The expanding appeal behind drop-shipping

More online merchants are choosing to utilise drop-shipping — a retail fulfilment method where an e-store purchases merchandise from a third party and ships directly to the customer — according to online payments company PayPal gets more insights from Rahul Shinghal, managing director, PayPal South-east Asia and head of Merchant Support, PayPal APAC, on why some Web retailers have transitioned into this business model as their primary method of order fulfilment.

Why is drop-shipping important for retailers in South-east Asia?

Rahul Shinghal: As e-commerce is on the rise around the world, consumers are starting to trust the online buying experience and appreciate its convenience. Cross-border B2C e-commerce is projected to reach US$424 billion by 2021, according to Forrester Research. At the same time, mobile is consolidating commerce around large e-commerce sites.

PayPal’s study, Beyond networking: Social commerce as a driver of digital payments, found that in Asia, smartphone ownership reaches 88% and Internet access is at 92%, making it inevitable that more people will start buying online, and less from traditional bricks-and-mortar retailers.

Many established retailers in the region developed before the digital/mobile revolution and struggle to compete in a digital world. Drop-shippers — who sell on online marketplaces such as Lazada and social media platforms Facebook, Twitter, and WeChat — help retailers to adapt and cater to the change in consumer behaviour, essentially enabling them to survive in this evolving retail landscape in South-east Asia.

Drop-shipping has also enabled a new generation of entrepreneur retailers in the region as increased digital connectivity lowers the barriers to online selling. Social commerce has empowered individuals to embark on their entrepreneurial journey, without the usual risks (such as the risk of holding inventory) that are associated with traditional retail models.

How can digital payments play a part in drop-shipping?
Shinghal: Digital payments are a key facilitator of this new world of commerce as merchants look to expand their retail strategy to include social commerce, drawing regular social media users to begin selling goods or services through their accounts. Digital payment solutions can provide the swift and seamless experience that both consumers and merchants desire by making payments disappear into the platforms, facilitating intuitive and user-friendly checkout flows online. They are also key in safeguarding transactions and the personal data of both buyer and seller.

Drop-shippers help retailers to adapt and cater to the change in consumer behaviour in South-east Asia.[/caption]

How has the rise of social commerce impacted drop-shipping in the region?
Shinghal: It has opened doors and created more opportunities for drop-shipping in the region. As drop-shipping is still a nascent phenomenon in South-east Asia, data for increased drop-shipping activities isn’t readily available. However, in our interactions with our merchants, we have noted that more of them are choosing to utilise this business model because the increasing prevalence and ease of use of social media platforms is transforming social media from just a networking platform to a digital marketplace. Among the merchants we surveyed in our social commerce report, 80% of those in the region said that they sell through social media platforms/messengers with the majority in Thailand (95%) and the Philippines (87%).

In short, the rise of social commerce has turned social media into a viable business platform for drop-shippers and is especially useful for drop-shippers to appeal to the “impulse” buying tendencies of consumers because of the highly visual aspects of social media platforms (such as Instagram and Snapchat).

The proficiency of drop-shippers’ in certain languages, such as Mandarin, also allows them to shop on sites such as Taobao and find gadgets to sell on other social media platforms that cater primarily to English-speaking users who won’t visit such online sites due to the language barrier.

What is the role of data in drop-shipping?
Shinghal: Data helps e-commerce players determine product demand and consumer preferences. This allows for more targeted marketing and in some cases, the data can also help drop-shippers determine the price points for different products. With the recent implementation of the General Data Protection Regulation (GDPR), there is greater accountability and transparency in the use of consumer data. While this may limit what may be available to drop-shippers, it also allows for greater consumer confidence when transacting and making digital payments online.

What are your thoughts on the future of drop-shipping in South-east Asia?
Shinghal: In our interactions with merchants, we have noted that more and more are choosing to utilise the drop-shipping business model. The concept of re-selling is not new, but three key factors are contributing to this rise in the future; the shift in consumer buying behaviour: increased digital connectivity and increasing prevalence; and ease of use of social media platforms.

We see social media platforms transform into digital marketplaces, and with the low barriers to entry for drop-shippers, it would be no surprise if this number were to continue to rise in the foreseeable future. At the same time, traditional merchants/retailers are expanding their retail strategy to include e- and social commerce, with drop-shippers playing a key role in ensuring they continue to be relevant.

Success trickling in with drop-shipping

MANY online retailers have experienced positive outcomes from using drop-shipping as their primary method of order fulfilment — evident through driving successful business results — Rahul Shinghal, managing director, PayPal South-east Asia and head of Merchant Support, PayPal APAC, shared.

With more than 40,000 units sold since September last year, this hoodie was Gabriel Seah’s top-selling item worldwide.(Photo credit: Delight Prints and @jocarra)

For example, Gabriel Seah is an online retailer who has benefited from drop-shipping in his business. Gabriel is director of Delight Prints, an online print shop which makes high-definition prints for customers to be placed on any medium of their choice whether it be a wall canvas, item of clothing or iPhone case. He strongly believes that it is drop-shipping which has got his company to where it is today. “I now employ 25 in-house designers and my company has seen strong growth. Since last year, we have already rapidly surpassed our Key Performance Indicators (KPIs) and we are soon to be tripling our sales,” Seah declared.

Drop-shipping has enabled Seah to sell his products predominantly on social media platforms. “We sell 90% of our products on Facebook and Instagram, and 10% on Google or organic searches,” he revealed.

With low barriers to entry, Shinghal added that many e-commerce players are marketing their products with ‘impulse buying’ strategies leveraging a combination of highly visual social media platforms and its social networks. “With faster shipping times and good customer support and communications, online shopping has increased rapidly, and with this, more suppliers can drop-ship, which also attracts the attention of traditional retailers,” he commented.

Muneerah Bee