Ever bought something weirdly specific from an ad you saw in your social media feed that seemingly haunted you everywhere you went? Did it take forever to arrive and turn out to be not quite what you expected? Chances are that item was “dropshipped”.

Although the dropshipping ecommerce business model isn't new, the practice may pose a serious threat to online shoppers. Now, with Christmas shopping starting to ramp up already, it’s important to know what to look for when you’re buying something online, particularly from online stores advertising to you on social media.

What is dropshipping and how does it work?

Dropshipping is a business model where a customer places an order with a merchant and another manufacturer or wholesale supplier ships the product to the customer. The dropshipper acts as a kind of middleman who has no direct interaction with the inventory they sell. Instead, the online store takes on a mostly marketing-centric role in the supply chain.

The way it works is, someone running a dropshipping business advertises a product online. These days that’s largely done on social media. The dropshipper doesn’t have that item in stock nor do they need to store it anywhere because the order goes to an external third-party manufacturer or wholesaler who makes and/or ships the product. The dropshipper never directly sees nor handles the inventory they sell.  

On the one hand, dropshipping gives entrepreneurs an easy, fast, and cheap way to create an online business. Because there’s no physical location nor any inventory to manufacture or store, owners can operate the business from anywhere with minimal financial overheads.

Dropshipping also allows businesses large and small to test different products without having to outlay a lot of money upfront. For some businesses, this means they may also be able to offer niche items to smaller markets or experiment in a different product category, with the main expenditure going to online marketing (usually on Facebook and Instagram).

To some degree, the consumer wins because we get access to niche low-cost products advertised to us on social media.

Win-win, no?  

Is dropshipping risky for online shoppers?

To be fair, not all dropshippers are bad. The business model works fine for many businesses who are comfortable taking on some risk and who seek out reliable suppliers. A lot of legitimate businesses use dropshipping. Even Amazon allows dropshipping, as long as the business abides by their rules.

However, because dropshipping businesses have little control over the quality of products, many quickly fail. Many dropshippers find themselves drowning in customer complaints, high volumes of returns that the wholesaler won’t reimburse them for, high competition, and the costs of underperforming social media ads.

This is where the danger lies for consumers. With a high failure rate of dropshipping businesses, the uncertainty over where the business operates from, where products are manufactured, and the inconsistent quality of products, it’s easy for consumers to lose money. And, when a dropshipping company fails, you will likely never see your money back.

For the ones that remain in business, returning a faulty product or receiving something that was different to what you expected may also prove challenging. The return rate on items like clothing is exceptionally high -- around 30-40% -- and the cost of returns, exchanges, and refunds lies with the dropshipping company because many suppliers don’t reimburse the company for returns.  

As a result, when a dropshipper has used a dodgy supplier, rather than processing a high volume of returns, many just close up shop as soon as the business starts racking up the negative reviews. Then, just as easily, they open an exact replica of the failed online store under a different name. Others will just fold completely. And, as the consumer, you have little recourse to get your money back.

How to spot a (dodgy) dropshipper

He might find more clues if he, oh, I dunno, maybe turned his computer on?

Again, not all dropshippers or businesses that use the dropshipping model are scams.

But, with the increase in online shopping over the last few years, scammers and people looking to get rich quick are increasingly using dropshipping to scam consumers. And many of these are using social media to target shoppers with unbelievable bargains.

So, how do you spot the dodgy ones and avoid getting ripped off?

As with anything we purchase online, doing your due diligence is important, particularly when advertisers are hitting you hard on the socials. An online store isn’t likely to state upfront that they use dropshipping models for their business, so here are a few methods for spotting a dodgy dropshipping store.

  1. Check reviews
    One useful way of finding out if an online store is a scam or legit is to check independent review platforms. Reviews on the store itself are hard to verify, so independent review platforms are a good start. Likewise, reviews on their social media pages will often reveal how trustworthy the business is likely to be.

    But, of course, scammers know that we check reviews. So, to get around this, dodgy dropshipping businesses will often either try to cheat the system by posting fake reviews or, as mentioned earlier, will shut down a domain name once they start getting too many bad reviews and start afresh under a new name.
  2. Ask on social media
    Forums like Reddit are handy for finding out the legitimacy of ecommerce stores. Like any other social media platform, Reddit has its drawbacks, but by and large, you’ll probably get an answer there from real people.

    Other forums, like Whirlpool or OzBargain may also prove useful, depending on the type of product or estore you’re investigating.
  3. Google it
    The simplest, and plausibly most effective way to assess the legitimacy of an online store is to just Google it. Type in “is [company name] legit” and you’ll see not just the reviews, but also a lot of scam watch sites that track and rank the trustworthiness of many of these sites and explanations as to why they’re rated as such.

    Through this method, you may not learn whether or not the estore dropships, but you’ll likely avoid getting scammed. You may also learn about the quality of products, the way they handle customer complaints and returns, and expectations on shipping timelines -- all of which stack up on the pile of evidence to decide whether it’s worth taking the risk or not.
  4. Gut check
    I don’t like using “common sense” because it assumes certain things are obvious to us all, when it’s clearly not always the case -- especially when it comes to online scams. But usually a scammy dodgy online retailer drops a lot of hints that they shouldn’t be trusted.

    Before pressing the “buy now” button, take a moment and assess what you’re looking at. Does the domain name look real? Is the site secure (check for a little lock icon next to the web address)? Are there unusual typos, errors, or inconsistencies in the product descriptions? Is the deal too good to be true? These all may indicate a scam.
  5. Get an outside opinion
    If you don't trust random people on social media and you don't trust your own gut, find someone's gut you do trust (why does that somehow sound a bit gross?). Ask a trusted friend or relative, preferably one who's a bit more internet savvy than yourself, if the online retailer seems legit. Amid your excitement to snap up a crazy bargain, an outside opinion may spot some red flags that you missed.

Not all dropshipping businesses are scams

It's beginning to look a lot like online Christmas shopping season!

Dropshipping isn’t new. The model has been around for a long time, and is mostly harmless. We’ve probably all ordered something online that was dropshipped and not even realised it. However, as Australians are increasingly shopping online, particularly throughout the pandemic, through extended lockdowns, and as we now move into the Christmas holiday shopping season, the need for precaution and online safety is even more important.

So, the next time you see that shiny cool new thing that you just must buy advertised to you on your socials, take a moment to assess how and why you’re getting that ad, who is targeting you, and whether it’s worth the risk.