In the last few years, a new online shopping business model entered the eCommerce arena: Dropshipping. Who wouldn’t love to make money in their sleep while their online business sells on autopilot?
At first, dropshipping seemed like a dream. Yet as quickly as the concept exploded in popularity, many sensed an implosion. Is dropshipping dead in Australia?
Let’s sort through the pros and cons of dropshipping to find out.
The Australian eCommerce industry is thriving, worth approximately A$40 million in revenue, according to 2020 data from Statista.
With a steady 6% increase every year, it seems like consumer patterns with online shopping will only continue to rise. Does that same projection crossover to dropshipping in Australia?
The prospect is tempting: Start an online business for minimal investment and yield a sizable return on products you don’t even have to stock.
By working with fulfilment platforms like AliExpress and Oberlo, it’s never been easier to make a website, list products, and start selling.
All a startup business owner has to do is create an online store, list products, advertise, and get sales. From there, the third-party supplier delivers the product to the buyer and cuts out the middleman.
Most often, the fulfilment company is a huge offshore warehouse ready to ship mass-produced products from factories overseas.
Does it work? More importantly, if it did work at one point, is dropshipping dead in Australia now?
Dropshipping sounds too good to be true, right? For many, it is. When dropshipping first hit the eCommerce industry, it seemed like a gift from the digital gods.
Finally, people could build an online business with little startup costs and bring in passive income. Unfortunately, by the time the trend spread, it was already too late for many people to benefit from. Why?
The entire model of dropshipping is built on the reliability of one of the most unpredictable provinces: technology.
Ultimately, as soon as a trend becomes popular, it’s often too late to get in the game. Tech trends evolve so fast, that the initial strategies for building a dropshipping business are already outdated.
Evolving Search Engine Optimization (SEO) tactics, patterns in consumerism, Google advertising, and competition from Amazon and eBay make dropshipping in Australia difficult.
That doesn’t mean it’s impossible, as proven by novelty success stories like the uni dropout bringing in a six-figure salary.
However, to truly succeed means maturing beyond the false promise that there’s little work involved in dropshipping.
The truth is that there are successful Aussie-owned dropshipping stores. However, the set of challenges involved can’t be ignored.
If the bulk of a product lineup comes from overseas, expect long postage times. This becomes increasingly complicated when trying to compete with Amazon Australia and eBay.
Traditional business models equip sellers with hands-on supervision of all products. With dropshipping, quality control goes out the window. Sure, you can order samples to ensure quality, but there’s no guarantee that the same quality will apply to fulfilled orders.
Without in-person quality control, you place all trust in your oversea suppliers to send the products you’re advertising, which all too often doesn’t happen.
The amount of work that goes into building a store, adding products, advertising, fulfilling orders, and growing a business is tremendous. By the time the payouts come, the profit margin is too slim to cover all the work involved. Dropshipping stores average a 20% profit margin, according to Fit Small Business.
This is only half of the eCommerce 40% average gross margin, yet the same amount of work is involved — if not more.
The false promises of dropshippers making millions mislead eager shop owners to believe they can start a store and watch the sales pour in. While the business model is different, the foundations for good business remain the same:
you can’t sell anything without trust, quality, and good customer service.
With so much competition, it isn’t easy to gain traction as a new dropshipping business. To see profit requires tremendous efforts in advertising and online awareness.
Additionally, communication with foreign suppliers delays communication with your customers. These are challenges that arise, but they don’t compare to the biggest threat to dropshipping:
Massive Australian retailers have used the dropshipping model for years. However, the concept only went mainstream in the last few years. Anyone can sprout up a dropshipping store overnight, but that doesn’t mean it will be successful.
The concept becomes much more complicated in light of the struggle to stay alive as an Aussie retailer.
There’s already enough competition between local businesses and retail giants like Amazon Australia. Now, with everyone wanting a piece of the dropshipping pie, it seems like all roads lead to Chinese warehouses.
Sure, an Aussie-owned dropshipping store sounds nice, but really, the money is filtrating out of the country. And that’s when the government got involved in dissuading imports and encouraging consumers to buy Australian.
In 2018, the Australian government enforced a 10% GST tax on all imports from foreign suppliers in an attempt to protect the economy from the retail apocalypse.
This led to widespread confusion as to whether dropshipping was officially banned. The business model of dropshipping isn’t banned. Instead, the government enforced tighter regulations on foreign imports to protect local retailers from closures.
So, let’s answer the question on everyone’s mind: is dropshipping dead in Australia?
No, and yes. The oversaturation of dropshipping stores produces the consensus that dropshipping is dead. The truth is that to keep a dropshipping business alive requires a great effort.
Most new stores fail, and that’s because they launch without a sustainable business plan and little invested interest. There’s a substantial detachment between the owner and the product they are selling. Why do some dropshipping stores succeed, then? When done right, the business model is profitable.
Every online business — whether a local designer or dropshipping store — needs to prioritize the fundamentals of good business to succeed:
Excellent customer service
Brand recognition and trust
Without these, a dropshipping business has little chance to succeed, be it in Australia or elsewhere.
Was this article helpful?1 person found this article helpful