketing is probably 60 percent of the game. Sattar sells 80 to 90 percent of his products through Facebook ads and the rest largely through ads on YouTube.

T ikTok ads can now play directly within Shopify stores, following a TikTok-Shopify partnership announced in October. We have a video editor on our team. And so when we have a product, we can put together a 30 to 40 second video that tells a story of what the product does, why it's valuable. Choosing the right product takes a lot of legwork.

I always say to people, you're going to test around about five to ten products until you find something that actually does something. This pineapple slicer and these dog grooming gloves are examples of products that flopped for Sattar. It's all about finding things that people haven't tried before. We have softwares that we use where they do AI technology and they tell us what are the best products at the moment, what's trending.

Sattar's breakthrough product was this iPhone privacy screen protector. Soon after, another one of his items did a million dollars of sales in one quarter. Many dropshippers find products like phone accessories and Bluetooth headphones on Al iExpress, a China-based online marketplace where small businesses sell products directly to international buyers. You could go on Al iExpress right now, search up Bluetooth headphones and find all these suppliers that will produce Bluetooth headphones for you.

Per unit , the costs are a couple of dollars. And the same thing happens with things like blankets, lighting, small plastic electronic accessories. The burrito blanket is another well-known product that's commonly drop shipped from Chinese suppliers. I needed that burrito blanket.

That's why I have one. It's wonderful. The dropshipping world is largely unregulated and without trademarks, so hit products can be sold by anyone. The supplier will directly ship the product to the customer without it ever going through me.

You will see domain names called Official Burrito Blanket, Real Burrito Blanket, The Burrito Blanket. And they basically contacted the factory in China and started dropshipping burrito blankets. And now these burrito blankets are being sold on dozens of different websites, all powered by Shopify. Dropshippers also copy entire brands, looking to capitalize on their success.

UK-based activewear brand Gymshark is one of the country's fastest growing companies. CCO Niran Chana says he's seen more and more copycat dropshippers selling knockoffs. We've seen infringement across lots of different areas. So name, logo, design, they're the main ones.

We are seeing it impact the business for sure. A lot of these brands have to, you know, legally fight these clones that are just ripping them off. Gymshark used influencer marketing to grow a cult-like following and now dropshippers have ripped those ads off Gymshark's storefronts and put them on their own. You know, we put a lot of investment into assets, content, etc, as well.

So for someone to come and copy that is frustrating. Gymshark is building up its legal team to protect intellectual property, but Chana also called on Shopify to help. When people are abusing those brand rights, they have the right to be able to say right, we're going to pull this site down. A Shopify spokesperson told CNBC, "We have multiple teams who handle potential violations of Shopify's Acceptable Use Policy, which clearly outlines the activities that are not permitted on our platform, including copyright infringement.

And we don't hesitate to action stores when found in violation. " But there is a large group of dropshippers who are running legitimate businesses, branding products they've found themselves. I was an Army veteran living in Philadelphia trying to figure out what I wanted to do with my life. And it was 2016 when I first heard about this dropshipping idea.

In 2020, Peroni's sales of a garden trimming attachment topped 1. 9 million dollars in six months. In October 2020, he did $150, 000 dollars in sales of fleece-lined leggings in just three weeks. It takes a lot of grind and hustle to actually make it work properly.

You know managing just the supplier and managing the customer, and then managing marketing, these are completely three different skill sets. Now a whole side industry of dropshipping specialists has popped up, offering tips on how to do it right and make it big. Alls you gotta do if you want this car, go to Shopify, hit "start free trial", your free 14-day trial, go to Facebook, hit "create campaign" and boom, you got. It's unfortunate that a lot of people think that this will make them rich.

It's just the next snake oil salespeople doing the same thing that has been happening in ancient history. They're just doing it right now with a completely different weapon, which is dropshipping. There are very few laws and regulations around dropshipping, but if it's done carelessly, it leads to months-long shipping times, unvetted products straight from China, and unhappy customers facing a challenging overseas returns process. A lot of people, they get into the business model and they're lazy.

They're not looking at it like a business, t hey're looking at it like a cash grab. To keep shipping times down and quality control up, big dropshippers use agents who know the supply industry in China and a sourcing company to speed up the shipping. But that all costs a lot, as do some extra tactics used by less savory dropshippers. You buy fake reviews to distinguish yourself, fake ratings, fake upvotes.

Still, huge product markup can make it worthwhile. Profitable sellers usually charge at least two or three times the price they paid for an item on Al iExpress. With the constant growth of online shipping, dropshipping is here to stay. It's going to be a cat-and-mouse game between Shopify and a lot of the more fraudulent dropshippers.

A lot of these stores look really legitimate on the surface. Before buying, read shipping promises and return policies. Try contacting customer service. If you have really good customer service, like you're getting back to people within 24 hours and giving them tracking updates, that is what 90 percent of people are looking for.

And people that are doing it legitimately, like myself, are offering refunds. Right, like we're not trying to take somebody's money. Do they have an easy contact? Do they have a phone number? If they don't have a phone number on their website, then you know for sure that they've got something sketchy to hide. And for those looking to make millions in the current online shopping craze, some say dropshipping should only be the first step in creating a successful, sustainable e-commerce business.

It's there to let you know that what you're trying to sell does get a lot of customers. Once you know that, then go and take the next leap, which is buy them in bulk, get a fulfillment center. So we've actually got real brands now all done in-house by us, and that's the long-term game plan.