One of the options you will face as a new e-retailer is whether you should use drop shipping or not. Drop shipping is a solution where your suppliers ship directly to your customers. It can be somewhat tricky to establish. We have been able to get an interview with Anders ‘AndersIvar’ Karlsson, who is one of Sweden’s strongest proponents of drop shipping.
Drop shipping can be complicated, as it is both easier and more difficult at the same time. One reason is that you have to convince the manufacturer or the wholesaler to send their products to a lot of different addresses, instead of to you. One of the stronger proponents for drop shipping is Anders Karlsson, who has built up Barahandtag (Swedish for ‘only door handles’) entirely based on drop shipping. Barahandtag initially sold, as the name implies, only door handles, but now offers a wider assortment of products. Anders Karlsson, who also founded Tonerlagret, tells us more about drop shipping.
You like drop shipping, why is that?
I think it is an easy way for us at Barahandtag to deal with things that we know well and leave the things we are less good at to others. Also, we avoid inventory costs and the risks that come with holding our own inventory, such as obsolescence. Just as we do with the accounting, which we are not the best at, we also leave warehousing, packing and logistics to those who are better at it. That way we get more time for other things, such as customer relationship management, SEO, SEM and selling, while at the same time minimizing the risks that come with an inventory. Another advantage is that we do not need to chase products and keep track of them to the same extent as those who have their own inventory and product responsibility. Our supplier is one of the largest in Sweden when it comes to door handles and knobs, and they deliver to big kitchen manufacturers. That means that input comes faster from their end than we ever could manage.
What is your best advice to those who want to get started?
I think I have said it before, but it is worth repeating: a good drop shipping supplier will never fall from the sky. So, if you want something you are interested in, then contact the suppliers themselves. Sell yourself and your idea, so that the supplier understands that you know what you are doing when it comes to e-commerce. If you have any previously successful projects, then that is a feather in your cap, which can make it all easier. Also, make sure that you have an agreement about issues that can arise, how returns shall be handled, does the supplier understand the importance of fast delivery, how do you track what has been sent, and so on. For our part, the supplier also packs our order forms and we have our own boxes with our logo. That makes it more Barahandtag and less the supplier, which is exactly what we want to achieve.
This must involve a lot of administration; how do you handle that?
We don’t have a great deal of administration. We get the tracking number for all packages sent every day, and we have a template for this that we send out to customers. We use Klarna for all payments, so that also involves minimal administration. Then we get a monthly invoice from the supplier, with everything specified, so I think it works really smoothly.
How do you find suppliers who are prepared to drop ship?
First, decide what you are going to sell, and then find a couple of suppliers that seem right when it comes to products. Then it’s chase, chase and chase, and make sure you can go and meet the suppliers and get them to understand the advantage of having their products sold through your online store. Today, there are many companies that know how to find products, import and stock, and that have their own web shop. But far from everyone knows how to run the web shop in a profitable way. It is somewhere in this process where a good e-retailer can make a difference. If you can sell a lot more products than they can, there may be room for making money for both of you and then you can find a sensible partnership that can work in the long run.
Do you think that it works in all segments?
No, I don’t think so. Or yes, technically speaking, I can’t think of any segments where it would not work, but in terms of profitability, there are probably some segments where it would be difficult. Today there are a lot of low-margin segments where there is no room for another player to cut in, and where it probably would be tough to achieve something that works for both parties. Don’t forget, it must to be profitable for both parties, not just for you or for the supplier.
How do you handle shipping and returns, do you or the supplier write the waybills?
Our supplier handles the printing of the waybills, we have an agreed standard price per package, no matter how large or small it is. We did this because it should be easy for both parts and at the end it is fair for both parts. Since our supplier also delivers to most of the major kitchen manufacturers, their traffic volume is significantly larger than ours and therefore they have got relatively good prices on their shipments. When it comes to returns, they go back to us and not to the supplier. That means that we have a small inventory which we always use first and if it is not in our inventory the order goes to our supplier. Overall, about 5% comes from our own little inventory, and the remaining is sent directly from the supplier. We send products back to our supplier approximately twice per year, and any products that end up staying in our inventory get included in those shipments.
Would you recommend other e-retailers to look into drop shipping?
Absolutely! But it also depends on how you want to work; there are of course drawbacks with drop shipping too. You do not have control over the entire flow after you have sent your order to the supplier. Even if we have a very good partnership, it is still a different company and if something goes wrong in the process, you can’t always fix it yourself without contacting your supplier. Also, if you enjoy physical labour and want to pick and pack your goods, and are good at logistics, it may be a better choice to take care of that part yourself. For our part, we are not experts in logistics but good at ensuring that customers receive a good experience, providing a really high level of service and at promoting our shop and optimizing it in various ways. Therefore, we have chosen to work with things we know.
My own view on the matter after having interviewed Anders is that we probably dealt with drop shipping in the wrong way. In Gardenhome, we clearly have got a more complicated life than what Anders seems to have gotten in the Barahandtag. It is probably time to look at our own management and to put more energy into pitching, because that is what you need to do to get a good deal in an industry where people already are hesitant about e-commerce.