My name is Chris Bernard. I worked for 11 years in the wholesale & drop ship industries and was considered one of the leading industry experts. During that time I worked with many of the world’s most prominent drop ship companies. However, in February 2007 I was abruptly blacklisted from the industry just for speaking the truth! The truth that would cut into the drop shipping gold-rush profits and would demand the industry reinvent itself…
To really understand the problem with drop shipping, you need to understand its origin.
Before the internet, companies that had products to sell but didn’t have retail (brick-and-mortar) stores would sell their products through catalogs and door-to-door sales. So, they needed a sales force to go out and actively find buyers. These types of sales teams are often referred to as "feet-on-the-street". Literally people to walk around and sell products.
Drop shipping allowed companies to have people selling their products by distributing their catalogs, knocking on doors, and recommending their products to friends, family, and neighbors… Without the overhead costs of traditional employees.
With drop shipping, companies wouldn’t have to provide benefits such as insurance, retirement plans, etc. and companies would only pay out per-sale (commissions). This was ideal because a company would never have to pay for a salesman who wasn’t producing results and could grow a huge sales force without any financial risk.
Companies like this still exist today. Mary Kay, Kirby, PartyLite, Lia Sophia, etc are all examples of drop ship companies that still run the "old-school" model of business. Catalog & door-to-door sales driven by real people.
But the key element to drop shipping was, and still is, a secured market. The companies above sell products exclusively through personal sales reps and do not sell in retail outlets, to wholesalers, to the public. This is what makes them work. The prices, distribution channels, and markets are all tightly controlled.
This is not true with the drop shipping companies that litter the internet with claims of huge profits selling popular items such as iPods, laptop computers, jewelry, etc. Any product that is not controlled by the manufacturer and sold exclusively through personal sales reps (AKA. drop ship sales) will not be profitable online. Why?…
Resale (buying and re-selling for a profit) is all about buying power. And with drop shipping, you have none. Zero. You are often buying just one of an item, and thus, have no buying power. Because true wholesale pricing is all about quantity.
A huge established retailer, like Wal-Mart for example, has extraordinary buying power. They don’t just buy one iPod at a time, they contract to buy thousands. Let’s look at the numbers using a gold necklace as an example…
Let’s say a wholesaler’s cost on a gold necklace is $10 and the wholesaler sells the necklace to a famous department store for $11.50 each (cost +$1.50) with a quantity of 10,000…
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