If you are reading this, you've probably done a lot of research into dropshipping already, which is fantastic. You may wonder where it all began.
People often assume that dropshipping began in the digital age, but that's actually not the case. The early beginnings of dropshipping have been around for hundreds of years.
For the curious, we’ve put together a brief history lesson to explain the early days of this business model and what happened to cause it to explode into one of the most popular ecommerce models in the world.
So when did dropshipping start?
The rise of catalog sales: 1950-1970
You'll know by now that dropshipping is a way for retailers to fulfill customer orders. After customers purchase products — online, in a physical store, over the phone, or in a catalog — the order is shipped directly from the wholesale supplier to their home. In this way, the retailer doesn’t have to keep inventory on hand.
In fact, the mail-order companies of the '50s, '60s, and '70s historically championed this method. Long before the advent of the internet, customers of companies like J.C. Penney, Sears, and later Ikea placed an order for a product from the catalog via telephone. Then the order was delivered to their doorstep.
It's not surprising that the public went crazy for this idea. These large department stores were left with empty shelves to meet the demand of the catalog orders. They had to find a way to sell their stock via catalog and provide a full range of products to their in-store customers.
Enter fulfillment warehouses. These massive buildings were specifically designed to store large quantities of the products in the mail order catalog and speed up the order delivery process. They were designed to make it easy for the staff to pick the right items to send out for each mail-order they received.
In 1979, English inventor Michael Aldrich developed the first system to enable customers to connect with stores electronically. We can hardly imagine the days when online shopping wasn't an option but in those days, connecting a TV to a computer via a telephone line was groundbreaking!
This is when innovative companies saw an opportunity. Massive fulfillment centers were full of items that were just waiting to be sold. These innovative companies began to list the exact same items from the major department store’s warehouses in their own mail order catalog at a marked-up price.
Despite the larger department stores not being entirely aware of what was happening at first, this was the first large-scale example of dropshipping. However, dropshipping still had a long way to go before becoming the business model that we know today.
The bulletin boards of the '80s
The world's first ecommerce company was launched in 1982. The Boston Computer Exchange created a platform to allow customers to buy and sell used computers online. Of course, there was no internet yet, so their system operated on a bulletin board system.
The birth of the internet and online sales
The '90s saw the birth of the internet and, with it, great opportunities. The first companies to transition to online shopping were the mail-order companies.
Using their strategy of keeping large volumes of stock available at fulfillment warehouses, ready to fill customer orders quickly, it made sense for them to transition online.
Wayfair is a good example. As one of the internet’s biggest furniture stores, they are dropshippers who don't manufacture any of the products they sell. Instead, they work with thousands of suppliers, all of whom dropship the products Wayfair sells on their website.
Tip: Want to start a furniture dropshipping business as well? Check out the 12 best furniture dropshipping suppliers here!
Online shopping was met with much skepticism in the early days. It's true!
People were wary about giving their bank account information to a company, even one they trusted. Of course, there was no end-to-end encryption in place, and because cheques were used for payment, customers were not used to sharing account details, especially over the phone!
As the '90s progressed, so did dropshipping. People began to accept the ‘new normal' of paying virtually for their goods. Thousands of online stores were started, making huge promises of returns to investors based on the ecommerce model.
In 1995, Jeff Bezos launched Amazon, which initially operated as an online marketplace. The company was successful from the get-go and quickly began shipping to 45 different countries.
A few years later, Confinity, now known as PayPal, launched.
The dot-com bubble bursts
By the early 2000s, the dot-com bubble was ready to burst. As demand grew, shopping costs became expensive, taking a toll on dropshippers, particularly those relying on American dropshipping suppliers.
Many stores began to go bankrupt, and in 2001, the dot-com bubble burst with very few of these stores remaining profitable or producing a return from the investors.
In the wake of the burst of the dot-com bubble, today's ‘greats' withstood the flood of closures and emerged with a stronger presence than ever before.
Amazon.com and eBay continue to thrive
Amazon.com and eBay had perfected the recipe. They had revolutionized the way people bought and the way people sold. Using their massive traffic footprint was gold for sellers.
Of particular significance two decades ago was when eBay and Amazon opened up their platforms to third-party retailers.
Over 20 years, ago, we made the decision to open our store's virtual shelves to third-party sellers (…) win for customers who want vast product selection, low prices, and fast delivery but it would also be a win for small businesses that want to reach more customers (…) It proved to be a good bet.Dave Clark, CEO of Amazon Worldwide Consumer
Although Amazon wasn’t supplying the dropshipping services themselves, they were facilitating everyone who wasn’t a large corporation to jump on the dropshipping bandwagon and take a slice of the action for themselves.
This created an enormous boom for dropshipping, as before, it had been so costly to use dropshippers.
We must add the birth of Facebook, led by Mark Zuckerberg in 2004, to our dropshipping timeline.
In November 2007, Facebook Pages launched, encouraging brands onto Facebook, and in July 2009, the first transaction ordered from 1-800-flowers went down!
Social commerce's success stems partly from product targeting based on user interests, with sales-generating data that sellers use for future advertising and merchandise placements.
Today, most brands use storefront apps to let their customers purchase products directly from their Facebook (and Instagram) pages. Facebook led the fast-growing ‘social commerce' market, a vital traffic source for today's dropshippers.
AliExpress and Chinese manufacturing expansion
Before the launch of AliExpress, entrepreneurs had difficulty finding inexpensive products that could be shipped worldwide. Using USA sellers had become just too expensive.
With the launch of AliExpress by Alibaba in 2010, dropshipping changed forever. The ever-increasing affordability of these items led to a new wave of success for successful entrepreneurs attracted by low start-up costs and the ease of procuring products online.
Sellers could easily buy their products online and no longer needed a physical store to ship things out. They didn't even need to sell multiple products. They could be very successful with excellent product research, even if only successful with one high-demand product.
AliExpress removed language and cultural barriers, and the history of dropshipping was made!
Shopify and Oberlo enter the picture
In 2004, Shopify launched, making creating an ecommerce site for dropshipped products incredibly convenient. Sellers could create and personalize their stores with complete control.
By 2010, Shopify store owners received back-end support to:
- Create a website
- Process payments
- Drive traffic with the help of shoppable social media
- And most importantly, run a dropshipping service
So even though the concept of dropshipping had been around for decades, Shopify quickly became a dominant force in the rise of dropshipping.
And then, in 2015, Oberlo was launched. Oberlo is a Shopify app that allows retailers to turn their store into an AliExpress dropshipping store, automating the process.
Today, anyone can set up a dropshipping business. This is a considerable change from a time when only the most driven individuals with a solid understanding of ecommerce could be successful.
Once upon a time, there were only a few suppliers to choose from. Today, there is a dropshipping provider for everyone, no matter their needs.
Somewhere, there is a supplier out there waiting to fulfill your requests, whether it is for print on demand, luxury goods, or low-cost items.
Fulfillment services add a valuable layer
We know that dropshipping involves partnering with manufacturers and suppliers to accept orders for their goods without actually having them in stock.
A new development was to outsource storing, processing, and shipping one's inventory using fulfillment companies.
The dropshipping wholesaler has no customer interface. Its sole responsibility is to stock products and ship orders. Everything else—marketing, website development, customer experience—is the store owner's responsibility.
This service was and still is quite expensive. One has to have solid sales, and it is essential to crunch the numbers to ensure you are profitable.
To have your product stored in a warehouse in your own country is super-efficient during Chinese holidays, the 4th quarter when demand is high, and during unforeseen circumstances like the global pandemic.
Some wholesalers take this a step further than simply product storage and distribution. They buy products in bulk from manufacturers, mark them up slightly, and then sell them to retailers for resale to the public.
These fulfillment partners or platforms like Sourcinbox, HyperSKU, CJdropshipping, and Spocket, to name a few, will usually stock products from dozens—if not hundreds—of manufacturers and tend to operate in a specific industry or niche.
They provide an all-in-one dropshipping platform with product sourcing, procurement, stock, print on demand, and fulfillment worldwide, often at a lower price than AliExpress. With strong shipping relationships, they promise to deliver a lot quicker.
Related article: For a list of the best dropshipping suppliers, check out our other article here!
Dropshipping current trends
So as we've explained, over the past two decades or so, the growth of independent dropshippers has grown like crazy, made possible first by platforms like Amazon and eBay, and later Shopify.
As with any low barrier to entry business model, many of these solo merchants essentially easily created a digital facade using Shopify or WordPress (with Woocommerce) and tended to provide very little or vague information about their products.
They didn't have a relationship with their Chinese suppliers and couldn't verify the quality of their products. As a result, many consumers started to question their legitimacy, and many began to view dropshipping with disdain.
The barrier to entry was so low, and launching a store was so easy, with many bloggers bragging on YouTube about living the so-called ‘laptop lifestyle' after launching their store within just an hour!
Many new dropshippers were and continue to be taken in by these false promises.
So-called ‘gurus' even formed another tier in the dropshipping pyramid, supplementing their dropshipping income by offering to teach others tricks of the trade through paid digital courses and consultations.
Many people got sucked in by these solutions to assist them with their struggling stores, getting advice from ‘experts' who did not have verified experience.
So let's discuss those people who have experienced success over the history of dropshipping.
Those dropshippers who work towards having better control over their inventory and having the capital to brand their products can scale quicker. After testing and experiencing success in a niche or with a particular product, successful stores evolve towards private labeling and creating an authentic brand.
A brand like the fitness apparel company Gymshark is a good example. They began as dropshippers before fine-tuning their supply chain and product design. In this way, they could offer more products, improve shipping times and other factors that build a loyal customer base.
Sourcing a product from AliExpress is a great way to start, but once you have capital, you want to build a brand at scale to be truly profitable.
As I write this, Facebook appears to be losing popularity. Advertising costs have increased, and advertisers are getting tired of Facebook's hostile approach. Google Ads, TikTok and Pinterest have gained favor.
A positive result of the developments for dropshippers and customers has been increased security and reduced risk.
PayPal and other providers offer the customer protection and allow them to dispute transactions, particularly when the product has defects or does not arrive! Security is still a constraint for the dropshipping industry.
The global pandemic has, of course, changed the face of online shopping. Businesses were forced to close their brick-and-mortar stores, and ‘lockdown' drove customers to shop online. Using ecommerce became a way of life, even in those countries that were slow to adapt.
We can now shop for virtually anything online. Even when lockdowns are no longer as stringent, it is anticipated that shoppers will maintain online buying patterns with trusted stores due to the convenience of online shopping.
According to the Market Data Forecast, while dropshippers have solved product availability challenges, product transport and logistics complexity can still slow down global growth.
So is dropshipping worth it in 2023?
We confirm that the answer is yes!
But let’s take a look at the figures because guesswork is dangerous:
- According to Market Data Forecast, the size of the global dropshipping market was estimated at 128 billion dollars in 2020 and should record a CAGR (compound annual growth rate) of 32% from 2021 to 2026. That's substantial!
- Shopify’s revenue for the 12 months ending September 30, 2021, was $4.210B, a 71.34% increase year-over-year.
- And if the potential of this forecast doesn't impress you, nothing will! According to Statista, in 2021, retail ecommerce sales amounted to approximately 4.9 trillion U.S. dollars. Future projections remain strong!
For more information about this, check out this article here!
There you have it! From catalog sales to a $15 billion industry explosion that provides entrepreneurs with an accessible business model. We hope you enjoyed our brief history lesson and that you have some context to understand the dropshipping model better.
We are dedicated to helping you achieve your goals. If you are new to dropshipping, check out our complete Dropshipping Checklist here.
There is no time like today to start a dropshipping store. And you can do it with adequate research and perseverance without the need to spend tons of cash on online courses made by so-called ‘gurus.'
If you don't find the answers to your questions on this blog, we'd love to hear from you.
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