Dropshipping and the Law

Launching a retail business can be challenging, expensive and complicated, especially if you are just starting out as an entrepreneur. What if there was a business model where you could delegate the complex parts of the retail value chain to someone else, asks Alexia Elassadi.

That’s exactly what dropshipping involves: running an online business where you do not keep stock of the orders you sell. Instead, you outsource order fulfilment to a third party.

There are several advantages to this retail fulfilment model.

Investment costs are low. You get to forgo the expensive parts of running a business, such as managing inventory, operating warehouses, leasing a physical shop, shipping and purchasing products. It leaves you to focus on promoting and building up your brand.

And because there is no inventory, you can sample different products without buying them in bulk. There is no risk of unsold stock, because you are only ordering the quantity requested by the customer.

Opening your ecommerce business is a quick and easy process, and it is a fast and scalable business model.

There are, however, some disadvantages.

You become dependent on your suppliers, which can impact customer satisfaction, your reputation and goodwill. If there are mistakes with orders, shipping delays, or if they receive faulty products, customers will associate this with your brand, as they often won’t know that a third party is actually delivering their order. Because of this, you will need to carry out due diligence on your suppliers and carefully consider the types of products to drop ship.

A dropshipper’s profit margins are also lower in comparison to traditional e-commerce retailers.

As with any business, if dropshipping is for you, you will need to be aware of different areas of the law and obtain legal advice on them.

Here is the Broadfield legal checklist. This is not, however, a substitute for good legal advice.

• Intellectual property, both in respect of protecting your brand and ensuring you aren’t selling products that infringe someone else’s IP rights.
• Data protection, as you will be processing customers’ personal data and sharing it with your suppliers so they can fulfil their orders, and carrying out direct marketing electronically.
• Tax requirements relating to VAT, income tax and customs duty (if applicable).
• Deciding on a business structure and incorporating your company.
• If you are selling to individuals, you need to seek advice on consumer legislation to ensure your terms and conditions are compliant and drafted clearly.
• Your contracts with your customers and suppliers, to ensure that they are clear, and that you are covered if things go wrong (for example, if a product is faulty and the customer asks for a refund). The customer will not have a direct, contractual relationship with the supplier, so you will be liable towards them, but you need to ensure that your suppliers are liable towards you in turn.
• Collaborations with influencers to market your products on social media.
• Specific laws, codes and regulations depending on the products you are selling and industry you are in, as well as advertising standards.
• Rules of dropshipping platforms such as Shopify, eBay and Amazon, as they may differ from each other.

Alexia Elassadi is a senior associate in the Commercial team at the law firm Broadfield.

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