eCommerce is one of the fastest developing markets across the globe. In 2020, we saw a massive boost in the creation of online shopping platforms. In a way, thanks goes to the COVID-19 pandemic because it might not be possible without it.
According to research, the eCommerce sector is expected to grow even further and transactions will grow on a global scale to at least 20% by 2022, which would be equivalent to $5.8 trillion.
Due to such an increased demand, many different inventory models were introduced. So for now, let’s look at 3 of the most popular ones that we can leverage to our advantage.
Most people show dropshipping as a new thing in eCommerce. However, statistics represent a different story.
The dropshipping model is the most popular amongst online markets with 33% of owners using it for their store.
The seller doesn’t store any inventory and instead relies on the manufacturer to ship and deliver the product to the client.
In this scenario, the customer buys an item from your online store at retail price. When this happens, the supplier gets a notification about the order and you’re required to pay the wholesale price of the product.
Once the order is paid, the manufacturer sends the item to the customer under your company’s name and your earnings come from the profit margin.
The appeal of dropshipping comes from the fact that you don’t have to buy and store inventory, which can save you a lot of money in investments, at least in the beginning.
Up until this point, it’s all sunshine and roses. But still, the biggest risk in dropshipping comes from its major positive. In theory, it sounds great - you sell products, don’t buy or store, and earn money. Done and dusted. But, it’s not as easy as it sounds. Just like any other business, you have to put a lot of effort in the dropshipping too, especially in the early process.
Based on this inventory model, the role of the supplier is key for the success of any store. If you want to deliver a quality product with fast shipping and good customer service, you must work with a reliable partner that you trust and can meet the level of quality you want to offer your customers.
Wholesaling and Warehousing eCommerce Inventory
This is one tried and tested business model that works well for both “real life” stores as well as eCommerce. However, many entrepreneurs run away from it because they look for a large initial investment.
From your stock to the people working for you - there’s a lot more you need to manage. Although it’s a more traditional way of creating a company, it’s also demanding to a great extent.
The idea is pretty simple – you buy the product from the manufacturer in bulk (which lowers the cost of items), then you store it in a warehouse and sell to customers at a retail price, or at one that’s profitable for your company.
This is the best business model for people willing to make the initial investment in product, warehousing space, and logistics. It’s also the right option for owners who want to be in control of every process in their company’s daily operations. It’s something that can work well only if you plan on selling in high volumes, otherwise it can lead to losses.
For this inventory model to work, you will need volume, a large warehouse, and stock tracking software. All of this can lead to an investment of a big chunk of money. Be prepared to give a lot from the beginning without worrying too much about the instant returns.
Label eCommerce Inventory
You may have heard about white and private labeling already, let’s take a look at what those terms really mean and how they’re applied in eCommerce.
The art of rebranding premade items to fit your brand – that’s what both white and private labeling essentially means. And even though those terms are often used interchangeably, they don’t mean the same thing.
So, let’s see what the differences are.
A white label product is usually made by one manufacturer and sold by many different retailers. Each seller can offer this generic item under their own name and branding. But remember, they can’t make any changes to the product. This is something that is usually pulled by the large stores. Just because they got a great brand, they can charge more for a generic product.
During the process of white labeling, you can create one product – for example, shampoo.
You can sell shampoo to 10 different retailers and each one of them can rebrand the shampoo to fit their own business. So what’s going on here is - they’re all basically offering the same product but with different brand names.
Although white labeling is a quick way to get your item on the market, it’s not a great way to build a recognizable brand.
The idea behind this business model is quite easy to grasp. You have a product created by a certain manufacturer, the reseller brand takes that product, makes changes to it, such as color, size, specific branding, and then sells it exclusively as their own.
Private label dropshipping is one of the best ways to scale and earn more profit. If you’re interested to make money with it, you can read this post that teaches you how to start a private label dropshipping store.
Which Is the Best eCommerce Inventory Model to Leverage in 2021?
If 2020 was the year of dropshipping, it seems like 2021 will be the year of private labeling as this eCommerce model allows you to create a unique product for your brand without investing money in the manufacturing process.
Furthermore, you have the flexibility to work with multiple suppliers for the different products you sell. In case you’re unhappy with one manufacturer, you can switch to another.
My advice will always be to create a company that you want to be a part of.
In other words, always choose the business model that fits your vision.
Azfar is an eCommerce ninja at Conversionskitchen.com, who have been writing awesome stuff about eCommerce for over 4 years, you're more than welcome to have a look at his extensive write-ups on our blog.