On social media, it’s billed as a lucrative side gig; an easy way to make obscene amounts of money.
Millions a month, according to “MissMargariita1” on TikTok, where her profile links to tips and resources to set up an online store. Enough to buy a private jet, assures TikToker “JoshCarterECom” in one of his many videos.
Enough to tell your parents they can retire forever, and all you need is a laptop, promises TikToker Adam Erhart in a video with 2.4 million views.
“I don’t understand why people don’t start dropshipping for a side hustle!” writes an account on X.
Dropshipping, a business model where people sell products to consumers directly from the manufacturer, isn’t new. You may know it as third-party selling, where dropshippers sell their wares on the web portals of established retailers like Walmart, Amazon or Best Buy.
Dropshippers never actually have the items they’re selling. Instead, they connect buyers with the goods coming directly from the manufacturer.
Canadian tech company Shopify is a big booster of the practice. It estimates dropshipping generates more than $300 billion US in e-commerce sales every year.
CBC News explained the concept of dropshipping in 2018, when consumers were being lured in by low prices and online deals. But the practice has recently taken off with renewed vigour as more young people want to be dropshippers themselves, seeking out low-risk business models as a side gig or an alternative to a 9-to-5 job.
On TikTok, there are 1.5 million posts tagged #dropshipping. The majority of them tips and strategies and sales pitches. The term is trending with a Canadian audience, according to TikTok‘s insights, skyrocketing in interest in the last month alone. Even in just the last week there have been 26,000 posts in Canada about dropshipping, and the majority of the people watching them are between the ages of 18 and 24.
A younger generation is being drawn to the idea of dropshipping because now a lot of the tools already exist, and the upfront costs are minimal, said James Bowen, an adjunct professor at the University of Ottawa who specializes in e-commerce.
Manufacturers, typically in China, already have the inventory and are generally receptive to this kind of approach, Bowen explained. Plus, the ability to promote and market your product across social media is well established, and the tools to set up a dropshipping website are already there.
“It’s a way that somebody who might be knowledgeable about an industry or product, or has discovered one when they were going through the internet, can get themselves a side hustle,” Bowen told CBC News.
‘A race to the bottom’
Traditional retailers sell products to domestic consumers that are often made by foreign manufacturers. Retailers make money by marking up the price to cover their costs — rent for the store, salary for employees, warehouses to store the stuff and the technology to process payments.
Dropshipping cuts all of those costs down drastically. The dropshipper sets up a web store that’s often little more than a photo catalogue of available items and the dropshipper arranges for shipping to the customer from the factory.
Buy now, pay later plans give consumers the option to pay for everyday products in instalments, but some financial experts say it could create a hole that some people can’t get out of.
The practice has historically been more common with large, bulky items that a retailer wouldn’t necessarily carry on their shelves, such as furniture, said Mark Cohen, the recently retired director of retail studies at Columbia University in New York, and former head of Sears Canada.
But now it’s becoming more popular across a whole array of items, Cohen said, like clothing and shoes. According to Dropshipping.io, which sells dropship tools and templates, some of the most lucrative items to sell are clothing, baby products and skin care.
“What would have been the dropship of a sofa is now the dropship of a shirt or a sweater,” Cohen told CBC News. “I imagine what’s selling is … very inexpensive, low-risk stuff.”
In 2018, Cohen first explained the concept of dropshipping to CBC News. Seven years later, he says what’s changed is how much easier it is to get into e-commerce.
As far as a business model, it’s inexpensive and simplistic, Cohen said. And it’s become increasingly efficient now that websites sell entire dropshipping systems. But there are also risks, he added, especially if a product doesn’t live up to the promise and a customer seeks recourse.
And despite the promises people may see online, overall, dropshipping is not a good business model, said Bowen, with the University of Ottawa. There’s always a next person wanting to capture the market, who will try to do it by promoting it better, or promoting it cheaper, he said.
It’s not easily sustainable, and requires almost constant promotion, Bowen said.
“It’s a race to the bottom.”
Scams, counterfeit and buyer beware
Dropshipping is also rife with scams and counterfeit products, both experts say.
The government of B.C., for instance, has warned consumers about dropshipping scams. The Office of the Chief Information Officer says on its website that advertisements can embellish the quality and capabilities of the product, and sell them at inflated prices.
“Price gouging on these sites can exceed 1,000 per cent the original value of the product,” warns the B.C. government.
“If a buyer falls prey to a dropshipping scam and tricked into overpaying for a poor-quality product, there is usually no recourse for the buyer. It’s highly unlikely the seller will refund your money.”
As senior-targeted scams become increasingly harder to catch, the RCMP gives tips on how to keep your loved ones out of harm’s way.
Dropshipping is also being used for what’s called triangulation fraud, which is when illegitimate online merchants take a customer’s order, charge their account, then use a legitimate merchant to fulfil that order using stolen payment account information, according to Visa’s fraud prevention site.
The website Tripwire notes that dropshipping scammers can use generative AI to create entire fake online stores, generate fake images for non-existent products, use scripts or bots to place more orders once the victim has ordered something at the fake store, communicate with victim, and analyze purchasing patterns to optimize the best products to lure people in.
Meanwhile, potential dropshippers themselves can be scammed by the people promising them a lucrative business.
Last September, the U.S. Federal Trade Commission filed a lawsuit against Ecommerce Empire Builders for “falsely claiming to help consumers build an ‘AI-powered Ecommerce Empire’ by participating in its training programs that can cost almost $2,000 or by buying a ‘done for you’ online storefront for tens of thousands of dollars.”
In the court documents filed with the U.S. District Court Eastern District of Pennsylvania, the FTC notes the “defendants promote a dropshipping business model.”
They marketed their model on social media platforms, including TikTok.
