How Shop Direct delivers 49M products per year with dropshipping
Evolving from origins as a mail-order catalog retailer to the UK’s largest integrated online retailer and financial services provider, Shop Direct’s business model has transformed over the years.
In 2015, it printed its last catalogs and sold its stores to become a “pureplay online retailer”. Today, Shop Direct entails retail brands Very.co.uk, Littlewoods.com, and LittlewoodsIreland.ie, and with 2018 sales falling just shy of £1.9 billion (US$2.37 billion), its readiness to adapt is bearing fruit.
Those three sites now receive a total of 1.4 million visits every day, with customers enjoying an extensive and constantly updating range of products— from fashion to department store goods— throughout the year, from click-to-door, with affordable monthly payment options.
Packaged up, that translates to 49 million products sold to a loyal customer base of four million per year. With no physical stores, of course, managing figures like those in a way that keeps savvy online shoppers coming back is a logistical mountain to climb— and that’s seen the company have to reimagine its product supply chain entirely.
Dropshipping in the supply chain
The company has employed a process known as ‘dropshipping’, a supply chain management method where the retailer doesn’t keep the goods in stock but sends customer orders and shipment details direct to a manufacturer, wholesaler, or even another retailer.
For Chris Haighton, the group’s Head of Outbound Logistics, stripping back on warehousing has revolutionized how the company competes in the crowded e-commerce space.
“Previously, our buying cycle was rigid and planned far in advance to maintain availability across the six-month lifespan of a catalog,” Haighton told TechHQ. “We’d receive paddling pools and bikinis in December ahead of the Spring-Summer launch, despite knowing we’d sell very few until May…”
Instead, dropshipping allows the firm to employ a “stockless model”, which both saves year-round costs and vastly expands its product range.
“We see stockless as an important part of our future growth,” said Haighton; “While the operation in our own distribution centers will always provide the highest level of service with the fastest delivery and latest order times, drop-ship complements it perfectly by allowing us to provide the range and assortment […]”
“[…] we can be much more responsive to short term trends. We ‘buy to sell’ and introduce new products every day. This requires a more responsive, flexible supply chain.”
Efficiency throughout the chain
By employing dropshipping models, digital retailers can sell products that would be unprofitable or impractical to stock in-house, and all members can cut back on waste or ‘dormant’ stock. While a completed bed may take up a large amount of space, for example, the raw materials to make it don’t. Manufacturers can store raw materials at their site and keep finished stock replenished via their production line to support drop-ship orders.
“Equally, we may stock a brand’s core range in our distribution center, but be unable to meet the minimum order quantities or risk unsold product, if we stock the less popular sizes or colorways,” Haighton explained. “Drop-shipping direct from a brand’s own distribution center means we can offer our customers access to a much broader product assortment.”
The model also allows Shop Direct to leverage specialist partners’ capabilities, such as the ability to personalize items, whether that’s a mug with customized printing, for example, or receiving installation with a washing machine.
Maintaining customer experience
Essentially ‘trimming fat’ from the supply chain, dropshipping’s efficiencies make it an attractive proposition, but it’s not a model all retailers are yet ready to embrace. Doing so requires surrendering control over order fulfillment and dispatching, which if not achieved to a retailer’s standards— and the experience its customer are used to— could have a negative impact on long-term sales.
To ensure customer experience remains seamless, Shop Direct has devoted a team to focus on keeping “healthy relationships” with its suppliers, carriers, and its own product teams, which are all vital for drop-ship operational performance.
Technology also plays a crucial part in the process, particularly in providing a transparent view of the supply chain both for Shop Direct and its customers.
“We prefer to keep our arms around the whole customer experience, so our drop-ship system provides suppliers with a carrier label that we’ve generated,” said Haighton. “This means we retain the carrier relationship and provide our customers with all of the delivery options, tracking and added-value services they expect.”
“As we work with more than 250 drop-ship suppliers, we need a technology partner that can deliver on every scale. This might mean a web portal or a small manual operation for one supplier, or integration with a sophisticated, fully automated e-commerce system for another,” said Haighton.
Dropshipping can drive efficiency gains for retailers without spending more on inventory— especially as customers come to expect fast delivery methods as standard. Of course, the method relies on partnerships between manufacturers, carriers and the retailer itself, which can mean one weak link in the chain could see the customer experience suffer, with a negative impact on future sales as a result.
For any businesses considering a dropshipping strategy, Haighton touched on three crucial components for success;
# 1 | Gain an in-depth understanding of the pros and cons of drop-shipping, as both impact the dynamics of your business, to ensure you’re making the right sourcing decisions.
# 2 | Have a strong underpinning structure, with the management team and technology in place to continue delivering great customer experience.
# 3 | Finally, continue ownership of carrier relationships to ensure they provide an experience consistent with despatches from your own distribution center.
Shop Direct’s Chris Haighton is speaking at Ecommerce Expo next Wednesday, September 25 at Kensington Olympia.
20 January 2021