Why is Brexit affecting Amazon’s UK dropshippers?
Reports are starting to emerge, and Thompson and Holt has seen first hand, how Brexit is having a negative impact on dropshippers in the UK.
Dropshipping is the method of fulfilling orders where Sellers don’t have to keep the items they list in stock - instead they use a third-party producer to manufacture the products on demand and send it directly to the customer. It’s a way of avoiding holding large volumes of stock, and while it can have its issues, it’s seen by some Sellers as an effective way to operate on the site.
However, since the end of the Brexit transition period, dropshippers - there are an estimated 140,000 of them in the UK - have been impacted by a number of changes. Some dropshippers claim shipping prices from China have increased ten-fold because of Brexit, and have caused delays at customs, leading to many ceasing trading with their profit margins wiped out.
Some of the sites connecting dropshippers with Chinese manufacturers have put 20 percent price increases on every item sold through their platforms to cover a change in UK tax law that shifts the requirement for levying VAT on items brought into the UK from the customer at the point of receipt of the goods, to the company selling them, at the point of sale. Previously, smaller items that were sent to the UK, costing under £15 each, weren’t checked and taxed because they were assumed to be gifts.
It has increased costs significantly for dropshippers, with several contacting Thompson and Holt to outline their situations.
Stuart White, Managing Partner at Thompson and Holt explained: “If a business’ profit margin was previously under 20 percent, that has been wiped out overnight. Factor in the issues with the increased prices of shipping and delays from China - and reports that stocks have dwindled massively with companies reluctant to supply UK traders in the current climate - and it’s an area of Amazon’s business that is set to take a major hit.
“Not everybody dropships of course, but Shopify, one of the largest providers of dropshipping technology in the world, says that the UK makes up eight per cent of its 1.75 million merchants, generating the company $3 billion in global revenue in 2020. That isn’t to be underestimated.
“There are potential ways around this, including bulk buying and importing from China. But then, of course, it ceases being dropshipping, because merchants would have to stock those items themselves. It’s an area of Amazon’s marketplace that could really struggle, and it will be interesting to see if steps are taken to try and combat that in coming months.”
If you are thinking about dropshipping or an existing dropshipper check out Thompson and Holts Guide to Profitable Drop Shipping on Amazon.
Worried about an Amazon suspension?
There are lots of good quality Amazon software tools out there to help drop shippers find the right products and to help manage accounts. The best piece of Amazon software we know about that helps dropshippers prevent suspensions and Intellectual Property violations is www.ip-alerts.com. This piece of software checks all the dropshippers ASINs and compares it against a database of 'high risk' brands that are known to have raised IP complaints on Amazon marketplaces that have resulted in ASIN and Amazon account suspensions.
If you have found yourself suspended while selling on Amazon, contact Thompson and Holt for a free LiveChat to get your Seller business back online as quickly as possible.
Thompson and Holt are also offering a free month’s trial of their Monitor and Protect service to help sellers prevent a suspension of ASINs or an their account during the COVID pandemic, more information on how to protect your Amazon seller account from a suspension can be found here.