Gone are the days when you had to have big, large stores to be a big time trader. or retailer. Traditional trading and business practices, have always had three parties, the wholesalers, the middleman, and the retailer. Though that structure has remained practically the same, it is the middleman/retailer role that has taken a fundamentally new interpretation. These are the critical members of this supply chain but, unlike the traditional middlemen/retailers, may or may not have a single store or warehouse. These retailers receive end user orders, then transfer such orders and shipment details to either a supplier, a distributor, a wholesaler, or another retailer, who then ships the goods directly to the end user. Enter the world of "drop shipping agreements."
What Are Drop Shipping Agreements
In layman' language, Drop Shipping Agreements are basically agreements that allows a retailer the privilege to market products on behalf of a manufacturer, supplier, distributor or other retailers directly to the end users. For example, Amazon was founded and initially run from Jeff Bezos' garage from where thousands of items were sold despite Amazon as a company not physically handling or seeing most of the items sold.
Big as Amazon, Alibaba, and EBay has become around the world, from their websites, you could order items as big or large as manufacturing plant equipments and machines, e.g, industrial electric generators, to little household items like mobile phones or baby diapers, the principle behind their successes is incredibly simple and fundamentally the same. It is as simple as imagining a Jeff Bezos going to companies like Apple, Samsung, publishing companies, wholesalers etc. and saying, "look I may not have a block and mortar store or warehouse, but I can help you sell more of your products, let's have a Drop Shipping Agreement in order to establish terms on which I get orders and shipping details from end users directly to you, all you'll need do is to have these products delivered to the end user shipping details by yourselves. Then you pay me the difference between the wholesale and retail prices or a specified percentage on every items sold through my platform."
Biillion Dollar Industry Created By Drop Shipping Agreements
The evolution of information communication technology has transformed the way we used to transact businesses and has opened up a vista of opportunities for twenty-first century entrepreneurs who have built multi-billion dollar retail giants like Amazon, Alibaba and EBay, all based on Drop Shipping Agreements. These companies don't necessarily own brick and mortar stores or warehouses, but are posting record profits far much more than traditional retail giants like Walmart could ever dream of. This has become possible because these witty entrepreneurs like Jeff Bezos, founder of Amazon, had to ingeniously merge the roles of traditional wholesalers and retailers by entering Drop Shipping Agreements with multiple manufacturers and wholesalers.
Don't Rush In Without Drop Shipping Agreements
The unprecedented successes and valuation of these e-commerce companies has become the inspiration for other entrepreneurs around the world to try and mirror. In Africa for example, we've seen companies based on Drop Shipping Agreements steadily increase valuations, these include Jumia.com, Konga.com, wakanow.com etc. and even more are trying to come on board. This rush presents the risk of falling foul of patent infringement because, patented products usually attract royalties from suppliers. Therefore, selling patented products without the suppliers having paid royalties makes you liable. The only advice and recommendation is that you make sure you enter strong drop shipping agreements with suppliers, and carefully verify the authenticity of the merchandise, to protect yourself from any liability issues.