Dropshippers are the ultimate middlemen. The trendy e-commerce model is what’s behind the ads for products all over Facebook, Instagram, TikTok and YouTube. While some sellers make millions dropshipping from overseas without ever touching the merchandise, others use it as a get-rich-quick scheme that’s hurting legitimate businesses and unassuming customers.
The model relies on targeted ads designed to stop consumers from scrolling long enough to make an impulse purchase, usually from a Shopify store set up solely for that product. The dropshipper doesn’t place an order until the customer does, and rarely touches the merchandise. It’s often shipped directly from China to the customer, which can cause delivery times of more than 90 days.
Nick Peroni started dropshipping in 2016 and now does it full time from his home in the Philippines.
“I was an Army veteran living in Philadelphia and trying to figure out what I wanted to do with my life and testing around just different kinds of business model ideas,” Peroni said.
Last year, Peroni said he tried selling 10 to 20 products before finding some big hits. His sales of a garden trimming attachment topped $1.9 million in six months in 2020, and in October he sold $150,000 worth of fleece-lined leggings in three weeks. Peroni uses agents in China to vet products and sourcing companies to keep shipping times down.
But dropshipping can also be a minefield for consumers.
“A lot of people just get into the business model and they’re lazy. They’re not looking at it like a business. They’re looking at it like a cash grab, like a get-rich-quick idea where we can sell this product using Facebook ads and make a lot of money,” Peroni said.
“What happens is then a whole cascade of different events where you buy fake reviews to distinguish yourself. You buy fake ratings, fake upvotes, a lot of ads, marketing, but all that adds up,” said Saoud Khalifah, founder of consumer protection software company Fakespot.
Fakespot has a Chrome plug-in that alerts shoppers if a seller on Amazon, Walmart, Ebay, Best Buy or Sephora can’t be trusted. It recently added capabilities to detect untrustworthy stores on Shopify.
“They made this a one-stop-shop for you to set up a store, and it’s just super easy for you to start selling online and a lot of these dropshippers know it,” Khalifah said.
In an analysis of more than 124,000 Shopify stores, Fakespot found more than 25,000 that engaged in some form of fraudulent activity like counterfeits, privacy leaks, or buying fake reviews. Of those, almost 72% showed evidence of dropshipping tactics being used in their business. On Shopify’s Help Center, there’s an entire section devoted to tips and strategies for dropshipping.
Athletic apparel company Gymshark used influencer marketing to grow a cult-like following, and now dropshippers are capitalizing on that success. Gymshark CCO Niran Chana said he’s seeing more and more copycat dropshippers selling knock-offs.
“Someone else is acting as the brand at that point. And we put a lot of investment into assets, content, etc. So for someone to come and almost copy that is frustrating,” Chana said.
Gymshark is building up its legal team to protect intellectual property, but Chana also called on Shopify to help.
“Where we could really do with their help and support is actually when people are abusing those brand rights and running away with a business model that is unsustainable for both themselves and/or Gymshark is they regulate that better. They have the right to be able to say we’re going to pull this site down or you guys are trading sort of uncompetitively,” Chana said.
About CNBC: From ‘Wall Street’ to ‘Main Street’ to award winning original documentaries and Reality TV series, CNBC has you covered. Experience special sneak peeks of your favorite shows, exclusive video and more.
Connect with CNBC News Online
Get the latest news: https://www.cnbc.com/
Follow CNBC on LinkedIn: https://cnb.cx/LinkedInCNBC
Follow CNBC News on Facebook: https://cnb.cx/LikeCNBC
Follow CNBC News on Twitter: https://cnb.cx/FollowCNBC
Follow CNBC News on Instagram: https://cnb.cx/InstagramCNBC
Subscribe to CNBC PRO: https://cnb.cx/2NLi9AN
How Shopify Dropshipping Works