The Spinoff: The real cost of that cheap thing you bought from a Facebook ad

Dropshipping is a business model where people sell goods via an online shopfront with no physical location or warehouse. Photo / 123RF

Originally published on The Spinoff. Public Interest Journalism funded through NZ On Air.

In buying a cheap ring, Shanti Mathias found herself part of the business of dropshipping, a model based on social media ads, instant digital storefronts, and opaque global supply chains. What was she really buying? And who benefited? She explores for IRL.

I had seen ads for the ring for weeks on Facebook. The images looked beautiful and interesting, with strange suckered tentacles coiling around the model's fingers. The ring was free, the ad said, but the sale would end soon. Eventually, I clicked the image and paid for shipping, and imagined becoming the kind of person who wore intriguing rings.

Two months later, the ring arrived in a white bubble-wrapped packet, the shipping slip mostly in Chinese, with none of the branding of the shop I'd bought it from. It looked nothing like the octopus it was supposed to be, the markings on the tentacles off-centre, disappearing when I rubbed them and leaving a smudge on my thumb. When I put it on, it made my skin itch. Online, other customer reviews shared my feelings that the products were sort of (but not really) the same as the pictures, the brand not exactly the small business it had seemed.

The ring I bought had probably been dropshipped. Dropshipping is a business model where people sell goods via an online shopfront with no physical location or warehouse. When you order a product from a dropshipper, they don't handle or interact with your item at any time; instead, they forward your order to an ultra-cheap retailer/wholesaler such as AliExpress or Shein, who process your order and send you the item.

Dropshipping and the digital advertising industry go hand-in-hand. Searching "dropshipping" on YouTube or any search engine will bring up a host of websites and articles promising to teach you – yes, you! – how to start your dropshipping business and become rich nearly instantly.

Using the platform Shopify, it is the work of minutes to set up a website. Photo / 123rf

There is an appeal to this ease of access. Using the platform Shopify, it is the work of minutes to set up a website, with plug-in Oberlo allowing users to directly import and re-price items from AliExpress and list them for sale. Dropshippers might also list items on marketplace platforms like TradeMe, Amazon, or eBay.

It is marketing which allows dropshippers to sell cheap things at inflated prices. The ring I bought was on a website selling other quirky jewellery just like it, for $5 – $15 each. On AliExpress, I can find a similar ring for less than a dollar. Offering something for free so customers will buy other items is a marketing technique dropshippers are encouraged to use, as artist Jenny Odell found in her investigation of a free watch somebody brought to the Museum of Capitalism.

With a mix of stock images, Photoshop editing, and adjustments to template Shopify websites, dropshippers create a brand that makes what they're selling seem like it's worth more than the rock bottom prices on AliExpress or other cheap wholesalers. Dropshippers are encouraged to find a niche so they can target social media users by topic, using ad tools. When I looked at the advertising topics Facebook has tagged me with, I found that I had been marked as being interested in "water", which may have been why the dropshipping shop targeted me with ocean-related products. Other users might be picked for their interests in purportedly handmade clothing or car repair.

Ad spend is one of the main outgoings for those with dropshipping businesses. Otherwise, there is little upfront capital required, other than the cost of registering a website; by not holding any product themselves, dropshippers can start a business with less than a hundred dollars.

Those who dropship are almost always opaque about their business model, but the system is not necessarily a scam. After all, people usually get the item they paid for, even if the quality is not what they expected. In New Zealand, dropshipping is legal – it's even permitted on TradeMe – although sellers should be registered for a New Zealand Business Number.

The attraction of dropshipping is the simplicity of starting a website from a template, with little to no capital required. But this means the model is easy to replicate. There is no shortage of cheaply made things available on the internet, so to effectively shill cheap products requires expertise in branding, marketing, and customer service.

However, while exact statistics are difficult to come by, many find that dropshipping does not offer the instant riches that are often promised.

Much of contemporary retail is built on streamlined, fuzzy supply chains. Photo / AP

Those who claim to have made thousands of dollars from dropshipping, including New Zealanders, are often reluctant to demonstrate concrete evidence of their income. As journalist Sirin Kale documents, the most successful dropshippers tend to eventually abandon their businesses, saying that there is no long-term future in the model, and instead sell expensive courses promising to teach others their secrets.

When I held my ring, not at all the thing I had thought it was going to be, resolute in its cheapness, I was at the endpoint of a globalised supply chain astonishing in its opacity. I didn't know whether the person behind the shop I had bought it from lived in New Zealand or Nepal; the packaging seemed Chinese, but it could have been dispatched from a warehouse, rather than a factory. Jenny Odell highlights this in her digital museum exhibit: dropshipped goods are symptoms of a system that creates cheap things, then erases the connections between the maker and the end consumer.

Of course, much of contemporary retail is built on streamlined, fuzzy supply chains. High street retailers have faced increasing scrutiny over their sourcing in recent years, including calls for a Modern Slavery Act in Aotearoa to make companies transparent about the labour that produces what they sell. The third-party fulfilment model used by dropshippers existed before the internet, too, with mail-order catalogues and use of warehouses. Whether dropshipped or sold through a traditional retailer, items manufactured in places with few labour and environmental regulations are cheap because the consumer does not bear the cost — but someone does.

With dropshipped goods as with so much else, that which seems too cheap to be true probably is. I eventually threw out my free ring, which tarnished quickly on encountering my bread-kneading lifestyle. I now know what to look out for next time I click an advertisement that has been following me around social media: Stock imagery branding, no clear person who runs the business, products that can be found on AliExpress with a reverse image search, "sales" that never go away, and reviews that mention long shipping times and disappointing product quality.

I looked for the shop I bought my ring from the other day, and found it had disappeared, bar a few angry reviews on third party websites. Did the person behind it stop selling to start a dropshipping course, or did they spend thousands of dollars on marketing cheap jewellery and only get a few hundred sales?

The model of dropshipping is usually not good for customers, who receive cheap goods at marked-up prices with little customer service if something goes wrong. Nor is it good for labourers and the environment, due to minimal oversight into the processes which produce these objects. But dropshipping isn't really good for sellers, either: Making a viable income from dropshipping requires a lot more work than the YouTube videos suggest, and those who hope dropshipping can become their main income will likely be let down.

Whether it comes from a major retailer or a single person importing AliExpress products into a digital storefront, money is the same to social media companies like Facebook, Instagram, and e-commerce giants like Shopify and Amazon. In the digital economy, the house always wins.