Several businesses have started to venture out into the world of e-commerce and explore more opportunities on online platforms. There are many modes of profiting from this industry through social media and websites.
Drop shipping is one such example of running a business online. Through this method, a shop owner would advertise products without keeping an inventory or stock, and based on customer orders they would buy the product from another store and sell them at a profit. The product would then be shipped directly to the buyer’s home, thus drop shippers act as an intermediary between the original shop and customer, and avoid the risk of investing too much money initially without knowing if products would make good sales later.
Another platform which sellers use to store items is Amazon FBA. In this process, they pay a sum of money to Amazon beforehand, and purchase products which are kept in an Amazon warehouse to be sold later. Many users choose this option due to the brand name. Amazon is a universally known website with a large customer base that allows any shopkeeper to ensure that they attract more viewers. Moreover, they don’t have to start a setup with a brand new website from scratch, so it is easier for people to manage.
While the factors mentioned above make Amazon FBA an appealing option for sellers and new entrepreneurs, it is also important to consider the disadvantages of this route. The following stated reasons make it clear why Amazon FBA is less suitable than drop shipping for beginners, and the safer option to go with.
Ø Costly Fees
As compared to drop shipping which can be done with almost no initial savings, Amazon FBA has a very costly startup procedure. As the items to be sold are from Amazon itself, they are stocked up in a warehouse from where the can easily be shipped to the buyers. However, if another seller wants to keep a stock in the inventory they must wire transfer a large amount of money first to cover investment, storage and packaging, and also removal fees for items which may be rendered defective, damaged or unsellable.
Ø Risk Factor
Paying a large amount in advance brings with it a high risk factor that the seller will not be able to make enough profit and might even end up with a loss or debt. Amazon does not provide any money back guarantee, so once the seller buys some items to stock up, it is their responsibility to ensure that they are sold in proper time. If they are unable to do so within the required or given time period, those products are labelled unsellable and the seller would have to pay money for their removal from the inventory themselves. Without enough sales, there is a high chance that the seller may go into a financial loss and not benefit from drop shipping as much as they would be able to from their own store.
Ø Product mishandling by Amazon
At times, the inventory from Amazon can get lost or damaged. Normally in such cases, sellers are reimbursed for damaged items. However, in such cases a defect in the products may go unnoticed by the store. This causes the sellers’ money to be lost, and they have no real claim which would allow them to hold Amazon accountable for a mistake in processing and storage. To avoid such issues it is vital that sellers always keep a receipt and records of their products in stock.
Ø Stickerless Commingling
Inside the inventory, product are not kept according to names of the seller who will drop ship them to the customer, but are instead categorized by the manufacturer’s name and type of product. When this happens, packages without stickers may be mixed up when sent to the customer. If another seller has brought the same item of cheaper quality or it has a defect, it could lead to the seller’s account being suspended for fraud.
Ø Not a sellable asset
Since using Amazon FBA means that sellers do not have an online store of their own, they do not have a sellable asset in case they want to forward the ownership to another seller. Drop ship stores which have become reputable and successful can be sold on a high price. On the other hand, Amazon only supplies a limited amount of stock which the seller invests in and after selling the products, they do not have any further affiliation to the store or ownership of any kind.
Ø No access to customer Data
One major con about choosing Amazon FBA for business is that sellers have no access to customer information. With basic user data such as email address and contact numbers, a customer- owner relationship can be formed whereby the buyers are kept up to date with new stock items, bestsellers and products which would cater specifically to their needs. Amazon Prime does not give sellers this information, giving them no way to upscale their business and target a larger audience and user-base.