[EP 8] Modern Merchant Podcast: Why Dropshipping Can Be Viewed Negatively

Below, you will find a transcript of the episode.

Austin Rose:

All right. And we are live today. Welcome back to the Modern Merchant podcast. My name is Austin, host here, and I have our CEO, Travis and CTO, Matt, back on with us today. And today we’re going to be talking about a fun one. This is something that’s been going on for a while, just in the term of dropshipping in e-commerce. But we’re going to talk about why dropshipping can be viewed negatively. Travis, Matt, thanks for joining guys.

Travis Mariea:

Appreciate it man, looking forward to this one.

Austin Rose:

And we got the fancy Mic, we got the Yeti Blue, so that’s a shout out. Matt’s got his now, so we look good. Oh, and that fancy new chair back there as well. So let’s go ahead and get started. We’re going to be talking about a bunch of things in regards to dropshipping and why it can be viewed in a negative asset. The first thing I want to say… Muted myself there. National Hand Roll Day and Fried Chicken Day. Because you’re going to have some fried chicken today, probably Pub Sub sounds about great right now.

Austin Rose:

And let’s start. So quick breakdown. If you don’t know what dropshipping is, we’ve already talked about dropshipping. Dropshipping, I’m selling online, selling to consumers, I sell mics. I don’t house these mics in my warehouse, my distributor does. So when I get an order for this mic, I send that order to the distributor, the distributor packs it up, sends it to my end customer. I don’t see it at all, hence dropshipping.

Austin Rose:

Now, what we want to start out with this and I’m going to pass this over to Travis, specifically because we’ve talked about this a bunch in the past, and this is where so many people view dropshipping or they say dropshipping is a business model and they’re really just, they’re saying it wrong. Right? Dropshipping is not technically a business model, there’s so much more that goes into your business besides just dropshipping. I mean, there’s marketing, customer service, tech, anything that you can think of for running a business. So why don’t you take it away Travis, and talk to us how drop shipping is not a business model.

Travis Mariea:

Yeah. Sure. This is specifically around kind of the newbie online seller, the person looking online and looking around YouTube to try to find a way to make money online. We’re going to talk a little bit about why it gets a bad name or can get a bad name when we talk about the traditional retailer and traditional. But the other part of this is just someone learning about e-commerce and online selling for the first time.

Travis Mariea:

And there’s a lot of these gurus out there kind of promoting this, how to make money, how to get rich quick and here’s this business model, this new found business model on how to make money online and it’s called dropshipping. And a business model really involves understanding, you look at your SWOT [analysis 00:05:43] your strengths, weaknesses, opportunities, threats, right. A business is more than just a way to fulfill a product, which is what dropshipping is.

Travis Mariea:

Dropshipping is a fulfillment strategy that has certain benefits, has its own strengths and weaknesses that we’ll talk about. But a business is competing against other competitors in the market, finding your strategy, selling proposition, a competitive advantage, a way to go to market and advertising your strategy. There’s so much more that goes into a business.

Travis Mariea:

Then I found a product that I can buy after I sell it online and dropshipping is a fulfillment model that can be leveraged within a business of all different kinds, whether you’re a multi-billion dollar business like Amazon leveraging dropship as a fulfillment model, or you’re someone just starting off and wanting to sell online and you’re using dropshipping as your fulfillment model, not necessarily your business model, which includes many other things that make it a business.

Austin Rose:

It’s kind of like that, like you said a little bit earlier, it’s a low barrier to entry, right. Anybody can just start dropshipping. I could go buy Shopify, I could upload Oberlo, I can start dropshipping AliExpress products on my website and bam, I’m starting to go. So it’s kind of that takes me kind of to the first topic of why it can be viewed negatively as it’s just a low barrier to entry.

Austin Rose:

So anybody can start doing it. Anybody can start dropshipping, but are you a legitimate business? And that’s why it’s kind of frowned upon. How many of us have gotten got by someone dropshipping really bad products from, I mean, it doesn’t have to be China specifically, but I 100% have. What did you buy?

Travis Mariea:

I bought a ratchet socket that you basically add on to a ratchet that has a bunch of teeth on it that you can pull a strip screw out. Not like I have strip screws, I never strip a screw. Honestly, it was genius. I was like, “Oh, that’s great.” Every strip screw, I can just easily just back it out with this ratchet thing. I’ve never used it just. Never used it because all my screws are still perfectly intact. I saw it on Instagram, I bought it and it took 90 days or something to get to me. I almost forgot about it. It was super cheap. They teach you how to use guru, do something that’s cheap and really impulse driven.

Travis Mariea:

They sent me two of them. I literally didn’t really think much about when I was buying it. And I didn’t check anything. I can’t remember if I actually thought, I can’t see how long this is going to take to ship, but whatever, it’s only 12 bucks or it’s only 14 bucks or whatever. And they sent me two and it clearly came from China with Chinese packaging. I couldn’t tell you the website and bought it right. There was no, I never became a repeat purchase or repeat customer. So yeah. We all kind of stumble across that in our online selling journey. [inaudible 00:08:42]

Austin Rose:

I bought a watch that was marketed as, “Oh, it’s free, you just have to pay for shipping.” It was so dumb. It was such a bad idea. And it was exactly that, it took forever to get to me. I did forget about it, completely forgot about it. And then it showed up one day and it had Chinese lettering and packaging all over it and it broke I think five minutes into opening it out of the package. It literally just fell apart, completely fell apart. And I was just like, “Wow, okay. I just got, got.” 100% of it was someone, [Oberlo 00:09:23] person that was selling on Instagram and got me on an impulse buy. So I understand that. You never got got, Matt?

Matt Myers:

Knock on wood, I have not yet gotten got. I guess I just don’t really order too many kind of miscellaneous products like that, but I definitely seen it, I’ve heard it and I’ve gotten got in other scenarios like you go to Mexico and you buy the gold carat watch and obviously it’s not, but the impulse is there and you want it, so you just get it. So I can see how it’s pretty easy though.

Austin Rose:

And that kind of takes to the next point where it is viewed negatively because either some of us that are still in the e-commerce space that have gotten really faulty products has kind of put that bad taste in our mouth. And we instantly think. A lot of us instantly think to the dropship realm and whenever you hear dropship, you research dropship, you’re getting ads on YouTube about new gurus, new courses out there, start making tons of money and all that. We all instantly think to Oberlo, AliExpress, right.

Austin Rose:

It’s always this dropshipping from China really cheap and easy, these apps that you can just download and start selling online. And that just kind of gives that connotation of this isn’t a business, right? This is a side hustle. That’s kind of the big thing where dropshipping always has that same term of side hustle passive income, which we don’t see, I mean, with our companies that we work with and a lot of big businesses out there that utilize dropshipping, especially nowadays.

Travis Mariea:

Well, real quick on that. I think we’re talking about, I was kind of alluded to earlier, two different scenarios here. The newbie kind of online seller getting the bad reputation there and that’s what dropshipping is associated with. And then the traditional retailer that isn’t retail understands the wholesale game and buying in bulk and bringing to their warehouse. They also, there’s a bad reputation in that as well. Even if they’re not even associated with the newbie, they might never even watch YouTube videos about dropshipping, but just in general, they also have a bad taste in their mouth or, might view it negatively because of all the complexity.

Travis Mariea:

And I’m going to bounce around a little bit on kind of what we have outlined here and maybe kick it over to Matt here on a couple of these. Because the biggest thing for me is retailers are used to buying in bulk, bringing it in house and the second that they want to go and start dropshipping me they rely a lot in their partner network and things can fall completely apart. And we’ve seen that breakdown. And on the flip side suppliers to low barrier entry, they are used to working with these large retailers who don’t even want to do it.

Travis Mariea:

And only these newbies that don’t have the capital to start were the ones asking them, that’s changing more and more. So I think there’s also this. In the traditional retail world, there’s this aversion to relying a lot on your partners, but also the technology has not caught up there yet. And I think that’s what, Matt and his team is trying to help with the technology piece to kind of get us up to speed so that people feel and they trust more in the dropshipping model in general.

Matt Myers:

Yeah. And to kind of piggyback off that, right? Loss of control is a big piece because if you’re dropshipping like you said, you have to trust those partners now to be able to deliver on your same standards, right? The same shipping times, packaging quality, the quality of the actual products which you may have never even interacted with because we’re just kind of getting a data feed. And so it’s up to you to do this curation of that and make sure it’s legitimate and that it’s a good trusted vendor, distributor, or even if you’re leveraging it from a third-party logistics, you have to vet that, right.

Matt Myers:

And really feel confident in that to give up that control of quality check and everything. So I see that a lot. And also like you said, the complexity of integrating and invoicing to a single order to sales order versus ordering a pallet of inventory and owning that and feeling like you have a really good control on your inventory levels and everything. There’s a ton of complexity that comes into play with it. So from that perspective of that established retailer leveraging dropshipping, those are kind of their barriers where they just feel like they’re losing control or it’s very complex to manage the financial piece of that and make sure that it’s all legitimate.

Travis Mariea:

Yeah. I want to talk on the supplier side, just maybe focus on one type of customer that typically does not want to hear the word dropship versus I don’t do it or whatever. I mean, I think back to, brought this up before, but I used to walk and I still do just been a while, walk trade shows and talk to wholesalers, the supplier side, the distributor who traditionally will sell their items, sometimes brands as well, sell their items into retailers. And this was early on, this was at the start of my career. And I can’t remember what the angle was, but I was just basically asking like, “Hey, do you dropship?” Right.

Travis Mariea:

This was before inventory sources at start of current commerce, I believe. And just asking if they dropship, and the overwhelming, it was either, “Who’s asking,” was literally they just straight up say they’re like, “Who are you?” And I’m like, “Maybe,” or “No, please walk away from my booth I want to talk to someone who does not use that word.” The reason why that’s the main response was typically, they only dealt with the large Walmart, Amazons, whatever.

Travis Mariea:

And those were the only ones that made sense to dropship for because the technology was not there, their process was not there, there was no third party warehouse that specialize, they could ship those items to, all those things had to come together which are still not all there. Right. We’re trying to really push the limits on what technology and the dropshipping platforms can do that support both the traditional model and dropship, as well as connect to third-party warehouses. So we’re helping to kind of bridge that gap like many other, our competitors honestly.

Travis Mariea:

So it’s still kind of getting pulled up to where it needs to be. But yeah. The need for that, but then also the explosion of the online, the digital first online retailer didn’t exist. So there was not the push from legitimate good retailers that were digitally native, that started online that had a audience through Instagram or their blog, or the mommy bloggers type kind of thing where, they didn’t have a brick and mortar, they didn’t have that cloud or that brick and mortar audience, but they had an [audience 00:16:20] online and dropship that wasn’t as popular of a model. So all of those kind of coming together is making it less of an issue and being viewed less negatively and in more of a positive light and people are opening up to it.

Travis Mariea:

But that’s why I love being in the dropship industry because every good startup, every good company you hear about is kind of in a spot where people are like, “You’re crazy.” Or, why would you do that? Or that doesn’t make sense, or. Dropship is still very much looked very. It’s a skeptical eye to dropship, but if you pull back and you look at it at a fulfillment model and all the advantages of fulfillment model, it’s just missing a couple of pieces. It’s missing the buy-in from both sides, it’s missing the good technology. And those things are all kind of slowly coming together.

Austin Rose:

I think too from a support standpoint. With the distributor, a lot of the guys, they would take on people that, “Hey, yeah, you want to dropship?” “Sure. Come on in.” And they would have the necessary credentials to be an approved reseller of their products. But managing that many people was such a burden in itself, because if you were dropshipping, that means I’d had to set up an FTP for you, or I’d have to set up some type of, I got to get you into my system, they do all this work to get these dealers in to then realize oh, this is someone that’s new, doesn’t have [amount 00:17:41] of sales volume or said they did, but they actually didn’t.

Austin Rose:

And then they were just kind of getting like you were saying, banned for getting all these people and doing all this work. And I bet a lot of distributors went through that to then not just like the outside noise made it sound like dropshipping is bad. It was the inside of, we did all this work for all of these retailers that said they dropship, they do all these sales and they haven’t done anything. And so it was the support of handling all those customers was just, it was unknown.

Austin Rose:

It was unknown if those customers can actually push volume through them and start buying products. That’s why with bulk, distributors would be like, “If you’re buying in bulk, you are my customer. And I will adhere to you and everything that you need,” versus all of these dropshippers that are doing volume, but actually never ended up doing it. So I think that’s something I know, it’s important thing to come into play.

Travis Mariea:

`Yeah. I mean, that’s real quick. That’s a good point. We’ve seen that where yes, we will dropship for you, but you need to do this much in wholesale business first, which I think is a great model. If you’re not set up to do dropship yet, a distributor, supplier brand, you can say, “Yes, we dropship.” And that’s why they’re asking who are you? Right. And that’s a valid question because you have to run a business in a way that makes sense for you and you can’t take in all this inbound work. But the technology side too, they also didn’t know how to support them. Right. So, I mean, I guess Matt, that’s probably a good, one of those main things from the supplier side that’s having to learn and support them in a new way.

Matt Myers:

Yeah. I mean, as we’ve seen, every supplier distributor has a different method of integration generally. So you’ve got to deal with that variance of complexity, which is kind of part of it, but really if you’re a supplier and you want to offer dropshipping as a service, let’s say you’ve got to have an automatic way to intake orders. You’ve got to have an automatic way to output shipments. You’ve got to have an automatic way to invoice for that order so that they can track the financials of it.

Matt Myers:

And then you also, the big one, right. This is probably the most challenging for people is you’ve got to give an up-to-date frequently set of inventory and pricing changes as this happened too because people need to react to those, right? If you have a, now let’s say you have 100 retailers that you’re supporting and you’re dropshipping for, if one of those retailers makes a sale, all of the 99 retailers need to know about that because they have to be able to decorate that inventory from their site so that you actually show what you truly have in house now.

Matt Myers:

And so generating, I mean, as your catalog size increases, if you’re 500,000 skews or something like that, generating an updated feed of inventory data like that it’s very cumbersome and it’s expensive technologically, unless if you architect things right from the very beginning, but many of these dropshippers are kind of adapting this model, right. They’re not dropshipping first within their platforms, yeah. A lot of complexity and giving and having the funnels to receive orders and provide shipment and invoice data, as well as being able to distribute updated inventory list and the other big challenge, right.

Matt Myers:

That doesn’t update as frequently, but you need to be able to give your resellers enough product information so they can actually make a sale, too. Right. And so generally speaking, imagery, decent descriptions, all of this stuff that normally you would just kind of ignore to some extent, maybe get it from manufacturer or something like that. But it might be that historically retailers would kind of adapt that themselves. They would work on the listings, they would beef up the descriptions and they would take their own pictures and imagery to be able to paint that product in the best light. And this model, you just can’t do that. Right?

Matt Myers:

You have to have some sort of, at least starting point of that data that you can push up to be able to make a sale too. So it does add a lot of burden to the person actually dropshipping. But the value is once you set that system up, it’s pretty much just exponential growth, right? You’re not really having to worry about the intricacies, you’re just making sure that you have these automated feeds and these [Davy 00:22:02] channels set up so that you can kind of adapt more and more people over time.

Travis Mariea:

That’s 100%. Once you set the system up, there’s a lot of upfront investment in cost. And if you don’t have this, the demand side of quality retailers coming in and wanting this from you and you’re not adding a competitive advantage, then it doesn’t make it worth it. Right. But that’s where it’s kind of chicken and egg thing where now you’re seeing more and more quality retailers require it and want it. So people are making more of an investment in the more distributors brands, the supply side, making an investment in dropship. One thing we don’t talk about returns obviously, is more from a process standpoint, from a tech perspective.

Travis Mariea:

It’s tough to automate because there’s a lot of decisions that need to be made there, but returns is another issue. But really if you invest in a, we don’t talk about this a lot where there’s a concept of selling a pallet in bulk, selling a lot of product to a retailer and that retailer not being able to sell through that product and then having to mark it down. And this happens mostly in larger retail scenarios, but them asking now to either buy back the product, the supplier to buy back the product, or to split the difference on the markdown and take away more margin in some way.

Travis Mariea:

There’s a lot of different strategies here and approaches and negotiations really where this is one where once you invest on infrastructure, once you have this process starting off dropshipping with a big retailer, one might be a requirement. Home Depot might come to you and say, “I’ll put you on our website, but that’s the only way I’m doing it. I’m not buying 100 of those” or whatever it might be, it’s a way to get your foot in the door.

Travis Mariea:

And it’s also a way to get new products into a retailer and not be caught in that scenario where you have to buy back your product, or you have to cut it on a bunch of margin and get into that awkward scenario with a retailer. So is a competitive advantage. If you invest in it nowadays in this new environment, from what we’ve seen in retail, retailers are asking for it more, especially post COVID. So it’s competitive advantage but is their investment upfront from people, process and the technology behind it.

Austin Rose:

I think the distributor standpoint too, one thing that I saw all the time having conversations with distributors or brands that either wanted to get on inventory source, or learn more about flex point or anybody that we’ve ever talked to. It was the holdup that kind of made people not want to switch over, again, they have this bad connotation towards it is the payment side, right? So distributors didn’t trust their retailers to say, “Okay, you’re approved.

Austin Rose:

I’m going to give you an invoice in 30 days of all the orders you give me this month and write,” because people could be sending in orders and orders and orders and then next thing you know it’s like, “Okay, here’s an invoice,” they don’t pay it, got to do accounts receivables and everything. And it’s you have to dedicate a team or a person to that. And that’s labor costs that a distributor didn’t want to take on. And at the same side was like, “Okay, we’re not going to do a net 30 terms or net 60 terms, we’re going to bill you right when orders come in, whether it comes from our website or whatever automated means if we have any, and that’s a person I’ve heard multiple companies have a person dedicated to just manually charging via, let’s say Stripe for every order that came in all throughout that day.

Austin Rose:

And they didn’t have the automated system in place. They put somebody in place because they thought they would get a lot of return on orders and orders and orders coming in, but really at the end of the day, it’s the bulk purchasing, it’s you make one order right then and there, get the payment and then it’s they’re set for the next few months. So I think from the payment perspective for distributors, that was such a big hurdle for people to get over or to justify that we should be doing dropshipping, or is this a good idea? Is this a viable fulfillment model to provide to people? So that was another take that I used to get all the time talking to distributors.

Travis Mariea:

Yeah. It’s fundamentally different. That’s why you see a lot of them say, “You have to order through our website.” And a lot of systems set up where they don’t save the card because they don’t want to get involved in keeping credit card information. So makes it fundamentally tough. And then you have to factor in credit card fees into your model, which makes it even more tough.

Travis Mariea:

You’ve got the delay in ACH and potential fraud with chargebacks and things like that in credit cards. So there’s a lot of like, “All right, we got all the technology, but we need to…” Maybe they buy a platform that them to support that. But then they’re like, “Well, how do we change our process?” And so that’s an investment that we were talking about is figuring out how to do it and then implementing it.

Austin Rose:

Totally agree. So we talked a lot about distributors, right. And I think this is a. Now let’s get to the retailers that are selling online. Let’s talk about the retailers specifically that are younger, I guess, per se, right. That are constantly on a YouTube or social media platforms. Maybe they are looking for dropship automation services or they’re just involved in e-commerce and things like that.

Austin Rose:

Honestly, anything e-commerce because they will get those ads of making millions of dollars, earning passive income or making millions of dollars, “Check out my sweet Lamborghini behind me, check out this sweet [house 00:27:35] I got, dropshipping on Amazon, take my course,” things like that. What pops out to you from that perspective, right? The flashy influencers, the flashy gurus, the courses, things like that, that a lot of people view dropshipping is bad because that’s kind of their main outlet to get you to make my course pay for my course. What stands out to you, Travis?

Travis Mariea:

I mean, it’s like any other get rich, quick scheme, it doesn’t exist. I mean, that’s all there is to it. You got to put in hard work, you got to build a business that adds value. And as long as you focus on value, dropship makes a lot of sense. But they’re not pitching value, that’s not the sexy YouTube video is. It’s pitching on how quick you can do something and how easy something is to set up, that’s really what it comes down to. I mean, that’s just never going to work regardless if it’s dropship or selling online courses and coaching.

Matt Myers:

Right. Yeah, exactly. Right. Before dropshipping, there were Mary Kay, or all these other different schemes out there you could do to kind of make money on the side. And all of them are equally appealing, dropshipping just happens to be another low barrier industry that people can take advantage of. And really, I mean, the takeaway is create videos on low barrier entry stuff, and you’ll probably make money that way, because that’s a better scheme. But yeah. I mean, the thing that gets me is people are always looking for a way to get out of the 9:00 to 5:00, right? You ask anybody universally, if you could quit your job tomorrow, and you can just make passive income, 90% of people in the world are going to say, “Absolutely.”

Matt Myers:

And so anytime something like dropshipping comes up where you just have to, starting out, you can just use a [buyer 00:29:23], you don’t have to have any relationships whatsoever. You just have to set up a site and try to attract people to your site and sell through Oberlo and AliExpress. It’s a good model for people and they’re going to do it as a way to try to get out of that 9:00 to 5:00 grind. I remember Shopify actually got blasted on this probably about a year or two ago where people were comparing them to Herbalife, right. Because they did one sort of marketing page or whatever that said something like, “Quit your job and start selling online,” it was kind of the mentality.

Matt Myers:

And so even though Shopify itself is just a platform to sell products, they got wrapped into this get rich, quick scheme because of one of their marketing [theme 00:30:07]. So people equally want to get out of the 9:00 to 5:00 as in the more modern day they’re getting very good at identifying clickbait. Right. And very like, “My friends have tried that, or it’s been out enough that I know this is not going to work.” But the reality is any time there’s mass information out there, how to get rich quick probably doesn’t work. Right. And it’s really just the person that’s telling you that as a way to get rich himself. Right.

Travis Mariea:

I like that you brought that, Shopify. I remember that and then everyone’s shorted it. I mean, that really could have just been left or Andrew left or whatever his name was, he really promoted that. Right. I remember that’s when I bought Shopify for the first time when that happened because I was like, there’s so much misconception out in the market and people just don’t understand, they bought Oberlo, which is a dropshipping company, and then they promoted on their homepage, I think in the footer for a little bit, because they saw a need, they saw value in giving their customers instant access to products, which is that’s what they saw.

Travis Mariea:

And then they looked at it being viable for some companies. Some businesses did go out there and you can go and start a business with Oberlo and as long as you figure out how to add value to your customer’s life and what they’re looking for, that’s a legitimate business. And so maybe you tell them it’s going to take 90 days to get to you, but it’s going to be super cheap and they’re completely cool with that. And that’s not scammy at all. And that maybe you do get rich, right? We’ve found it’s very tough to run a Oberlo AliExpress business because it’s, e-commerce all about repeat customers and doing the Oberlo type approach is very tough to keep repeat customers.

Travis Mariea:

But that was the whole thing where it goes back to people thinking that is a business model and it’s all be all where it really is just an approach. And it’s just funny how people paint with broad strokes very quickly because it’s just the easiest way to kind of assess something and try to understand it when you don’t actually understand it. And that’s definitely what happened with that Herbalife comparison with Shopify, that was [starrily 00:32:13] hilarious almost.

Matt Myers:

Yeah. It was. That’s just the idea. People are going to naturally gravitate towards something easy and the second it doesn’t work out like the influencer or whatever said, now the entire word dropshipping is now kind of muddled with this bad connotation of like, “Oh, I’ve tried that, that’s a scam.” Right?

Travis Mariea:

Right.

Matt Myers:

And it’s almost equivalent to a pyramid scheme in some of these places. And it’s because if you take their advice and everybody in the world just starts selling online and they start sourcing from Alibaba or something, that is an unsuccessful model. And you’re right to think that’s scammy in most scenarios. I mean, like you said, there’s market you carve out there, but people are missing the idea of if you have an actual, legitimate, trusted partner, right. My mom has a pet store in Ocala, she’s got a brick and mortar store and they got a Shopify store and started listing their products online there. And it’s for her it’s great.

Matt Myers:

She’ll get a couple extra sales, I guess she doesn’t have major traffic going in there or anything, but she gets enough sales to pay for the website and it’s kind of steadily growing and it makes a lot of sense. She’s dropshipping her vendors’ product straight through Shopify. She’s not even shipping out of her warehouse most of the time. But for most people, it’s just, I have no experience in this industry, I’ve no relationships built or anything and I just want to get started and make money. And no matter what ecosystem or industry you go to, that’s always going to be a tough thing and probably not going to work out the way you want it to.

Travis Mariea:

Yeah. One thing that we haven’t really touched on is, so the legitimate retailer might want to do it, but they might not be a traditional retailer. They might be just a good e-tailer, online retailer, who’s been doing it for a while, they know how to kind of play the game online. They could be a blogger and have an audience, maybe, maybe not, just know how to do ads, right. They know how to optimize conversions. There’s this, the suppliers that are selling to their traditional wholesale purchasers, right.

Travis Mariea:

The traditional retailers, they don’t want to let. At least the retailers don’t want the new guys with no brick and mortar costs and are not sending massive orders into their suppliers, they don’t want them to come in and just take a shortcut and just jump right in and sell. And so we also did see that where suppliers were pressured from their retailers to not allow dropship. And because, “Hey, I’m buying your stuff in bulk every month. Why are you going to give it to this guy that is just buying a couple and take a chance on him, you’re going to take a chance on losing my business.”

Travis Mariea:

And so that had barriers there for a while too, which I think those are breaking down. Because ultimately one, the suppliers realize that these same retailers that were telling them not to, now are saying, “Well, dropship for me.” Right. So they had to figure out how to do it. And now they’re just implementing new process and new technology to do what we said earlier. You got to buy wholesale. We see some that say, “You need to prove you have a brick and mortar address.” So they’re putting some restrictions in place to take care of their reseller network. But that’s another one where they’re try not to piss off their big money retailers that are sending big bulk orders.

Matt Myers:

Yeah. And to go back to the needs that kind of created this idea of now you need pricing tiers. Like, “You’re one of my better retailers, so we’re going to give you 15% off. You’re a newbie so you’re actually 15% marked-up,” or something as a way to get around that equation of how do we enable new people grow our business, but also treat these guys that have been here for a while well based on their loyalty. So-

Austin Rose:

We had some distributors too, or brands that I’ve talked to that specifically stopped dropshipping because they had one or two dropshippers, or maybe five, maybe 10, just I don’t know if they got taken down, but Amazon, started selling on Amazon. They couldn’t restrict people from taking my data and selling on Amazon. There is no concept of them just being able to say, “Hey, you can’t sell on Amazon.” The retail is like, “Okay, sounds good,” and they end up doing it. And that was hurting their brand and their products and not be able to sell on that.

Austin Rose:

So I remember people was specifically when I would ask, “Hey, are you dropshipping?” Kind of got the response like you to Travis, whereas the, “Oh, absolutely not.” We’ve had way too many people burn us for marketplace sales and things like that too. So another thing that kind of just added to it is, there was no way to restrict people from taking that data and just start selling on Amazon or eBay or Walmart or anything like that, which, I mean, you could technically buy in bulk and still sell on there as well. But-

Travis Mariea:

Exactly. It was something new and there was more resources they were dealing with. So it was [covered at the lease 00:36:59] and control and adhering to map was a part of that issue as well. But if you think about it, it’s opening up to more potential resellers of doing it. The more chance of that’s going to happen, but fundamentally, like you said, it could still happen. Someone could go and buy the minimum order quantity and do the same exact thing. If you invest in that infrastructure and the time the process, going into a dropship model actually will help you and prevent that in the future.

Travis Mariea:

If you get into a structure where, “All right. Here’s our dropship program, I’m a supplier. If you want to dropship from me, you must use this technology.” And this technology is a chain of custody all the way into where you’re listing that product. And I have full visibility from it being supplied in my warehouse to it going to where it’s going. That is actually the way to prevent that. Right. But fundamentally, that’s such a crazy concept. It sounds like such an investment technology that’s too tough. Right.

Travis Mariea:

And we’re making that less and less tough for more people, but syncing [map 00:38:02] and making sure that prices are going and staying above map, knowing what [ace 00:38:08] in their listing on, stuff like that is all stuff you can do through technology. And you can do it when you know where the supply chain ends, which is your warehouse better than if you were to go sell wholesale and give it to a third party. So it’s funny because you’re 100% right. It’s just once again, it’s a lot of things have to fall into place for it to make sense to go to it and actually solve the problem which would be dropshipping.

Austin Rose:

So do you guys think we’re kind of out of that phase of people viewing it negatively, you think we’ll ever get there?

Matt Myers:

It depends on the audience. I think more and more retailers and distributors are getting out of that personally. But I think the public perception, once you have kind of a scammy thing at least the perception of that it’s really difficult to change people’s minds, I think. And so I almost think it’s kind of a little bit of a competitive advantage to really understand dropshipping [entreat lead 00:39:14] because a lot of people in the world think of it as a scammy thing, but at the same time they go to Amazon and they buy a product and they dropship that from someone. Right.

Matt Myers:

And so those that actually are aware of that are taking advantage of that and they’re selling to some of the same people that say that they hate the concept of dropshipping. Right. And so I don’t know if it’s really changing too much, but it’s kind of like a natural evolution with Amazon or just seems to be more prevalent today.

Travis Mariea:

The top retailers, that’s how they became so big. Amazon dropship was a huge part of their model. I mean, it might be rebranded as all things that, the brand loses value, but the model makes a lot of sense, right? Start your own marketplace is kind of more of that keyword people are keying on. You see miracle really leading the way, honestly, and the enterprise space for helping people build out a marketplace, which is essentially which, when people interview the CEO, they ask him you’re helping people compete with Amazon, which sounds crazy. But honestly, that’s what we’re all trying to do if you’re selling online in one way or another.

Travis Mariea:

So building a multi-vendor marketplace is becoming more of a common thing, larger enterprise to do it. So I do think suppliers are going to be more okay with it because they’re getting requests from more and more legitimate retailers who want it. Nordstrom has been a big proponent, Macy’s both in the apparel space, jewelry and things like that. REI jumping into it and doing more from their side. I know REI made a push a couple of years ago into the dropship space. So the more the big retailers adopt it and then a supplier there’s this whole network of suppliers have to buy into it, then I think it will have a different perception for sure.

Austin Rose:

Yeah. I think there’s always going to be a negative view. I mean, just kind of how there is, the world, right. There’s always two sides to the equation. And I think some people are always going to think as scammy. There’s a lot of people out there that have started dropshipping and then come to realize it can be very scammy going down the avenues of… Go ahead.

Travis Mariea:

Well, I was just like scammy, that word. It’s really there’s the informed and the uninformed, right?

Austin Rose:

Yeah.

Travis Mariea:

You’re informed on what dropship is, there’s that view of it. And whether you believe it in a fulfillment model as a supplier or retailer, and who we deal with on a day-to-day basis. And then there’s the consumer or the, what’s all the words, aspiring entrepreneur is probably the best one I like to use. The aspiring entrepreneur which I’ve been many, had many failed endeavors. I don’t know how many times I’ve just tried to open a site or something and just lost interest and whatever. So the aspiring entrepreneur. The uninformed aspiring entrepreneur might look at it and make a quick assumption and say, Shopify is like Herbalife, right. That is a thing for sure.

Travis Mariea:

But then there’s this actual, legitimate retail industry that I think it could basically, the scammy is not even a part of that. Right. It’s more like, does it make sense for my business model in general? Do we see it being part of an industry in general? Some I probably wish I would have thought more about before this podcast, but I’m curious where else you’d see that in the industry where usually if it makes enough sense to stick around this long, it’s going to become adopted and the haters are going to go away eventually, right.

Travis Mariea:

I have to compare it to the cloud before. Right. That’s the closest one I’ve got where there’s still some disadvantages to the cloud and there’s a hybrid private versus public, but ultimately it’s not viewed negatively at all in the way it was. Right. And it was very much viewed negatively like, “I’m not going to just let someone to handle my data.” I’m sure there’s other comparisons to other, but it feels like it’s gained enough traction and been around a long enough to the informed people, the informed people in the industry that I could see a point where it is no longer a majority negatively viewed thing at all completely.

Austin Rose:

[Honestly 00:43:14], I do that like a pyramid scheme, kind of, it’s maybe not pyramid scheme, maybe more affiliate marketing where mom would have the show at her house selling Mary Kay, or you got the friend that’s trying to sell you books back in college. And it’s this whole pyramid scheme thing and we all viewed that as very negatively Like “Don’t try to sell me the pyramid scheme,” or “Don’t try to get me on that.”

Austin Rose:

But at the same time, some of the big purchases that I make, I want to go get information from that person that has the domain knowledge so I can make the most informed decision on instead of this mower, get this mower instead of this really high pricing, get this high pricing because of this, this and this. And they’re in affiliate marketing, but you’re kind of leveraging that domain expertise that they have. So it can kind of be viewed both ways. I can’t think of anything else. So I liked that cloud example though, that one makes a lot of sense.

Matt Myers:

Yes. So it’s a real quick. Pyramid scheme, I’m not a big fan of that. I think that’s the perception way back in the day, but it’s as we’re in more and more about a pyramid scheme, it becomes more apparent that this is not going to work. Right. Whereas dropshipping as you learn more about it, it becomes more like, “Oh, there’s actually some practical application for this.” Right. Another good comparison might just be the blockchain. Right.

Matt Myers:

It’s kind of like that where it started out as this gimmicky, innovative thing, and everybody talked about it and then people started using it, like “What’s this actually used for?” But now, these days there’s legitimate, supply chain, government usage, things that you actually could apply the blockchain for. It makes a lot of sense for those use cases.

Matt Myers:

And it took a while to kind of learn about the intricacies. You had to go through this gimmicky phase of people trying to fit that into use cases that don’t really fit, right. And realizing it didn’t work and that’s very much like drop shipping shouldn’t be looked at as a get rich, quick scheme. Right. That’s the gimmicky part of it. But as you learn more about the practical applications for it there’s a lot of potential real uses out there, right. So blockchain, Bitcoin could potentially be another one where it’s these started out with some negative or maybe initially positive then kind of a negative phase.

Matt Myers:

And then people started to learn more about it and started to gain some understanding of what’s actually happening. They found out with dropshipping, oh, I don’t have to dropship from a Chinese supplier, dropshipping still counts if I’m doing a US-based distributor. And they understand the difference between the model versus what people are advocating for on YouTube or things like that. And when you learn that distinction you learn more about dropshipping, it becomes more practical. I think that’s happened over the years in a lot of ways.

Travis Mariea:

Yeah. There’s I think it was bomb Steve Ballmer, or whoever. I’m pretty sure it was Ballmer. There’s this quote of him. At least there’s this video clip where he’s talking about our users want a keypad on their phone. This is ridiculous. You can’t have just a non-keypad phone or whatever. He ended up calling it, he was talking about the iPhone, it’s a fad. But then as you see the advantages, there’s a lot of disadvantages right out the gate. You’re like, “I used to be so quick on this Blackberry, and then now I got to relearn how to swipe and do all this stuff.”

Travis Mariea:

And then you got to invest in the new technology of figuring it out. But then once you get rid of the keypad, you see all the advantages to not having it. Right. Electric cars, same thing, a lot of downside to electric car out the gate. How am I supposed to go more 300 miles, all this kind of stuff. Well, once you get the infrastructure a lot of things fall into place. Then it’s as long as there’s underlying value in there that is undeniable, it will take over. Right.

Travis Mariea:

At least it’ll get to the point where it will earn respect within the industry. And I think non keypad phones, the touch screen phone, electric cars they were definitely viewed negatively throughout the gate. I’m making sure that I align those together, dropship because [crosstalk 00:47:14].

Matt Myers:

Blackberry man.

Travis Mariea:

I bought the [BOBO 00:47:17] one, it was some T-Mobile. I thought it was as cool as a Blackberry, but people told me it was not.

Austin Rose:

I was 100% that guy though. I did not want to get rid of my Blackberry, right when we started coming out with touchscreens, I definitely, I couldn’t make the switch.

Matt Myers:

Yeah. I mean, the idea of having a full keyboard. I remember I was probably in high school or middle school at the time, I don’t remember. But not that long ago, but I remember getting a phone with a keyboard, throw the little slider out and you can [inaudible 00:47:48] a keyboard and [there’s 00:47:50]-

Austin Rose:

Sidekick. Was it the sidekick? The flip? No, that was good. Cool. Any thoughts that you guys can think of that we want to touch on a little bit here coming towards the end?

Matt Myers:

It’s the like iPhone.

Austin Rose:

Dropshipping it’s like the iPhone.

Travis Mariea:

Nah, I mean, yeah. I don’t have a ton. I mean, it just comes down to, that’s why I know we’re in a good space. That’s why I like playing in this space. It’s I believe fundamentally that there is a lot of value in what the dropship fulfillment model provides. The retail industry where it provides a supplier, where it provides just the relationship in what we’ve seen in traditional supply chain. And it’s one of those things when you believe in it and when it makes sense to you, double down. I never invest in anything I don’t really fully understand, right.

Travis Mariea:

Missed out on the crypto because it took me a while to really, and who knows if I still fully understand it. But I feel like comes back to that informed and non-informed investing in Shopify, Twilio, those companies where you know the underlying fundamental value there that they offer. And I think dropship is, if there’s anything I can say from this episodes podcast is, there is some significant value for the ones that figure it out. And those of you [negley 00:49:15] just haven’t figured it out yet.

Austin Rose:

Yep.

Matt Myers:

Just about anything good is controversial when it comes out. And so enough time to kind of road that controversy.

Austin Rose:

Yeah. Either until they get informed or they get either the distributor or the retailer gets that one partner that they’re doing dropshipping through or with that, that ticks that margin. Right. That ticks us like, “Wow, look at all this volume coming through from this good retailer.” So almost in my eyes is the more good retailers we get out there, the more good distributors we get out there, the more it’s not going to be viewed negatively.

Travis Mariea:

And the last part, just to. It might not be for everyone, right. It might not be for everyone. But I think one thing, you see this direct to consumer movement where it’s a brand goes, “Well, I’m not going to dropship because I don’t even resell. I sell my stuff direct to consumer. So I’m dropshipping to a consumer directly.” Right. So they’re never going to do dropshipping in their mind, but it really comes down to do you believe in the business to business resale of your product? And what we’ve seen in direct to consumer is it works really well.

Travis Mariea:

And there’s a lot of reasons why you would want to just come up with a product and a brand and then sell it directly to a consumer. But at some point, customer acquisition and all that kind of stuff breaks down [a lot 00:50:36] DTC brands. But at some point, if you have another channel where you can push more product, you’re going to want to open up to that. I don’t think that’s going to go away anytime soon where I’ve decided to be a DTC brand and I will never sell to another business.

Travis Mariea:

So if that’s the case, then dropship is probably not for you. And there’s a lot of scenarios where maybe it doesn’t make sense in the next five years, maybe 10 years because of your product size or your product positioning or margin or whatever it might be, but for anyone that is reselling in the retail industry there’s a good chance that it could make sense for you if you just invested in it. So not saying it’s for everyone, but it definitely is competitive vantage and in most scenarios.

Austin Rose:

Yep. I agree.

Matt Myers:

You have the choice to just sell on Amazon or sell on Amazon and eBay and Walmart, right. So if you have a capability you might as well sell on all those kind of channels and all those are direct to consumer, same concept applied to a business relationship where you have potential to do more volume, right. And for your business, as long as it makes sense for your business, it’s kind of a no brainer.

Austin Rose:

Yep. No, I agree. Really good points guys. Appreciate you jumping on today. So that was the latest episode, obviously talking about why dropshipping could be viewed negatively. If you guys have any thoughts, any ideas that you want to talk about on the podcast, you can head over to flxpoint.com, it’s team we’re on, and you can go to the blog and fill out one of our forms, ask us any questions, subscribe to our YouTube channel as well. And be on the lookout for the next podcast. Thanks guys.

Matt Myers:

See you later.