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Will drop shipping become a major catalyst of online growth?

Written by Tom Ryan

Photo: UPS

Foot Locker recently began piloting a drop ship program with Nike to provide customers with access to inventory beyond its stores and warehouses. Dick Johnson, CEO, said on Foot Locker’s fourth quarter earnings call, “While it's early on, the program aims to provide more of the right product at the right time to better satisfy customer demand in shortened lead times.” In the Q&A session, he said the program was in the “early, early stages” and wasn’t yet helping mitigate inventory shortages due to congestion at West Coast ports. Drop shipping use is believed to have accelerated over the last year in line with online growth. Macy’s, Nordstrom, Kohl’s, Target, Lowe’s, Best Buy, REI, Chewy, DSW, Wayfair and Williams-Sonoma are among those offering drop shipments. Prada recently created waves in the luxury space by inking a drop ship deal with Net-a-Porter. For retailers, the pros of drop shipping are lower inventory risk and the ability to offer an “endless aisle” of products online. Retailers gain more control over pricing, promotion and service versus a marketplace arrangement. The cons for retailers include the need to provide information on their best customers to vendors as well as the loss of complete control of delivery. Retailers earn a commission on the sale rather than the typically higher retail markup. At its recent investor event, Nordstrom said it sees the possibility of expanding its online assortment to 20 times that offered in stores, up from three times currently, as it leans into drop shipments, concessions and revenue share deals. At Nordstrom’s Anniversary Sale in August, over one quarter of online sales were fulfilled by drop ship. According to WWD, Pete Nordstrom, president, told investors, “We are moving from a transactional way of doing business and more into a collaborative way, which in a lot of ways share the risk.” Niraj Shah, Wayfair’s CEO, told analysts last November, “When it comes to those suppliers who drop ship to our customers, we are working hand-in-hand to share best practices on how to manage the complexities of elevated demand, even if we're not directly handling the parcel. We're also closely tracking our suppliers inventory positions and backlogs to diagnose and, together, troubleshoot logistics issues before they become bigger problems.”

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