One form of retailing that has become very popular with the advancement of e-commerce is drop-shipping. The process in which a retailer markets a product, collects payment from the customer and then orders the item from a supplier, to be shipped directly that customer. The retailer's profit is the difference between the amount collected and the amount spent. No inventory is held and the retailer is not involved in the shipping.
The biggest appeal of drop shipping for the retailer is that there is no inventory to stock. This frees up cash as it allows the retailer to collect the money before purchasing the wholesale product. Because it is the supplier's responsibility to ship the merchandise to the customer, the retailer is free from any transport headaches that may occur.
One issue retailers may find in working with a drop shipper is the lack of control. Drop shipping isn't risk free and when problems arise it can become frustrating to simply play middleman. Retailers may still be faced with back-orders, returns and customer refunds. Some drop shippers assess a drop shipping fee or even a membership fee to the orders which may erode profits.