Dropshipping - 20 steps in the wrong direction

Unbroken trend of a business model

Before the pandemic five years ago, the global trade volume was around 130 billion US dollars. To date, it has roughly tripled. Global forecasts vary in scale, but the volume of dropshipping trade is expected to exceed the first trillion US dollars by 2030. By comparison, the whole of Austria spends a total of around 10 billion on online orders of all kinds every year.

According to the EU Commission, up to twelve million small items reach consumers in the Schengen area every day. These include items of clothing, gadgets and children's toys, the majority of which come from China. This flow of goods has doubled from 2023 to 2024 alone.

Dropshippers, i.e. the retailers who use the business model, are most frequently registered in European company registers in the UK, the Netherlands and Germany. This is followed by Spain, Sweden and Poland, where many also state their company headquarters. However, the number of such e-commerce sites is increasing steadily everywhere. On average, dropshipping now accounts for around a fifth to a third of all online orders in Europe. Scandinavians order most frequently on dropshipping sites.

Why is the phenomenon increasing so rapidly?

Dropshipping-style webshops can be set up quickly and cheaply. The goods are not kept in stock in these shops. Instead, the items are ordered directly from manufacturers and wholesalers following a customer order. Such mediated orders are mainly placed via large online marketplaces with suppliers from countries with low-cost production. It definitely pays off for the manufacturers. Sales through dropshipping exceed the sales of their own online shops by around a fifth. Margins of 40% and more are possible for the dropshippers themselves.

Dropshipping problematic on principle

What is good for the seller clearly shows the other side of the coin for the buyer. Here we explain the process of dubious dropshipping on the basis of twenty points. Of course, there are also reputable e-commerce shops that process orders in this way. But even for these shops, some of the disadvantages for customers described here unfortunately apply.

1. Beginning dropshippers initially set up their company as a letterbox company. A private address or a post box serves as the company headquarters. Many of them are based in the Netherlands, where the container ships arrive from China.
2. Dropshippers create a web shop with little effort using the Canadian platform Shopify. Only the trained eye will recognise that the website is based on dropshipping.
3. Dropshippers select products for their Shopify webshop: The goods come from China or from another location with low-cost production. As a rule, the product selection is populated from offers on the marketplaces AliExpress, Alibaba, Amazon, DHGate, Banggod, Printify, SaleHoo or Worldwide Brands. Even though Temu does not officially support dropshipping, it can also be used for this. Dropshippers use their own tools such as Importify for the Temu or Shein platforms. They use these to connect manually or automatically with suppliers and place bulk orders.
4. Dropshippers use misleading design elements on the website. They give the impression that the goods come from Europe, e.g. Austria or Germany. They achieve this with German-sounding company names, an Internet address ending in .at or .de, with local symbols such as flags, national colours or local photo motifs. The impression is rounded off by manipulative customer reviews, meaningless seals of approval and the use of Dark Patterns.
5. Dropshippers advertise to specific target groups on social media (TikTok, Pinterest, Facebook, Instagram). Influencers advertise the goods and earn commissions when viewers follow the links from the posts. There is often no indication that this is paid advertising.
6. The second pillar is search engine marketing (SEM). SEM primarily uses Google Ads to feed the dropshippers' product adverts into the upper section of search results. The products are well photographed and attractively priced. The type of webshop is not clear from these image adverts.
7. Customers follow the reference on social media or Google and order from the dropshipping webshop. Customers are not familiar with the concept of dropshipping and therefore do not recognise its disadvantages.
8. The dropshippers forward the order to the suppliers. These are either manufacturers or wholesalers. This ordering process is now automated by the Shopify platform, special apps such as Dsers, Zendrop, Modalyst or the market leader Spocket and is supported by new AI tools such as Sellika. Dropshippers usually no longer have to do anything with incoming orders.
9. Suppliers (very often in China) receive the customer orders placed by the dropshippers via the online marketplaces.
10. They pack the goods and organise shipping to the customer. Dropshippers are not physically in contact with the goods during this process. They therefore have no warehousing costs and no staff for distribution.

Dropshipping is not illegal, but this sales method is disadvantageous for customers for a number of other reasons. This becomes clear soon after receiving the goods:

11. Manufacturers and wholesalers are also responsible for logistics and shipping to customers. They commission delivery to the home address via DHL, UPS, DPD, FedEx... If something doesn't work out, it gets complicated due to the many parties involved.
12. When the goods arrive, it is often later than stated. International delivery routes are unpredictable, and the container loads only arrive in bulk at large European warehouses for further distribution. This means that orders can take weeks to arrive. A large proportion of complaints about dropshipping in the ECC network are due to non-delivery.
13. Since import duties or import sales tax may not have been paid correctly, the goods may get stuck at customs and the customer must release the goods.
14. Disappointment when opening the parcels: What is delivered does not meet the quality expectations from the appealing advertising photos. The competitive price means cheap production from inferior materials. Hygiene, baby and pet articles have a chemical odour. The colour, cut, fit, material of clothing or shoes are disappointing. Electronics look like they will soon break. Toys made of the cheapest, sharp-edged plastic etc. A Swedish study published in October 2023 (KEMI) classified 72% of items delivered through dropshipping as having poor product safety.
15. The customer is dissatisfied and would like to return the goods. There is no return address on the website, or at least none in Europe. Many people realise for the first time that they have ordered from a ‘China shop’.
16. Out of necessity, customers look at the section on returns in the web shop's terms and conditions for the first time. If there is a clause at all, it requires the customer to return the goods to the manufacturer at their own expense. This is often outside the EU, e.g. in Hong Kong, Shenzhen or elsewhere in the Far East, and is really expensive. With cheap products, this is not worth the time and money involved and most customers give up at this point. The outcome of a return is also completely uncertain. Firstly, manufacturers in third countries do not feel responsible and secondly, the EU's consumer protection rules cannot usually be enforced there.
17. More persistent users search the website in vain for a proper contact option to request a return by the dropshipper. The incomplete legal notice either lacks the legally required email address or ignores incoming emails. Instead, many such websites offer a simple text input field as the only contact option. This makes it difficult to prove a complaint. If you find the company location on Google Maps, you won't see anything that looks like a regular trading company. Anyone who sends the goods there on their own will not receive a refund. The company is deliberately unavailable, both for customers and for consumer protection.
18. The customer complaint is followed by a reply at some point. This is often delayed so that the 14-day right of cancellation from receipt of the goods expires. This response can come from an artificial intelligence, from the dropshipper themselves and, in the case of established dropshipping companies with larger sales volumes, from external personnel. Such responses come from invented first names as prefabricated text templates. Customer service suggests keeping the goods or giving them away and offers a discount of, for example, 30%. As a reminder - the margin was probably over 40%. It says that you should ‘forgo the return shipment and thus save emissions in order to do something good for the environment’. This ecological argument is particularly shameless, as dropshipping is generally based on carting cheap goods produced under environmentally harmful conditions halfway around the planet.
19. Many customers are unaware of their consumer rights and are fobbed off by unfavourable suggestions from customer service. In general, companies are allowed to stipulate the return costs in the general terms and conditions in such a way that customers bear them. However, this does not apply to unexpected and expensive returns to China. A reference to this in the GTC is no longer sufficient. In addition, the Chinese return address is only provided upon request and is often not included in the GTC. Dropshipping companies must therefore provide recognisable information about delivery and returns to China during the ordering process, including the corresponding costs. As these websites deliberately give the impression of delivering domestic/European goods, they are misleading in this respect. As mentioned in point 14, the quality does not correspond to the presentation. The warranty rules of the EU are therefore the second reason why companies have to bear such return costs.
20. If the goods were purchased using buy now - pay later payment service providers such as Klarna, further problems arise. Klarna itself operates what is known as "factoring". As soon as the customer presses the payment button, the Swedish payment service provider transfers the amount to the dropshipping merchant and buys the outstanding amount from them. Now the buyers who are dissatisfied with the delivery rightly try not to pay the merchants. For example, the dropshipping company cannot be reached, although it would have to bear the return costs due to the elimination of an obvious defect under the statutory warranty rules. However, by attempting to refuse payment, customers are going nowhere. This is because their money is already with the dropshippers and Klarna is only concerned with what it considers to be the outstanding amount. Practice shows that Klarna does not accept any delivery or goods defects as a reason for delay in the case of outstanding monetary claims. Instead, a debt collection agency is immediately commissioned with the collection. In Austria, these are Pair Finance, Coeo GmbH or Rieger-Wall. These companies send customers continuous and indiscriminate reminders with increasing additional fees, although the injured parties would be legally entitled to a cancellation of the purchase.