Dropship Services available from Chinese wholesale manufacturers are the latest trend to hit the online retail market. Take a moment to consider the logic and ingenuity of this service.

Retailers have always made money by buying in bulk from wholesale manufacturers, and reselling these products to consumers at a higher price. While the end users may be only a few steps removed from the manufacturer, the price that they pay still far exceeds the price-per-unit paid by the retailer. This is not unusual. After all, if retailers did not charge end users a premium, how would they stay in business? They provide a convenient place to purchase items, and their service fee is the product mark-up that they charge the average consumer.

The internet made this process even easier. Online Businesses no longer need to create a storefront, and hire friendly salespeople and cashiers to resell their products. They simply create a website, and continue charging an inflated price. The main investment required is the money to purchase in bulk from the manufacturer, and storage for items before they are sold. While this is much cheaper than operating a retail store, these costs should not be underestimated.

Buying items in bulk is risky. Goods must be bought ahead of time in order to ensure speedy delivery to the end user (you can’t wait until you have 100 separate orders for individual widgets before purchasing the 100-widget case at a bargain price, or else the first buyer will be waiting for ages to receive his widget). Once retailers have purchased these items, there is no guarantee that they will be able to sell them. Storing a large number of unsold goods while advertising them online can be expensive, and may leave you with a stock of goods for which there is minimal demand (for example, you buy a case of widgets version 2.0, and widget 3.0 extreme! comes out the next week). However, working with a wholesale dropshipper eliminates the need for both the up-front investment and the cost of inventory.

Dropshipping allows retailers to advertise products online without having actually purchased them. Once one item is sold, the retailer turns around and submits that order to the manufacturer. The manufacturer sells the item to the retailer at a wholesale price, ships it to the customer, and the retailer keeps the profit. No investment, no risk, just pure profit. So whats the catch?

The catch is that barriers to entry in this market are practically zero. That means competitors will be abundant, and retailers won’t be able to price gouge quite as much as they’d like. However, with Chinese wholesalers eager to export goods, there are profits to be made.