Viewpoint

Tim Mulhall launched his first toy eCommerce retailer in 1999, gaining the Microsoft Award for Innovation in 2003. Since building and selling the retailer, he has worked as a UK distributor and Brand manager before joining Hornby as part of its turnaround strategy in 2017. As Hornby chief operating officer, he led the DTC growth and global sales strategy. He is currently CEO at UK toy and collectibles business Rubies Masquerade. Tim writes about sales growth, strategic expansion and technology on LinkedIn.

Riding the fourth wave: navigating the dropship revolution in the toy industry

In the dynamic world of toy retail, change is the only constant. Which manufacturer would turn down an opportunity from a Tesco-sized retailer or decline a sales volume equivalent to their biggest web channel? The answer is none. Yet many in the industry are poised to miss the next seismic shift - the dropship revolution.

We have witnessed three major upheavals driven by the internet. The late 1990s saw the explosion of online retailers, creating a new and vital channel, before Amazon's emergence as a dominant toy retailer around the year 2010 reshaped the landscape. Once reliant on the Argos order to define their season, manufacturers suddenly found Amazon wielding considerable influence. The third wave, accelerated by the 2020 pandemic, was the surge in direct-to-consumer (DTC) models, which empowered brands to cultivate direct relationships with their customers.

We’re currently on the cusp of the fourth revolution: dropshipping. This model, once a niche practice on eBay, has matured into a powerful strategy for both retailers and manufacturers.

The evolution of dropshipping

Dropshipping was initially practised by proactive eBay sellers, who speculatively purchased and shipped toys in an effort to attract buyers. This low-risk, high-stakes approach required meticulous cost management and a keen eye for market trends. Today, major retailers are embracing dropshipping as a way to expand their online offerings and optimise cash flow. This model allows them to offer a wider product range by showcasing a diverse selection of toys without holding physical inventory; attract new customers and encourage repeat purchases, boosting overall engagement; and eliminate upfront inventory investment, freeing up capital for other strategic initiatives.

Key considerations for manufacturers

• Retailer selection: Consider whether you should focus on existing stockists, explore partnerships with their competitors or venture into new markets, as each option carries its own set of risks and rewards.

• Inventory management: Accurate demand forecasting is vital to avoid stockouts or too much inventory. You must either forward-buy stock based on projected sales, or risk having to steal stock from other channels.

• Distribution capabilities: Your distribution network needs to be able to handle the increased volume and fluctuating demand associated with dropshipping, as seasonal peaks and rapid order fulfilment require robust logistics.

• Marketplace integration: Building or buying the technology to integrate with retail marketplaces is a critical decision - it ensures efficient order processing and accurate inventory updates.

• Margin management: It’s important to arrive at margins that work for both the manufacturer and the retailer. Successfully navigating the complexities of dropshipping, including shipping, handling and platform fees, requires detailed cost analysis.

• Channel conflict: There’s a risk that dropshipping could cannibalise existing retail channels, so manufacturers must be prepared to mitigate channel conflict (where possible) and maintain positive relationships with existing partners, even if this means having difficult conversations.

What are the potential rewards?

The rewards of dropshipping are substantial. By tapping into new retail channels, manufacturers can significantly boost sales and profitability, while successful strategies can stimy the efforts of competitors and secure companies a competitive advantage. It also provides valuable data on customer preferences and purchasing behaviour, enabling manufacturers to refine their product offerings and marketing strategies. And to many, the ultimate mark of success is translating highperforming dropship lines into coveted in-store listings, bridging the gap between online and offline retail.

Building a dropship strategy

To thrive in the era of dropshipping, manufacturers must adopt a proactive, adaptable approach.

• Implementing robust inventory management and order processing systems is essential for efficient dropshipping operations.

• Long-term success requires the building of collaborative retail partnerships.

• Ensuring timely and accurate order fulfilment will maintain customer satisfaction.

• Companies should leverage data to optimise product offerings, pricing strategies and marketing campaigns.

• As the retail landscape continued to evolve, toy companies should be willing to adapt their strategies to changing market conditions.

The dropship revolution is not merely a trend; it is a fundamental shift in how toys are distributed and sold. Manufacturers who embrace this change and develop effective dropshipping strategies will be well-positioned to thrive in the years to come. By carefully considering the challenges and capitalising on the opportunities, toy companies can unlock new avenues for growth and solidify their position in the competitive marketplace.