Why Did Amazon Kill Dropshipping?

 In dropshipping, the seller (merchant) accepts orders from customers but does not keep the goods sold in stock. The seller sends the orders along with the shipment information to the manufacturer. Or else, the seller transfers the orders to a retailer or a wholesaler. In many cases, the orders are sent to a fulfillment center, which will then ship the ordered goods to the customer directly. Many of the sellers do not maintain a warehouse, and so, they make use of the dropshipping method to sell their products. This ecommerce business model has become very famous over the past five years. In other words, dropshipping has been the rage for quite some time. It is considered to be quite a low-cost business that provides high returns.

A lot of new discussions about dropshipping crop up every year. There is a debate and even speculation about dropshipping becoming dead.

Dropshipping on Amazon has both its pros and cons. Some of the merits of Amazon dropshipping are that you will have a vast customer base and need not bother much about the logistics part. You also have the advantage of more traffic on Amazon.

Some of the demerits of dropshipping on Amazon are listed here:

1. High shipping costs

2. Very little quality control

3. Low-profit margins

 

1. High shipping costs

The goods that a customer orders must be sent from the manufacturer/retailer to the Amazon fulfillment center. The goods will then be shipped directly to the customer. In both these cases, high transport costs are involved.

2. Very little quality control

Since the ordered goods do not get into your (the merchant’s) hands, you have negligible quality control over them. The goods will reach the customer’s hands without you inspecting the package or the contents in it. This is yet another factor that acts as a disadvantage in Amazon dropshipping.

3. Low-profit margins

Some people consider dropshipping as a low-cost business with high returns. However, this might not be true. A part of the money you get out of your business will go to Amazon. After all the shipping costs and other types of expenses, you will have only a small amount of profit left in your hands.

You must do a lot of business to keep yourself afloat. And then, you need to do a lot more to turn a profit.

Added to the above, Amazon provides some penalties to merchants who frequently fail to fulfill its expected quality conditions. Very frequent and regular penalties might result in the shutting down of your Amazon merchant account.

For instance, consider the following rates quoted by Amazon:

Ø Order defect rate-has to be less than 1%

Ø Cancellation rate-should be less than 2.5%

Ø Delayed shipment rate- has to be below 4%

In case you fail to meet the above criteria, your Amazon account could be suspended. In addition, the list of products is too strict. The packaging of the goods will also be changed often. And, the FBA (Fulfillment By Amazon) program is a good option, but not an ideal one. Amazon appears to favor merchants who make use of the FBA program. 

Thus, you can see that Amazon sets a lot of limitations for dropshipping and many merchants are not too happy with them. And this is the reason why they say Amazon is slowly killing dropshipping.