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Drop Shipping Enables SHOP.COM To Add 50,000 SKUs, Earn 20% Profit Margins Featured

  • Written by  Glenn Taylor
Drop Shipping Enables SHOP.COM To Add 50,000 SKUs, Earn 20% Profit Margins

While SHOP.COM’s marketplace model had traditionally generated single-digit profit margins, the addition of new drop shipping vendors has enabled the retailer to achieve margins in the 15% to 20% range, according to Eddie Alberty, VP of Strategic Partnerships at SHOP.COM.

To leverage this drop shipping process successfully, the e-Commerce retailer selected the Sourcing solution from SPS Commerce, expanding its sales volume in select product categories such as soft goods and consumables. Since implementing the solution in late 2015, SHOP.COM has added more than 50,000 items from 50 drop-ship capable vendors and distributors from the SPS Retail Network.

With SPS Sourcing, SHOP.COM specifically sought to:

  • Strategically expand product offerings in current and new categories;

  • Keep consumers on the SHOP.COM site, instead of having them make the final purchase on a third-party site;

  • Enter new markets with qualified vendors that align with their merchandising strategies; and

  • Create more opportunities for consumers to earn cash back on the SHOP.COM rewards program.

SHOP.COM already had experience with the margin improvements possible from working with drop-ship partners (as opposed to on-site retail partners). In addition, these arrangements enable more cash back rewards to go to the consumer, a key part of the SHOP.COM business model.

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“Our first taste of expansion into new categories was with a large drop shipper, and we did it directly,” Alberty said in an interview with Retail TouchPoints. “We didn’t use a platform such as SPS. We did three or four of those in a year-and-a-half’s time, and it was very painful going through each integration, because each situation required something a little bit different. But it worked. The margins were there, and we were able to add a lot of office products to our site. We already had a past history of doing well in that category, so it was a natural fit.”

After studying the services offered by approximately eight to 10 electronic data interchange (EDI) providers for the supply chain, Alberty and the SHOP.COM team felt that SPS Commerce Retail Network could make the drop shipping process both more consistent and convenient.

“We had a few relationships, but not very many in the drop-ship business,” Alberty said. “We really needed a partner that could help us to source other drop-shippers that were qualified and met our requirements, such as a willingness to drop-ship to the customer.”

The SPS Sourcing solution streamlined the SHOP.COM sourcing process for identifying and pre-screening vendors, allowing the retailer’s merchandisers to focus on vendors more suited to meet their merchandising, supply-chain and financial requirements. While the number of SKUs on the e-Commerce site has already increased by 50,000, Alberty expects the number to climb even further as more drop shipping vendors enter the pipeline.

Keeping Customers On The Site Longer

Initially, to add products to the e-Commerce site SHOP.COM had partnered with affiliate retailers such as Walmart, The Home Depot and Saks Fifth Avenue. However, prior to the implementation of SPS, the affiliate channel served largely as an advertisement for products offered by these other retailers rather than as a pure sales channel.

“The problem is that it’s a customer acquisition channel for those retailers and the customer doesn’t stay on our site,” Alberty stated. “They link off, and any purchase doesn’t go through our cart. On the other end, customers don’t earn their rewards very quickly, because we have to earn revenue before we actually pass the rewards. Having the products on our site, going through our cart, where the customer can just simply add one of those products in another category to that same shopping cart experience — and check out using one payment method — causes a little less friction and allows us to offer these products without having to physically inventory them.”

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