But the social network’s advertising revenue grew 18.4% during the quarter.
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Through agreements with distributors, Onsale.com offers 35,000 products-everything from desktop units, notebook computers and cables to built-to-order systems. Onsale’s e-commerce system automatically checks inventories before a customer completes an order, and its customer service center can track the status of orders 24 hours a day. Customers can find out when their credit card is charged, when the order is transmitted to the warehouse and when an order ships.
Onsale atCost works primarily with Tech Data Corp. of Clearwater, Fla., the world’s second largest computer products distributor. The aim is to leverage Tech Data’s expertise and skill as a distributor, Sheehan says. “We don’t have back-office costs or inventory risks, and no need for our own warehousing or distribution. Tech Data has the same customer service ethos as we do. If a product’s in stock, it goes out on time.” The arrangement, says Sheehan, “makes a lot of sense for us and our economic model. It’s more in line with our mindset. Our inclination is to focus on the front end, not the back end. EBags, another devotee of drop shipping, sees similar benefits. Thanks to arrangements with about 100 manufacturers, the e-retailer can put most of its capital into marketing and advertising, says Andy Youngs, vice president of merchandising. “If you’re doing drop shipping correctly, it shouldn’t be a problem.”
The company requires its manufacturing partners to set up accounts with United Parcel Service, which handles the logistics and shipping. To check on their orders, customers use the eBags site to tap into the UPS tracking system. Most orders ship within 48 hours, and everything carries an eBags label.
Still Youngs acknowledges the challenge of staying on top of arrangements with so many manufacturers. But the payoffs are big. Youngs estimates that eBags saves at least 20 percent per transaction by using drop shipping over inventory.
All the same, Sroge contends that drop shipping won’t work over the long haul because it simply isn’t fast enough. In the catalog industry, no major retailer uses drop shipping to fill all of its orders, he says. “All of the big catalogers realized that they needed warehouses from the start...It’s the only way. You have to have the merchandise on hand to get it out to the customer.”
Though the Internet is a new sales channel, customers expect a short learning curve from a medium that promises instant response-as well as reliable, speedy delivery. With customer acquisition costs running as high as $100 per, a retailer that constantly churns its customer base will eventually burn out.
“The only way to make money is from repeat customers,” says Sroge. “People have to be satisfied or it is just not going to work. If you went into a retail store and wanted to buy something and it wasn’t there, you’d walk out. This is an instant gratification society.”
And that’s why Tronix’s Cataudella intends to keep his hands on every aspect of his business. Even when he used drop shipping, it was a last resort during holiday crunch times. “It is nerve-wracking, not being able to see the products leave in front of you,” explains Cataudella. “We are a small company, but we are well-known in the gaming industry. Our reputation matters.”
William Cocke is a freelance writer based in Charlottesville, Va.