Drop ship

Drop shipping is a fulfilment model where the seller takes the customer's order and forwards it to the supplier (or manufacturer), who then ships the product directly to the end customer. The seller never physically holds the inventory.

The popular image of drop shipping is the side-hustle Shopify store reselling AliExpress products. That's one application. The more interesting one for established brands is using drop ship as a channel-extension strategy — selling SKUs you don't carry, fulfilling them through a partner, and serving demand you'd otherwise lose.

Don't confuse it with a drop — the merchandising term for a planned product release within a season. Same word, unrelated concept: a drop is when you launch product; drop shipping is who ships it.

How drop ship works

The basic flow:

1. Customer places order on your store
2. You confirm and capture payment
3. You forward the order details (sometimes via API, sometimes manually) to the supplier
4. Supplier picks, packs, and ships directly to the customer — usually with your branding on the packaging if you've negotiated white-label
5. Supplier invoices you for cost; you've already collected the customer's full price
6. Margin is the difference

You bear the customer relationship; the supplier bears the inventory and fulfilment.

Where drop ship makes sense for established brands

Less about pure margin arbitrage; more about strategic extension:

• Catalogue extension. Selling adjacent products (accessories, complementary categories) without committing inventory. A coffee brand drop-shipping mugs and grinders.
• Long-tail SKUs. SKUs with low or unpredictable demand that aren't worth holding. Drop ship lets you offer them without carrying the inventory.
• Heavy / bulky goods. Furniture, exercise equipment, large appliances — where holding inventory means high storage cost and shipping it twice (to you, then to customer) is wasteful.
• Geographic expansion. Drop ship from a regional supplier into a market where you don't yet have warehouse coverage.
• Marketplace exclusives. A SKU only sold via your channel but produced and shipped by the supplier.

Where it doesn't

• Core SKUs. Anything central to your customer experience needs the control that comes from owning fulfilment.
• Fast-fashion or trend-driven categories. The communication overhead with the supplier creates lag.
• Custom or configurable products. Drop ship works best for finished goods; custom configuration is hard to coordinate at distance.
• Tight margins. Drop-ship margins are typically lower than holding inventory yourself; if the category margin is already thin, drop ship may not be viable.

The trade-offs

What you gain with drop ship:

• No inventory investment for those SKUs
• No storage or fulfilment ops for those SKUs
• Faster catalogue expansion
• Lower fixed costs

What you lose:

• Margin. Drop-ship pricing usually 5–15% lower than carrying inventory yourself
• Speed. Supplier-to-customer is usually slower than your warehouse-to-customer
• Customer experience control. Packaging, presentation, returns handling all sit with the supplier
• Brand control. The supplier is shipping with your brand on the box; their quality reflects on you
• Inventory visibility. You're dependent on the supplier's stock data being accurate
• Returns. Returns flow back to the supplier or to you; either way it's more complex than owned inventory

Drop ship and inventory accounting

You don't hold the inventory, so it's not on your balance sheet. The supplier's drop-ship inventory is their asset. The one judgement worth getting right is how you record the sale:

• Principal. You control the sale — you set the price and carry the customer relationship and returns risk — so you recognise the full sale value as your revenue.
• Agent. You're effectively facilitating the supplier's sale for a margin, so you recognise only the commission you keep, not the whole ticket.

Which one you are changes how revenue and margin read in your accounts, so it's worth agreeing with your accountant before you scale the channel.

Operational integration

A drop-ship arrangement needs:

• Order forwarding mechanism — API integration is best; manual or email-based is fragile at scale
• Inventory feed from supplier — to keep your storefront's available to promise honest
• Tracking integration — so the customer sees the supplier's tracking number in their account
• Returns workflow — clear policy on whether returns go to supplier or to you
• Customer service alignment — support agents need access to drop-ship order status

The integration is what separates "drop ship as a real channel" from "drop ship as a manual fire-fighting exercise."

Choosing a drop-ship partner

Beyond the obvious (price, quality, lead time), watch for:

• Inventory accuracy. Their stock feed has to be reliable or you'll oversell.
• Shipping speed and reliability. They're the customer-facing experience for these orders.
• Packaging quality. If white-labelled, the box arrives without your brand's quality control.
• Returns handling. Their process is your process for these SKUs.
• API capability. Manual integration is fragile beyond a handful of orders per day.
• Volume capacity. Can they handle a promo spike on these SKUs?

A drop-ship partner that fails on any one of these turns the channel into a liability. The contract and the integration testing matter as much as the commercial deal.