When it comes to running an ecommerce store, there are different ways of getting the product to your customer.
Dropshipping is a business model that allows you to create an online store without needing any inventory.
When a customer makes a purchase, you accept the order and forward it to the supplier, who will fulfill the order for you.
Dropshipping is one of the easiest and cheapest ways of starting your own ecommerce business. However, when it comes to scaling your business and maintaining control over your brand, dropshipping might not be the best option.
Therefore, some stores prefer to change from dropshipping to another fulfillment method. Other stores, however, are able to leverage the advantages of dropshipping to gain a competitive edge over their counterparts.
In this article, you will learn about nine successful companies that have scaled their business by using dropshipping or have changed from dropshipping to a different fulfillment method.
Why are these stores great to look at?
Let's say you are running a dropshipping store.
You have designed your logos and color schemes, written your product descriptions, optimized your store, and received traffic from your marketing efforts.
However, you are not getting the results that you hoped for.
After several weeks of trying to optimize all facets of your store, your hope and confidence drop.
You are starting to run out of ideas for new things to try and may even ask yourself if dropshipping is still even profitable.
Whether you are in this stage or have been running your store with moderate results already for some time, looking at other successful stores for inspiration will be a huge help.
By looking at these successful stores, you can analyze how they designed the store, where they get traffic from, how their purchase process looks like, and much more!
Even more so, if you are starting to doubt the concept of dropshipping, you should take a look at some of these biggest ecommerce stores that use dropshipping as their fulfillment method to get some motivation on how big your dropshipping business can become!
How can dropshipping give you an advantage over competitors using in-house fulfillment?
Despite the fact that dropshipping isn't the perfect fulfillment method, it does have a few advantages over the other methods.
Some ecommerce stores have found how to leverage those advantages and keep scaling their business to and beyond the level of their competitors using in-house fulfillment.
So, how does dropshipping give you an advantage over these other ecommerce stores that do their own fulfillment?
Well, first of all, dropshipping allows you to test products quickly without buying them in bulk. Therefore, you have minimal risk when trying new products! If no one buys your new product, you won't be stuck with a warehouse full of it for which you paid a lot of money.
The second benefit is that you won't have to produce, store, and send your products. That's what your dropshipping supplier will be doing!
This will save a dropshipping store time, energy, and money. Besides that, it allows you to easily create a product catalog of hundreds, if not thousands of products!
All you have to do as a dropshipping store owner is taking care of the marketing while your dropshipping supplier handles the rest. Awesome, right?
Lastly, the right dropshipping supplier will allow you to sell your products across the whole world. In other words, it's highly scalable.
And yes, the dropshipping fulfillment method has existed for quite some time now; you can see a quick history lesson about dropshipping here!
Why dropshipping is not a perfect business model
Despite these advantages that dropshipping can offer, it's not a perfect business model.
It all starts with people having the wrong mindset about dropshipping.
Far too many people think it's a way to get rich quickly, causing them to quit after working on it for a short time.
If you want to become a respectable ecommerce store that uses dropshipping, you will have to differentiate yourself from other dropshipping stores and run it like a real business!
Unfortunately, there are more negatives about dropshipping.
For instance, you have almost no control over things like shipping times and your package design.
However, when scaling, the lower profit margins are one of the biggest drawbacks of dropshipping.
Buying products one by one is simply far more expensive compared to buying them in bulk!
The extra cost of this may be little when just starting out, but when you are scaling and selling thousands of products a month, switching to buying them in bulk and storing them yourself can make a huge difference.
Last but not least, returns can be complicated when dropshipping, especially when using a supplier located abroad.
This means that you will likely be dealing with long shipping times. Pairing it to the fact that you have no control over the product quality can increase your chance of return requests.
Due to these imperfections of dropshipping, some companies have preferred finding some winning products through dropshipping, after which they have branded the products and switched to in-house fulfillment.
By private labeling and/or branding their products, they were able to scale their business and become a genuine ecommerce brand!
How do you scale your business by moving on from dropshipping?
If that last strategy of using dropshipping and switching to in-house fulfillment sounds good to you, then here is a short guideline on how to do it.
As I said, the first step is to start as a regular dropshipping store.
Take advantage of the pros of dropshipping. Try out selling a bunch of different products and use the money you saved by not buying stock to test online ad campaigns for marketing your products.
Once you start getting some sales, you can work on improving your store step-by-step.
Think about:
- Getting new product images
- Finding a better dropshipping supplier
- Optimizing your store
- Trying out new marketing methods
By doing this, you will likely grow your store and get more sales as time goes by.
However, at one point, the growth may halt, and you will start really feeling the drawbacks of dropshipping.
You will have no control over your fulfillment, private labeling your products may be hard, returns are complicated, and you pay a relatively high price for your product.
Once you reach this point, that's when it's a great idea to stop dropshipping and take your business to the next level by switching to in-house fulfillment.
Look for a wholesale supplier that can provide you with the product for the lowest price, and do some research on how you are going to fulfill orders in your own warehouse.
By using this strategy, you will be able to scale your business and grow it even more, just like the following three companies did:
3 Large ecommerce stores that started with dropshipping
Let's get started with some of the largest ecommerce stores that actually started out with dropshipping.
These stores used the strategy outlined above to take themselves to the next level and scale their business.
Looking at these companies is a great inspiration for those working on their dropshipping store!
1. Gymshark
Gymshark is a fitness apparel & accessories brand, manufacturer, and online retailer based in the United Kingdom.
The company was founded in 2012 by the teenager Ben Francis and a group of his high-school friends.
The brand currently has over 5 million followers on Instagram and has recently reached a valuation of $1.3 billion after their first investment round, in which General Atlantic took a 21% stake.
Sounds crazy, right?
But that's not all.
According to a Youtube video uploaded by Ben Francis, Gymshark had a revenue of over $500 million in 2020, growing more than 60% year on year.
According to Gymshark, this growth comes from "a devotion to producing innovative, effective performance wear and an ever-expanding social presence, and above all a commitment to the Gymshark vision":
Before there is an action, there is an idea.
We exist to create the tools that help people unlock their full, incredible potential and put their ideas into action.
Be all that you imagined you could be. Be a visionary.
We exist to unite the conditioning community.
Source: Gymshark
So, what's the story behind the company?
Well, the story starts with Ben Francis, a full-time university student who launched Gymshark.com in 2012.
Ben was an entrepreneur at heart and always eager to create new products. In between his studies, job, and gym sessions, Ben was working on Gymshark.
Since he was a young full-time university student, Ben didn't have the money to afford his own inventory.
That's why the company actually started out as a dropshipping store selling supplements!
As Ben says, “You have to be creative with the front end and back end of your business when starting.”
Once Ben and his team had made some money with dropshipping, they decided it was time to get into the fitness wear industry.
So, they spent all their money on a sewing machine and screen printer.
At that time, Gymshark's clothes were longer, stretchier, and fit better than anything else that was on the market. In this phase of the company, every single Gymshark product was handmade, as Ben spent hours sewing each shirt.
In late 2012, Ben and his team started making the switch of using in-house fulfillment and selling products from an official manufacturer.
They developed the luxe fitted tracksuit, and the minimum order quantity for this product was so high that they had to put all their money into buying the inventory for it.
While it was a risk, this product was what really caused a growth spike for Gymshark.
Since then, Gymshark has been growing every day to become the company that it is today.
2. Zola
Zola is an innovative wedding registry founded by Kevin Ryan, Shan-Lyn Ma, and Nobu Nakaguchi.
The company's goal is to make everyone involved with a wedding fall in love with the gift-giving process.
The niche of wedding gifts is a huge market. According to a survey by LendingTree, 1 in 3 Americans plans to attend a wedding in 2021. Considering that the average wedding gift costs $100, it becomes clear that this niche is big business.
After Zola's start-up phase, the company quickly ramped up the number of gifts in its catalog. It didn't take long to reach over 3,000 unique items!
So, how did they do it?
Well, you may have guessed it already, but I will still tell you.
Zola used dropshipping, which allowed them to ship items directly from the manufacturer and avoid carrying a lot of excess inventory.
Now, Zola has grown immensely. The company offers over 70,000 products through its online gift registry and achieves an estimated annual revenue of up to $120 million!
3. Zappos
Zappos is an online retailer selling shoes and clothes based in Las Vegas.
The story of this company dates back to 1999, when Nick Swinmurm had an idea to start an online shoe store.
At that time, this was a pretty unusual idea.
Still, Nick was able to convince both himself and his investors that his idea has a lot of potential. He used the fact that the US footwear industry was a $40 billion market, but only 5 percent of this market was using mail orders to sell items.
When Zappos just started out, the company fulfilled orders using dropshipping.
They didn't carry any inventory but relied on shoe manufacturers to ship the products directly to people who made an order.
Unfortunately, dropshipping never worked very well for Zappos.
The company struggled with some of the drawbacks of dropshipping. First of all, Zappos didn't have 100% accurate information about the manufacturers' inventory. And because the manufacturers used warehouses all over the country, the delivery times weren't predictable.
So, Zappos stopped dropshipping and began buying inventory from their manufacturers.
However, instead of taking care of the warehousing themselves, they outsourced it to a different company. In other words, they switched to a method called third-party fulfillment.
Once again, this method didn't work either for the company:
Trusting that a third party would care about our customers as much as we did was one of our biggest mistakes. If we hadn’t reacted quickly by starting our own warehouse operation, that mistake would eventually have destroyed Zappos.
Tony Hsieh, former CEO of Zappos (Source)
Since starting their own warehouse operation, Zappos has been growing and growing. In 2009, the company was acquired by Amazon in a deal worth around $1.2 billion. Now, they have over 1,500 employees and a yearly revenue of over $2 billion!
6 Huge online stores that use dropshipping as part of their fulfillment process
The previous three examples were awesome to see. But what happens when you stick to a scaling strategy that involves dropshipping as well?
The ecommerce stores in this list will all be ones that use dropshipping for at least a part of their fulfillment process.
If you are currently running a dropshipping store, I hope these stores will give you some positive inspiration and make you realize how far you can scale with dropshipping!
1. Foot Locker
The first store on the list is called Foot Locker, another ecommerce store selling footwear!
Foot Locker is one of the world's leading footwear and apparel retailers. Currently, they operate more than 2500 stores across the world.
By using partnerships with some of the world's most apparent brands, Foot Locker is able to provide its customers with one of the best and most exclusive ranges of products.
At Foot Locker, it's all about sneakers. For Foot Locker's team, sneakers are all they think about, and nothing makes them more proud than being able to keep followers up to date with the latest trends.
Whether you are passionate about sneakers or are casually searching for a new pair of shoes, Foot Locker will always have something to offer that fits you.
Foot Locker works hard to grow. For instance, they are working on creating an elevated digital experience for their fans with a brand-new website and interactive social media platforms. Besides that, they try to always give back to the community by organizing Foot Locker events all the time.
So, what about the dropshipping part?
Well, Foot Locker has an extensive partnership with Nike. Actually, around 70% of Foot Locker's products come from Nike.
To meet increasing demand all across the world, Foot Locker announced a dropship program with Nike that would allow it to add more products to its website without actually having to hold them in the inventory.
While it’s early on, the program aims to provide more of the right product at the right time, to better satisfy customer demand and shorten lead times.
Dick Johnson, Foot Locker Chairman and CEO (Source)
So far, the progress of using the dropship program is doing good. Foot Locker is looking to add more and more SKUs in the future!
We think that it creates a great opportunity to offer our customer more products, creates great connectivity with our partnership with Nike, and continues to take care of our customers, which is ultimately what we're here to do is make sure that we satisfy their demand.
Dick Johnson, Foot Locker Chairman and CEO (Source)
2. Wayfair
Next up, we have an ecommerce store that almost entirely operates on the dropshipping business model, Wayfair.
Wayfair is an American ecommerce store that is currently selling over 22 million products in the furniture and home goods niche.
So, how do you successfully offer over 22 million products over a few of your ecommerce websites?
That's right, by working with thousands of dropshipping suppliers. Around 95% of products on Wayfair's website are sold using dropshipping.
Curious now how this company became what it is today?
It all started with Steve Conine and Niraj Shah, who've met each other as high school students and have been building several businesses in the technology sector since their final semester in college.
In 2002, the journey of Wayfair started on a tiny budget in a spare bedroom of Steve's house. By doing market research, Steve and Niraj recognized the opportunity to sell stereo racks and stands online.
In four months, we became one of the largest online sellers of entertainment furniture.
Niraj Shah, Wayfair (Source)
After their success, Steven and Niraj replicated the model across more than 250 standalone sites selling everything from barstools to birdhouses.
In 2011, the founders took a giant leap and transferred all of their ecommerce stores into one destination for all products and named it Wayfair.
It turned out to be a great step, as by the next year, Wayfair had already reached $600 million in annual revenue.
Now, the company has generated $15.3 billion in net revenue for the twelve months that ended on March 31, 2021, and employed more than 16,200 people.
3. Overstock
Overstock is a US online retailer founded in 1999 selling primarily furniture.
For 2020, the company reported net revenue growth of 75% year over year to $2.5 billion and a net income of $56 million.
The history of the company started in 1997 when the founder Patrick Byrne had an idea. He believed that by using the internet, retailers had an opportunity to get rid of their excess inventory.
At that time, this was a new concept since traditional methods of getting rid of excess inventory involved sending it to remotely-located outlets.
With online shopping taking off, Byrne decided to take the chance and launched a website in 1999.
After years of growing the number of SKUs, visitors, and sales, Overstock became the company it is today.
However, during all that time, some things in the company's business model changed.
Now, the company's business model consists of two parts.
First of all, Overstock works in the "direct business" segment. In other words, the company manages its own inventory with products and sells them on the website.
The second part is the "partner business" segment. It's debatable whether or not you can call this dropshipping, but it's practically the same. Here is how it works:
- Product suppliers can partner with Overstock to publish their product on Overstock's website.
- Once the product gets bought, Overstock forwards the order to the supplier, who will then fulfill it and send the product to the customer.
- In this process, Overstock receives a commission from the supplier.
Using this model, Overstock is able to benefit from flexible inventory management and keep growing the business:
We have a highly scalable business model. Our dropship model with thousands of partners in fulfillment centers augmented by our own in-house distribution network allows for efficient delivery and flexible inventory management.
Jonathan Johnson, CEO of Overstock (Source)
4. Stitch Fix
Stitch Fix is a US fashion website that sells clothes in quite a unique way.
The company offers a styling service for men and women so that everyone can find the clothes they love.
Before making a purchase, customers have to take a style quiz, which uses recommendation algorithms and data science to personalize clothing items based on size, budget, and style.
It helps their customers to save time, look great, and evolve their personal style over time.
Founder Katrina Lake created Stitch Fix to mix the human element of personal styling with high-quality clothing and proprietary algorithms. While attending Harvard, she sent off her first order out of her Cambridge apartment in 2011!
Now, the company has grown and has generated a net revenue of $443.4 million in 2020.
In past years, Stitch Fix has been using a wholesale inventory model. However, due to limitations on the breadth and depth of the product catalog, Stitch Fix started looking into the dropship model.
We believe moving to a multi-inventory model will enable us over time to meaningfully expand selection, allowing us to attract more clients, track higher demand and create a flywheel of accelerated growth.
Elizabeth Spaulding, CEO of Stitch Fix (Source)
So, it's likely the company will start using dropshipping as part of their fulfillment process!
5. Nordstrom
The next company is called Nordstrom, a business aiming to provide high-quality branded clothing to consumers across the US and Canada.
It's a company with a long history, dating all the way back to its roots in 1901.
Today, Nordstrom has become one of the largest clothing retailers in North America, with more than 300 physical outlets across the US, as well as several online and mobile channels.
So, what business model does it use?
Well, according to an earnings call transcript on Nordstrom's Q1 2021 results, dropshipping is quite an important part of the company's business model.
Using dropshipping, the company is able to expand its product catalog and offer its customers more choices. Also, it allowed Nordstrom to continue getting strong sales growth in the ecommerce space without a corresponding increase in inventory investment.
In 2020, Nordstrom's choice count increased by approximately 20%, primarily using dropshipping.
I think the main thing here is the dropship model in particular allows us to expand choice count in a way that creates a lot of leverage for us in terms of all the work that goes with bringing inventory in, if it was in a traditional wholesale model that obviously there’s a lot of manual effort that goes with that.
Pete Nordstrom, President and Chief Brand Officer at Nordstrom (Source)
In the future, Nordstrom is aiming to work with a hybrid business model, consisting of wholesale, private label, and dropshipping:
Over the next three years to five years, we think the mix of our assortment is going to be moving to be about 50% wholesale model, about 20% of our Nordstrom branded goods or private label and the remainder being alternative partnerships, of which dropship would be part of that.
Anne Bramman, CFO at Nordstrom (Source)
6. Macy's
Macy's is a fashion, clothing, and accessories store based in the US.
The company was founded by Rowland Macy in 1858. That's right; this company is more than 160 years old!
Rowland Macy had also launched four other dry goods stores before starting Macy's, but all of those failed.
By learning from his mistakes and using his strong promotional instinct, Rowland Macy was able to set up the basis for the company that Macy's has become today. By 1870, the company had an annual revenue of over $1 million already.
A short while after Macy's started offering products on their online store, the company became one of the early adopters of dropshipping.
Macy's used the concept of dropshipping to expand its online product catalog.
Instead of ordering stock for each new product, Macy's could simply publish new products on their online store and start selling them immediately using their dropshipping supplier.
While this was a great benefit for Macy's, the company did experience the same downside as some of the other companies on this list.
By using dropshipping, Macy's had to hand control over key parts of their supply chain to a third party. As a consequence, Macy's didn't have any control or visibility as to how that part of the supply chain was going.
While this is a risk, Macy's and other traditional department stores were willing to take it because of the fact that spending at ecommerce retailers is rising each year.
Conclusion
Reading about the success stories of some of the biggest ecommerce stores is always fascinating.
There is just always something you can learn from it!
Today, you have read about some of the largest companies that use or used dropshipping to become what they are today.
Some companies started with dropshipping, while others started with wholesale first and (partly) moved to dropshipping later on to scale their business even further.
Whatever it is, it shows that dropshipping is still a viable business model as of today, and you can definitely set up a successful business with it!
If you haven't started working on your dropshipping store yet, then you can check out our article for a step-by-step guide!
Let me know if this article inspired you in the comments below, and have a great rest of your day!
