Shopify COO speaks out Amazon-backed California product regulation

Shopify’s COO has come out against a proposed law that would make online retailers responsible for the products that they sell. To understand why this law is extremely important to Shopify, you only need to look at the makeup of their customer base… or just search “dropshipping” on Google.

What is Dropshipping?

Dropshipping is an ecommerce technique where products are listed on a website and sold by a vendor who never holds inventory of the stock. When an order is placed, the vendor passes the order on to a supplier who sends the product direct to the consumer.

It’s difficult to tell when you’re buying from a dropshipper. Historically most dropshippers were selling product from China and the give away would be a long shipping time compared to other vendors but there are an increasing number of dropshipping “middle man” businesses who are bringing in stock in bulk from China to various locations worldwide to shorten shipping times for dropshippers. Also, there are increasing numbers of businesses outside of China that are offering dropship services to local online vendors.

Is Dropshipping Bad?

In and of itself, dropshipping isn’t a bad thing. You order you product, your product gets sent, you get your product. All is well. Of course, that assumes that all of those steps (after you’ve ordered) actually happen and there are no problems afterwards.

Aftercare can be problematic for dropshippers because they often don’t have the ability to support the product, won’t be holding a stock from which to offer a replacement, may not have a business address for you to return the product to… so on and so forth.

Dropshipping as a strategy is sold online as offering a “laptop lifestyle” where you simply pick products from a remote supplier, put together a website, post some adverts online, and start making money. Few of the dropshipping “superstars” you see online will talk about to necessity for after-sales service and customer care.

Shopify loves Dropshippers

All of which brings us back around to that Google search for “Dropshipping”. Shopify themselves bid on this keyword. Companies like Oberlo and Spocket also advertise their specialised online services that fill your Shopify store with dropshipped products.

A significant proportion of Shopify’s customers are dropshippers, running side-hustles and chasing the “laptop lifestyle” dream. The platform makes it incredibly easy to set up this type of store and even provides online documentation and guides on how to dropship products.

All of this, coupled with the explosion of online shopping as a result of global lockdowns, has led to a surge in Shopify dropship sites being set up by new online vendors. All of these Shopify contracts are month to month, with no commitment. Shopify already loses around 1 in 10 customers yearly, so its growth is predicated on bringing in more new customers than it loses and in remaining customers growing their businesses so that Shopify’s percentage cut on their business grows. The average Shopify site makes just $72 per customer per year.

So, put yourself in the position of a low turnover Shopify vendor. You’re selling products you’ve never seen, never touched, and know little about. Then, a new law comes along that says if there’s a problem with those products – you are liable.

Still like the look of that “laptop lifestyle”?

This law is a huge threat to Shopify because it eliminates the potential for them to continue to recruit “hobbyist” sellers who just want to play at being online retailers. Not all dropshippers are like that, of course, but few have the experience and means to provide a proper set of retail customer care and after care services to buyers and the back-end a business that could have to deal with refunds and compensation for customers if things go wrong.

The days of the online Del Boy at Shopify may be numbered.

Leave a Reply