Online shopping has become increasingly popular over the last decade. In 2021, over 2 billion people purchased products online, with global ecommerce sales topping $4.9 trillion. This raises an important question – where exactly do online stores get the products they sell? There are a few main sources that online retailers use to stock their virtual shelves.
Manufacturers
One of the most common ways that online stores obtain inventory is directly from manufacturers. Many producers of consumer goods, especially large brands, now sell directly to ecommerce companies in addition to traditional brick-and-mortar retailers. Selling directly to online stores allows manufacturers to reach more customers through additional sales channels.
Online retailers often contact manufacturers whose products they want to carry to establish accounts and agree upon pricing and terms. For popular or high-demand items, manufacturers may have a waiting list of online stores hoping to stock their products. Once an ecommerce retailer is approved as an authorized dealer, the manufacturer ships products directly to the online store’s warehouses to be sold on their website.
Major online marketplaces like Amazon and eBay also work directly with manufacturers to list and sell their products. Popular brands like Apple, Samsung, Sony, DJI, and LEGO all sell new, unopened merchandise directly to these sites. This benefits both parties – manufacturers get broader distribution and online marketplaces stock highly desirable brands that draw in customers.
Wholesalers and Distributors
In addition to manufacturers, many online stores also acquire inventory from wholesalers and distributors. These are intermediaries that purchase products in bulk from manufacturers and sell smaller quantities to retailers. Wholesalers take ownership of products and warehouse them until purchased by retailers. Distributors work on behalf of manufacturers as sales agents, but don’t actually take ownership of inventory.
Purchasing from wholesalers allows smaller online stores to acquire products without having to meet order minimums that manufacturers impose. Wholesalers also serve as a single point of contact for ecommerce retailers to obtain products from hundreds of different manufacturers. This saves online stores time and simplifies procurement.
Distributors help connect retailers with manufacturers and manage logistics like shipping and inventory reporting. But because they don’t own the products, online stores transact directly with manufacturers when working with distributors. This streamlined system enables online retailers to access a vast selection of products to sell on their sites.
Liquidation and Overstock Sellers
Online stores also source a considerable amount of products from liquidation and overstock sellers. Retailers and manufacturers frequently liquidate or sell overstock inventory for a variety of reasons:
– Discontinued products – manufacturers no longer produce certain items but retailers may still have old stock.
– Unsold inventory – stores or manufacturers have excess products that did not sell in past retail seasons.
– Returns/damaged goods – merchandise that has been opened or returned and can no longer be sold as new-in-box.
– Shelf pull products – retailers remove products from shelves before expiration dates.
– Bankruptcy or going-out-of-business sales – retailers liquidate all products when closing down.
Large online marketplaces like Amazon and eBay have dedicated programs focused on selling liquidation and overstock inventory. But many standalone overstock websites also exist, offering online retailers access to deeply discounted products in virtually every category. This enables ecommerce stores to acquire inventory at lower costs and pass on the savings to customers. The tradeoff is these products are from older or irregular stock that traditional retailers couldn’t sell.
Dropshipping
Dropshipping has emerged as a fulfillment method used by many online retailers to offer products without actually keeping inventory. With dropshipping, the ecommerce store takes customer orders and payments as usual. But instead of the retailer sourcing, warehousing, picking, and shipping products, it forwards orders and shipping details to a dropshipper.
The dropshipper then packages and ships products directly from their warehouse to the customer. The online retailer never takes physical possession of inventory. However, the customer still receives the product as if it came directly from the ecommerce store they ordered from.
Thousands of manufacturers, wholesalers, and distributors now offer dropshipping services. This allows online stores to expand product offerings without overhead costs associated with stocking inventory. It also shifts logistics responsibilities to the dropshipper. The main downside is online retailers have less control over shipping times and customer experience.
Buying and Reselling
Some online stores acquire inventory by purchasing products at retail and reselling at a markup. This strategy allows ecommerce retailers to source unique, limited, or high-demand items that are hard to purchase directly from manufacturers. Examples include:
- Limited sneaker releases from brands like Nike or Adidas
- New gaming consoles like PS5 or Xbox Series X
- Tickets to concerts or sporting events
- Hardware components like GPUs during shortages
Online resellers use tools like retail store inventory trackers and web bots to snatch up limited products before stock sells out. These goods are then resold on sites like eBay, Facebook Marketplace, Craigslist, and the retailer’s own ecommerce store. Reselling works best for products where demand exceeds supply. The challenge for online sellers is properly judging demand and pricing items accordingly. Resellers can lose money if they pay retail prices but are unable to resell purchases.
Third-Party Selling Platforms
Another common way online retailers source products is by selling through ecommerce marketplaces like Amazon, eBay, Etsy, Walmart Marketplace, and Shopify. These platforms allow independent sellers to list products while handling storage, fulfillment, payments, and delivery. Marketplaces provide online retailers instant access to millions of potential buyers.
Small online sellers can launch ecommerce businesses without having to build standalone websites. Marketplaces also offer logistics services like Fulfillment By Amazon (FBA) where products are stored in Amazon warehouses for picking, packing, and shipping. All the online retailer has to do is send their inventory to Amazon. These capabilities enable small sellers to scale quickly at lower costs.
The tradeoff is diminished branding, higher fees, and the risk of accounts being suspended for policy violations. But for many fledgling ecommerce sellers, using major marketplaces is the fastest way to jumpstart sales, even if margins are slimmer. Products sold on marketplaces are usually purchased from wholesalers, manufacturers, liquidators, or distributors.
Second-Hand and Used Products
Rather than sourcing all inventory as brand new, some online retailers specialize in selling second-hand, used, vintage, or antique products. Popular categories for used goods include:
- Books – old books or out of print editions
- Music – vinyl records, CDs, and cassette tapes
- Video games and consoles – retro gaming systems and games
- Cameras and film photography equipment
- Sports memorabilia and trading cards
Used product sellers source inventory from various places like garage sales, estate sales, thrift stores, flea markets, auction houses, trade-in programs, and by accepting product trade-ins directly from customers. Some specialized sites like Gazelle and Decluttr allow people to trade in used electronics, which are then resold.
Selling used goods can be lucrative for online stores that learn how to properly assess conditions and spot valuable, rare items. However, it can also be labor intensive to authenticate, catalogue, and process used inventory. Some sites like eBay authenticate sneakers and trading cards to add credibility. Overall, the used and collectible markets remain an important inventory source for many online retailers.
Self-Manufacturing and Custom Products
While most ecommerce stores source finished products from external suppliers, some retailers create their own custom and bespoke inventory. Examples include:
- Artists selling handmade crafts and art on Etsy
- Bakeries selling specialized baked goods
- Custom t-shirt printing companies like Zazzle and CafePress
- Jewelry designers creating custom rings, necklaces, etc.
- Furniture builders creating custom beds, tables, cabinets, etc.
Self-manufacturing allows creative online retailers to offer one-of-a-kind products that cannot be purchased elsewhere. This differentiates their inventory from competitors. Makers can also better control quality and customize products based on buyer specifications.
The major tradeoff is production takes time, so inventory capacity is limited. Unique products also do not benefit from economies of scale. Prices are generally higher compared to mass-manufactured goods. But for artisanal products, customers expect and are willing to pay premium pricing, making self-production profitable for some online sellers.
Conclusion
Online stores leverage a wide range of sources to acquire the products sold on their ecommerce sites. Strategic inventory sourcing is imperative for retailers to deliver a strong customer experience, avoid stockouts, and remain profitable. As ecommerce continues growing globally, expect online sellers to keep optimizing their supply chains and exploring new product acquisition channels. Agility and diversity of sourcing will remain hallmarks of successful internet retailers.
