Dropshipping: The shadowy logistics behind your Instagram ads

Is there anything creepier than ads from mysterious, cool-seeming but not-quite-familiar brands that pop up in your Instagram feed, which seem to know who you are … and what you want? For men of a certain demographic, the ads (which can also follow you around the internet, and occasionally [sell counterfeit goods]( might be peddling [hipster watches]( for women, [perhaps it’s classy lingerie](. In many cases they’re the result of a peculiar e-commerce phenomenon of the moment, known as dropshipping. At its core, dropshipping refers to the routing of products directly from manufacturers to consumers, without physically passing through retailers. But in the last few years, the phrase has become associated with nebulous online middlemen, who attempt to connect cheap Chinese manufactured goods and affluent Western consumers with turnkey social media and e-commerce tools. Then again, it’s very possible that the whole premise of the business model is a scam. 🐦 [Tweet this]( 🌐 [View this email on the web]( [Quartz Obsession] Dropshipping April 05, 2018 Have I got a deal for you! --------------------------------------------------------------- Is there anything creepier than ads from mysterious, cool-seeming but not-quite-familiar brands that pop up in your Instagram feed, which seem to know who you are … and what you want? For men of a certain demographic, the ads (which can also follow you around the internet, and occasionally [sell counterfeit goods]( might be peddling [hipster watches]( for women, [perhaps it’s classy lingerie](. In many cases they’re the result of a peculiar e-commerce phenomenon of the moment, known as dropshipping. At its core, dropshipping refers to the routing of products directly from manufacturers to consumers, without physically passing through retailers. But in the last few years, the phrase has become associated with nebulous online middlemen, who attempt to connect cheap Chinese manufactured goods and affluent Western consumers with turnkey social media and e-commerce tools. Then again, it’s very possible that the whole premise of the business model is a scam. 🐦 [Tweet this]( 🌐 [View this email on the web]( Reuters/Mike Blake By the digits [2 million:]( Advertisers on Instagram per month [$10.9 billion:]( Projected Instagram ad revenues this year [500,000:]( Number of merchants on the e-commerce platform Shopify, up 74% in the last five years [$1 million:]( Sales per minute facilitated by Shopify around big shopping days like Thanksgiving [$0:]( Cost of an infamous Instagram-touted watch, not including a $10 “shipping” fee 🔎 On the trail --------------------------------------------------------------- [Alexis Madrigal of the Atlantic]( recently covered the dropshipping boomlet, after he purchased a suspiciously inexpensive coat from a brand called West Louis, via an Instagram ad. After his coat turned out to be a cheap piece of crap, he found that West Louis was part of a constellation of overlapping brands that all used similar products and the e-commerce site Shopify—what he termed “the base layer for an emerging ecosystem” that connects Facebook’s advertising with Asian wholesalers selling goods on Alibaba. Madrigal’s piece built on the work of an artist named Jenny Odell, who traced a watch sold “free” (plus $10 shipping) through an Instagram ad from interlocking companies with names like Folsom & Co, Sofi Coastal, and Ottega—each with their own carefully chosen aesthetic. “Amidst the shifting winds of Alibaba sites, dropshipping networks, Shopify templates, Instagram accounts and someone somewhere concocting the details of ‘Our Story,’ a watch was formed, like a sudden precipitate in an unstable cloud,” Odell wrote. Charted Shopify is the 20,000-pound gorilla of the dropshipping world, integrated with apps like Oberlo that enable sellers to offer up goods directly from AliExpress. Shopify’s gross merchandise volume—the amount of money that is spent on its platform—was an astounding $27 billion in 2017, up more than 70% from the previous year, though it doesn’t mention dropshipping anywhere [in its financial results](. But the company—like its near soundalike [Spotify]( yet to turn a profit. Watch this! This video, made by a teenage entrepreneur, says a lot about the basic premise (and magical promise) of dropship-enabled e-commerce: You set up a “store” (there’s nothing actually in it), enable some advertising, and sit back and wait for the orders to roll in. AP/Wolfgang Rattay Quiz What year was dropshipping first noted as a business tactic? 1990200019701980 Correct. The book "Money: How to Make it in Mail Order" lays out the basic technique, decades before the advent of the web. Incorrect. If your inbox doesn’t support this quiz, find the solution at bottom of email. Reuters/Aly Song Explainer Why is shipping from China so cheap? --------------------------------------------------------------- Donald Trump has been railing against Amazon lately for its [supposed abuse of the US postal service]( but there’s arguably a much bigger postal injustice staring him right in the face. Under the [terms of a 2010 treaty]( postal authorities get a set fee from their foreign counterparts to deliver a package within their borders. So if a company from China wants to ship something to a US consumer, the USPS gets no more than $1.50—which often makes it cheaper for Chinese merchants to ship a package up to 4.4 lbs from Shenzhen to Des Moines than it costs to ship from, say, Seattle. The USPS calls this service “ePacket,” and it’s the reason it’s so outrageously cheap to buy goods on AliExpress, the giant e-commerce portal owned by Alibaba, and ship them to the US—a favorite route of many dropshippers. The US website Wish [utilizes the same shipping method](. The wildfire spreads Dropshipping goes mainstream --------------------------------------------------------------- Perhaps inevitably, large retailers are [learning the joys of dropshipping](. Macy’s, Home Depot, and Pier 1 Imports are using the technique to bulk up their online sales efforts. Private equity firms also [spent $1.1 billion]( to buy online inventory firm CommerceHub. Management consultants at McKinsey concluded that the trend is [certain to accelerate]( pushing “retailers into a new role, similar to that of an orchestra conductor, in which the value comes not only from controlling the customer relationship but also from coordinating the numerous supply chain interactions of a web of suppliers, partners, and shoppers.” Reuters/Dylan Martinez Quotable “Services like this offer us a preview of a maximalist capitalist future, in which the near-entirety of current-day retail—stores, humans and even storelike websites—have been identified as gatekeepers or sources of friction and accordingly obliterated.” — New York Times media writer John Herrman on the [online marketplace Wish](. Fun facts! How empires arise --------------------------------------------------------------- [Zappos started off as a dropshipper](. “We didn’t carry any inventory; instead we relied on shoe manufacturers to ship products directly to our customers,” founder Tony Hsieh told the Harvard Business Review. “That system never worked very well. We didn’t have 100% accurate information about our vendors’ inventory, and because their warehouses were all over the country, delivery times weren’t predictable.” [And so did Amazon.]( “Order a CD from CD Now, Music Boulevard or Amazon.com, and your order is electronically transmitted to Woodland, Calif.-based Valley Media, the country’s largest audio wholesaler, which picks, packs and ships the disc straight from the warehouse,” Forbes reported in 1998. “Until Amazon recently began building its own book warehouses, the online booksellers sole task was to transmit orders to two of the country’s biggest book distributors, Ingram Books and Baker & Taylor, which then drop shipped to customers.” Giphy Million-dollar question What if dropshipping isn’t really a path to riches? --------------------------------------------------------------- There are many people who are skeptical of the dropshipping trend, including David Rusenko, founder and CEO of Weebly, a company that helps people set up online stores. “It’s the newest scam, right?” [he said in an interview with Inc.]( “It used to be the Nigerian prince that was emailing you, and now it’s the burner brand on Instagram. It’s working, unfortunately, but that’s because it’s very deceptive and people haven’t gotten smart to it yet.” There’s a dead giveaway that dropshipping might not be a ticket to easy street: The huge number of self-professed experts who promise to teach you how, for a fee. [The podcast Reply All]( talked to one dropshipper who says he’s spent $50,000 on dropshipping courses and coaching over the last year, and is now peddling his own classes. “Generally speaking,” co-host PJ Vogt noted drily, “in the entire history of the world, when people figure out easy ways to make money, they did not turn around and tell everyone else how to do it.” “After talking to a bunch of dropshippers, I still can’t tell if anyone is making a full-time salary off of dropshipping alone,” co-host Alex Goldman said. “The only thing that’s clear to me is that like the big money in dropshipping seems to be in teaching people that there’s big money in dropshipping.” Reuters/Dado Ruvic Poll What’s the best thing you’ve ever bought on Instagram? [Click here to vote]( Artisan crafted whiskThis really cool beltPillowcases that just … get meClown shoes the fine print In yesterday’s poll about [gum]( 43% of you said you chew on your smartphone instead. 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