Drop-Ship Strategy Considerations (Part 1)

Customers may or may not realize that when they're shopping online with multi-brand retailers, some of the product doesn't touch the retailer's hands and instead is sent directly from brand to end-user. Known as drop-ship, this has some benefits all-around:

  • Customers gain access to an expanded selection of goods that a retailer may not have the space (physically or monetarily) to take into inventory
  • Retailers can can attract customers who want breadth of assortment and increase sales without the burden of additional inventory
  • Brands can increase their retail sales with retailers who might not buy a broad assortment outright, while keeping inventory centralized and ready to ship anywhere

There are plenty of decisions retailers need to make about how to select, merchandise, and communicate the drop-ship portion of their offer. But what I've seen generate more attention within retailers is how to handle returns, particularly when the retailer has stores.

Some of these decisions need to be addressed upfront when onboarding drop-ship vendors, but I'm going to skip ahead to customer experience offline.

I’m sure the Williams-Sonoma family isn’t the only one telling customers certain online product can’t be returned in store, but they’re the only one I can think of offhand. I personally had a problem there when I ordered a very large and heavy ceiling pot rack online and hauled it through Manhattan to return it in-store. They insisted I to take it home and return it by mail and even explained/complained they had no where in the store to put it. After a lot of time and stress, someone took pity on me since it was so large and heavy and agreed to send it back for me. But it was so clear they had no process for this. (Note: I generally like WSM and I'm sure I should've known I couldn't take this item to a store to return.)

If retailers carry certain items online but not in stores (which is often the case with drop-ship items), it's safe to assume stores will be hit with returns of items they don’t carry. Rather than disallowing this, I think we can agree the best customer experience is to allow or even encourage it. Among other reasons, attach rates (i.e. when a customer comes into a store to make a return and then also makes a purchase) are 20%+.

I recommend considering two factors in determining whether/what to keep in stores vs. send back. First, merchandising: What are the items and can they reasonably and palatably be presented in stores? Second, training: How realistic is it for associates to follow instructions about keeping some items they don’t carry and sending others away vs. giving them more of a black-and-white procedure to send them all back?

When I wrote about what retailers can learn from Amazon's store, I didn't mention that I saw a customer approach a cashier with an Amazon return. He was turned away. But perhaps not for long.