April 4, 2022

By:

Lesley Hensell

Self-proclaimed “coaches” and “experts” are pushing this strategy, which can cost sellers their account, their cash, and their peace of mind.

“Very little investment necessary!” “Generate tens of thousands in revenue without carrying inventory!” “Make big money fast!”

The coaching vampires are out in droves, trying to convince unsuspecting targets of the glories of retail drop-shipping on Amazon.

Don’t fall for it. You could lose your business, your Amazon account – and your money.
What is drop-shipping?

The basic concept behind drop-shipping is a simple one. The seller of record never possesses the goods that are sold. Instead, the seller of record acts as a kind of middleman:

  • The seller advertises the goods for sale
  • The seller receives the order
  • The seller places their own order with the supplier of the goods
  • The supplier directly ships the goods to the buyer

If the supplier does their job correctly, they will show the seller’s name on the shipping label and/or include an invoice that shows the seller of record. This is because any customer service or returns will need to go through the seller of record – not the supplier/shipper.

Can you drop-ship on ecommerce platforms?

There are circumstances where drop-shipping is a completely legitimate business model – even on platforms such as Amazon, Walmart.com and eBay:

  • To the buyer, the fact that the item was drop-shipped is unknown. As far as the buyer is concerned, they bought the item directly from the seller – full stop.
  • The seller has a wholesale relationship with the supplier/shipper
  • The supplier/shipper sends out goods indicating the correct name of the seller of record

What is not allowed – and what the drop-ship gurus are selling – is retail drop-shipping. In this arrangement:

  • An Amazon seller lists items for sale – even though they do not have possession of the items
  • When an order is placed, the Amazon seller orders the item from a retailer such as Walmart, Home Depot, Sam’s, or even another seller on Amazon.com
  • The order arrives at the buyer’s location in branded packaging from the retailer, such as a Walmart box
  • The buyer is often confused by this and doesn’t know where to turn to for returns and customer service questions

What happens to retail drop-shippers on Amazon and Walmart?

If a seller is caught retail drop-shipping on Amazon or Walmart, the consequences can be drastic:

  • The seller account may receive a warning (or may not)
  • The seller account is suspended
  • The platform permanently holds any funds currently in the account
  • In extreme cases, if funds were recently transferred to the seller, the platform may claw back funds from the seller’s financial institution

The seller can appeal the suspension. Reinstatement in these cases is difficult to obtain and requires the seller to prove they will no longer retail drop-ship.

Amazon quickly caught on to the fact that retail drop-shippers shut down by the platform would simply open a new account and start drop-shipping again. That’s why high-volume or repeat offenders have their funds held permanently – as a disincentive to opening yet another drop-shipping account.

That’s why my question to aspiring drop-shippers is always the same: can you afford to lose the money in your account permanently? You need those funds to cover the purchases you made from other retailers. A massive one-time loss could destroy the small margins you received over many months – or even years – of operating a drop-shipping account. In the end, you put in a lot of effort and invested money – only to lose it all.

Why do gurus sell drop-shipping as a business strategy?

People selling this strategy make their money – whether or not their clients’ accounts are suspended.

The “business coaches” who push retail drop-shipping are offering some combination of software and inexpensive virtual assistant help. The coaches see their margins rise with each additional get-rich-quick “student” they sign up. They have created a drop-shipping machine that requires very little work and attention on their part.

Meanwhile, the students to whom they sell this scam realize extremely thin margins. They can only make real money by turning a lot of sales volume – which increases their risk of having a large dollar amount permanently held by Amazon or Walmart when they are ultimately suspended.

Why not just give it a try?

That’s the sales pitch of many drop-shipping gurus. They assure their targets that suspension is rare (it’s not), and that they can “fix” the situation if a suspension happens.

Instead of just giving it a try, I recommend that aspiring online sellers instead choose a sustainable business model. This is more work. It requires a larger investment. But it will be lasting and doesn’t engender daily fear that Amazon might permanently take your money.

In addition, other business models offer a higher profit margin – by far. Whether you set up sales rep relationships, find a great wholesaler, or launch your own private-label brand – surely your margins should be higher than the 1 to 3 percent that retail drop-shipping offers.

Retail drop-shipping is a get-rich-quick scam. And like other scams, it is short-lived for the victim. The promoter is the one who actually gets rich.

For more information on drop-shipping, check out these blogs by the Riverbend Consulting team: