Drop shipping is a retail business model where a seller doesn’t keep the products they sell in stock. Instead, only after a seller sells a product, they purchase the item from a supplier and have it shipped directly to the buyer/customer.
This is an excellent business to get into if you don’t have a lot of capital to get stock but have some marketing skills. But in South Africa this business model can get very arduous, even risky as we don’t really have a real local industry to speak of.
The Current Drop Shipping Landscape in South Africa
At the moment the majority of drop shippers in South Africa operate in two sectors: electronics and fashion. What they do is they find suppliers in China that ship single items to South Africa, so called “international shopping websites”, they copy photos off their website and start advertising products on bidorbuy, their own website and some even do it from retail outlets.
Once an order comes in they place it with their supplier and their supplier ships it directly to the buyer or in the case in the retail store ship it to the store where the buyer collects it (this is not true drop shipping but in SA where drop shipping is not as widely accepted as overseas the retail store adds a trust factor). Let me tell you what I think of this business model in South Africa: Its…
Here are the problems with this business model:
1. Anyone can ship products directly from those websites, Banggood, GeekBuying, GearBest or AliExpress / Oberlo etc.
2. Once an order is paid for then it’s the buyer’s responsibility to chase after the item if it gets stuck in customs.
3. Buyer has to pay whatever duties are on item
4. Fast shipping is very expensive, cheap or free shipping takes a month, even longer…
5. If item does not arrive, best case scenario the buyer gets their money back or has to wait another month
6. For urgent items forget about it. You have no idea when the item will really arrive when using cheap shipping or if it even will. Even tech savvy people rather pay the local premium than go through all that (remember customs and SAPO are government and has government efficiency) and don’t forget when an item breaks while under warranty it has to be sent back to China at the buyers cost which is another problem. So if you factor all that in: shipping time, custom duties, no local warranty it’s easy to why why drop shipping is not big in SA.
And I can go on. To quote directly from a GearBest rep (a Chinese shopping site popular with local dropshippers):
When ordering from overseas, do not ship by Sea unless it is heavy. Do not use “free” shipping like with Ebay or Aliexpress or Wish. “Free” shipping or cheap shipping normally is Airmail via HKPost (Hong Kong Post) or China Mail and normally takes 20-30 Working days. But once it gets to SA, it gets delivered through the Post Office and they are really unreliable and it can go missing. It can take over 1 month to move locally and to clear customs, as the Airmail is low priority so customs takes very long.You also get unregistered Airmail and Registered Airmail. Unregistered has a over 80% chance of never getting to you as there is no tracking number. Registered Airmail includes a tracking number which is better but not by much as it is still slow. Also do note that USPS (United States Postal Service) and Royal Mail (UK Mail service) might be quick to SA (7-10 days), but will also be delivered through the Post Office, so normal slow service can be expected. They also always bill you customs on everything no matter what.
Now I ask you how can you build a sustainable business with the above scenario? Free or cheap shipping takes long and is unreliable, you will get complaints, bad reviews and even legal threats, express shipping (DHL, Aramex, TNT etc.) that the above rep wants you to use is so expensive it will erode your profit margins. It is also important to read the reviews of the popular sites used for dropshipping: GeekBuying, Banggood, Gearbest etc. and see that even in countries with efficient customs there are problems, goods being sent back for repair then they refuse to accept the package. In general there also seems to be a nonchalant attitude once you have made payment, then there is suddenly no stock and no ETA on when stock will arrive, which makes a compelling case to either come up with a local solution or avoid this business entirely as attractive the notion of not holding stock sounds.
And this problem is not just online or with electronics, there was a fashion boutique that had this as part of their business, they seemed to be fairly successful and had shops in nice malls. They did have stock in their shops, but if you wanted something from a catalogue or a size of colour they didn’t have they would “order it” (read drop ship from China) it to the shop, they will call you when it arrived and you could collect it. They had a shop by Cavendish square in Cape Town, which is a fancy mall in Claremont, so you think it would be a different buying at a place like this than by someone on the internet. Nope, no different.
And let me illustrate why this can be a big problem, even when you have a physical outlet to collect from. My sister ordered a dress from them for her Matric ball, paid a deposit and they gave an ETA, well long story short, the dress never arrived (which is more common than you think with Chinese suppliers), yes we were refunded and we had enough time to hire a local to produce a copy of the dress she wanted. But this is no way to do business.
South Africa’s customs and postal service is too unreliable to bring the products in that route and DHL is too expensive (often more expensive than the product being shipped).
Now I can’t tell you what to do, if you want to run this business that way then its fine, many people make a good living from it, the owner of the boutique in question drove a supercar, even though this boutique is not a good example because they did hold stock, but drop shipping was a component of their business that allowed them to grow without the capital outlay of not holding a lot of stock, and to their credit they were very honest, when it didn’t arrive when they said it would they refunded the money no problem, no excuses, but it left a bitter taste in my mouth nonetheless.
I just want to illustrate the perils of this business model when shipping from another country. You can’t let people pay you for something and then make it their problem chase after it, negative reviews is very common for people who do this, and if your supplier don’t refund you, and you decide not to refund your customer, it could be misconstrued as fraud. Some sites that offer free shipping use shipping methods that cannot be tracked, so if a parcel goes missing, you don’t know whether it even left China (likely), container fell off the ship (probable) or if it was stolen at customs or SAPO depot (likelier).
Let me first explain to you what drop shipping is not.
Drop shipping is not affiliate marketing, where you get a cut for every sale you refer to a vendor. On drop shipping you get a price and then add your profit and then advertise. Affiliate marketing the seller sets the price. Drop shipping you make the price.
Drop shipping is also not operating with a supplier catalogue, adding a markup, taking orders and then driving to your supplier, buying the item and delivering it to the buyer. That is not drop shipping. That is just buying and selling and it’s not a very good business as it involves time and effort (and petrol) to collect the items.
Now if you’ve read this far I don’t have to remind you that in South Africa this business is a bit harder to do. It is not the passive income machine that people make out to be.
How to Run a Drop Shipping Business in South Africa
There are a few ways one can do this, try different things and tweak it to your needs but I’ll do a quick rundown.
Supplier = Company supplying you (the company you are buying from). Ideally the buyer shouldn’t know this company.
You = You
Buyer = the person who has bought or placed the order with you
1. Find a supplier
First things first, don’t worry about logistics yet: you need to find a Supplier, manufacturer, wholesaler of the items you want to sell. It has to be a trade supplier; otherwise there won’t be enough margins for You. Which means You will probably need to register a company as trade suppliers don’t do business with the public – they sell to companies who resell. Ideally you want a supplier with an online catalogue that you can login with a username and password (aka client portal) that is updated with prices and stock numbers in real time; otherwise there will be some extra manual work.
1.1 Find out how the supplier works
Usually this is simple: an order is placed with Supplier by You, depending on whether You have a credit account or not, goods are processed, if no credit account, goods are processed once payment has cleared and then it goes into an area where it is collected. Either by (a) a driver for the company, (b) by a courier sent by You – the company placing the order or (c) directly by You the person placing the order.
Now we’ve already discussed that we are not in the business of (c). Now we look at (a) and (b)
(a) Ask the company (Supplier) if they are willing to deliver directly to your client (Buyer) – most trade suppliers will not be willing as there are extra work involved (special packaging) and it is not really what they do.
(b) Work with a courier company to collect the order and deliver it straight to your customer (Buyer), open up a credit or prepaid account that gives you access to online waybills. Once you placed the order and have been told it is ready to collect. Then you fill in a waybill containing your customer’s delivery details, the courier picks up and delivers to your client.
Now there are a few things to consider here. What if you order more than one item from the supplier at once, the courier will have to put each item in a bag or box and deliver it. And he must be sure not to include the Suppliers invoice in the box as You don’t want the Buyer to see it. If your courier accepts custom stickers, if you can have the courier put some sticker with your logo on the bag or box.
I have to warn you now; there will not be many companies willing to do the fulfillment on your behalf. I’m not talking about fulfillment warehouses that charge monthly fees to hold and dispatch stock this has nothing to do with that, I am talking about suppliers that will send goods to your Buyer in your name.
How to process orders
You will need: website, hosting, domain, shopping cart & payment processor. Options include WordPress + Woocommerce, Shopify, Magento or any other suitable system.
So what happens is once you access the client portal of a supplier. And you see an item you want to sell on your website. You add the item, description, photo if available, a markup to the supplier price, courier cost etc. to your website. The buyer will “Buy” the item on your website. Let’s say the supplier charges R650, and you advertised the item for R1000, with a courier fee of R100. You then transfer R650 to supplier, R100 to courier and keep R350 as profit.
Large scale drop shipping operations in SA are rare as the local industry is too nascent; it is hard to scale this operation locally as there is some work involved. It hasn’t really taken off in South Africa, it’s one of those concepts that flourishes in countries where there are cheap and efficient logistics infrastructures. There are a few other techniques that you can try, but I’m afraid those techniques defies the whole point of drop shipping as a cheap and efficient business. Even what I have explained here isn’t *real* drop shipping because you are going to have to follow up on orders with Supplier, send tracking numbers to Buyer, in real drop shipping all that is mainly automated. But as I have so verbosely explained above this is the situation in South Africa.
There is a way to change the status quo locally, if you’ve read this far and can read between the lines you might have seen it, this is not on the product level but on the logistics: start a courier company specialising in fulfilling this type of orders. That is probably where most of the money will be: offering transport service to people in the drop shipping game. That business can be much easier scaled.