Drop shipping (often written as ‘dropshipping‘) is an ecommerce fulfillment model, in which the wholesaler allows online stores to sell their products without stocking inventory. A customer orders a product from your website or marketplace listing, you pay the wholesale price for it, then the wholesaler sends the item to your customer on your behalf. The Customer Price – (Wholesale Cost + Expenses) = Your Profit. Learn more about dropshipping in our guide, Wholesale Drop Shipping for Canadian Online Sellers.
The dropshipping fulfillment model has grown into a popular option, as Canadian retailers learn how to maximize profits from online & multichannel sales. Businesses big and small use it to expand their product line and reduce expenses. With a recession hitting many who were already in crisis mode, dropshipping could save their retail business from ruin.
According to Shift4Shop, drop shipping is already part of the order fulfillment process for almost 33 percent of online stores. The drop shipped fulfillment ecommerce model will continue to grow in 2023, as online stores try to reduce risk in anticipation of a recession. Carrying inventory is one of the most costly and risky parts of any retail business. Dropshipping frees up funds and reduces expenses like warehousing and labour.
“Various costs continue to cause difficulties for historically high shares of small businesses, including fuel and energy (73% of businesses in December), insurance (64%), wages (61%), product inputs (49%), borrowing (37%) and capital equipment and technology (27%),” reports the Canadian Federation of Independent Businesses.
AliDropship offers several good reasons to start drop shipping in 2023:
- Consistent ecommerce growth with more shoppers demonstrating a preference for online shopping.
- The offline retail crisis provides new opportunities
- Mobile device saturation has increased online shopping
- Loss of trust in large brands
- Increasing number of supplier options and fulfillment networks can reduce shipping time & cost.
- It’s never been easier to use drop shipped fulfillment, largely due to automation tools.
Unfortunately, it’s still tough to find solid information about drop shipping in Canada. Experience in this model allows us to sort the good information from the bad, and present the best tips & data in this roundup.
DropShipping Tips for 2023
Probably the biggest lesson we’ve learned in the past year is how expensive product returns can be. Therefore, our top tip for 2023 is to avoid categories with high return rates or factor it into your profit margin calculations.
If you use dropshipping as a fulfillment model, make sure you’re clear about how the supplier handles returns and how much of the expense you’ll be expected to absorb. Return rates can vary considerably, so it’s important to monitor each product and adjust your profitability calculations when necessary.
Wholesale2B suggests the following ways to choose a winning product to sell online in 2023:
- Products that solve a problem.
- Products with limited availability in your target market.
- Products that catch the eye of shoppers.
- Focus on products within a specific niche or market to increase engagement and sales.
- Sell seasonal merchandise, such as Christmas, Summer, Halloween or hockey season. Since you don’t require inventory for dropshipping, you won’t have to store products that don’t sell or offer products at clearance prices once the season is over.
- Sell products in a variety of online marketplaces.
- Provide excellent customer service.
Top 2023 Challenges for Drop Shippers
Supply chains are stabilizing once again, but that doesn’t mean overseas fulfillment won’t be tricky in 2023.
The experts at CJ Dropshipping tell us how to handle suppliers in China throughout this year:
Many people have a hybrid business model that combines drop shipping with wholesale inventory, often conducted through the same suppliers. You can still use a third-party fulfillment option, but you’ll purchase wholesale products to send directly to them. Base your product choices on current best sellers with stable sales over time.
Since you’re placing a larger order, you should be able to negotiate a lower price. To speed up shipping and save money on shipping costs, use a fulfillment center that is central within your target market or as close as you can get to it. Read Is it Time to Outsource Your Order Fulfillment? for further guidance. These savings will be offset by the fulfillment fees charged by your third-party. All things considered, the cost should be comparable to direct dropshipping.
Another challenge facing all online retailers relates to retail arbitrage fraud, says Spocket.
“This is the use of malicious bots that allow a single buyer to purchase large quantities of discounted items for resale on a different marketplace,” explains Spocket. “This can quickly undercut revenue and profits, drain inventory, and steal discount-conscious customers away.”
Hopefully, better solutions to prevent retail arbitrage fraud will be offered in 2023. In the meantime, the best defense seems to be limited order quantities.
Top DropShipping Categories for 2023
Shopify, says toys are the first on their list of trending products. Among those, reading toys and flying toys saw a global order growth of 294% and 275%!
AppScenic shared a report for dropshippers in 2023, based on market research and some predictions based on tools like Google Trends and Keyword Planner.
They identified the top 10 product & niche trends as:
- Toys and baby products
- Eco-friendly products
- Pet supplies
- Beauty products
- Women’s clothing
- Home decor
- Tech & gadgets
Syncee identifies the best dropshipping products for 2023 as:
1. Environmentally Friendly Products, such as eco-friendly accessories, sustainable clothing, organic & natural food & drink, environmentally friendly gifts, organic health & beauty goods, eco-friendly home & garden products, and environmentally-friendly toys. I would add eco-friendly pet products to that list.
2. Baby Products, such as baby food, maternity goods, baby and kids clothing & shoes, baby bedding, safety equipment, and toys.
3. Home Decor, like cushion covers, candles, prints, clocks, home organization products, and bathroom décor. This is a great category for print-on-demand (POD), if you want to drop ship products you’ve created from your own designs.
4. Underwear is popular and it can’t be returned.
5. Men’s Grooming Products, like beard balm, beard oil, beard combs, razors, and grooming sets.
6. Pet Supplies continue to be a great seller in spite of tough economic times. Every category, from small animals to livestock.
7. Gifts for all occasions
8. Hobby or arts & crafts tools
9. Beauty Products
Salehoo reports the following best-selling categories for dropshippers:
- Crossbody Bags
- Baby Bottle Warmer
- Nursing Pillows
- Beauty Fridges
- Car Phone Holders
- Portable Car Vacuums
- Electric Toothbrushes
- Neck Massagers
- Compression Socks
- Exercise Mats
- Lumbar Pillows
- Sofa Covers
- Jewelry Organizers
- Broom Holders
- Stove Covers
- Cat Beds
- Dog Bowls
- Dog Collars
- Shot Glasses
- Model Train Sets
- Fishing Reels
- Bird Feeders
- Phone Cases
The Future is Bright
All indicators point to a sound future for drop shipping. In fact, Statista expects the dropshipping market to grow by about 24 percent for each of the next three years.
Are you currently drop shipping or are you still exploring this online business opportunity? Please share your questions or experience in the comments below, or join us in the Online Business Canada Facebook group.
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Melody McKinnon's formal education is in business management, which she enhanced with more than 60 certifications revolving around business, marketing, health, general sciences and writing. In over 20 years of working online, she has owned or managed both educational and eCommerce websites.
Melody has worked with many businesses & brands in a multitude of capacities. She can often be found on CanadiansInternet.com, CanadianFamily.net and AllNaturalPetCare.com, as well as other quality digital publications. Her content has earned reference links from highly-respected websites, magazines and university textbooks.