Drop-shipping: What should be done to protect the Consumer?
When my mother retired from her teaching job in 2016, she requested her children to suggest to her
some businesses that she could engage in. As a novice entrepreneur, my siblings
and I were determined to steer her toward a low-risk, low-capital-intensive
business idea. Incidentally, the talk in town at this time was about
individuals, most of whom have full-time jobs, importing products from China
for resale locally. As a family, we settled on a children’s clothing shop.
These are popular and fast-moving items.
In addition, we decided to ship the products through a third-party
platform where you place and pay for your order, as opposed to traveling to
China. The retailer, in this case, pays and passes the order on to suppliers:
the wholesalers. The suppliers process the order and ship it to the customer,
my mother, in this instance. This process is called drop-shipping, where the
e-commerce platform owner receives the order and forwards it to a supplier. The
platform owner does not hold any stock, rather, has a collection of suppliers
to whom he forwards the orders for processing, a process known as drop-shipping.
All was fine since the shipments were rolling in seamlessly and my mother was,
once again, gainfully and happily engaged. The commercial and consumer welfare
risks attendant to this process were not very apparent at the time.
With significant advancements in internet access,
e-commerce has opened up many opportunities for entrepreneurs. Drop-shippers,
for instance, require little upfront investment since they neither handle
logistics nor hold inventory and, therefore, do not require storage space. For
the consumer, on the other hand, the shipping process is effortless and
efficient. But with these apparent benefits for all involved, the question begs
- who, between the drop-shipper and the supplier, should handle consumer
concerns when they arise, including delayed delivery, poor quality, or wrong
orders?
First, agencies tasked with consumer protection have a duty
of care to protect consumers against contraventions arising from drop-shipping
transactions. Unfortunately, a majority of consumers are unaware of the salient
rights as enshrined in Article 46 of the Constitution of Kenya and further
buttressed under the Competition Act No. 12 of 2010. The law provides for
consumers' rights to fair, honest, and decent advertising while safeguarding
them against false and misleading claims by businesses.
Since consumers interact with the drop-shippers' website to
place orders, issues may arise on the terms and conditions, for instance, for
payments, product returns, delivery period, and pricing. This concern should be
proactively addressed. Online user reviews would also be a good indicator of
the behavior of a person or business that a consumer intends to engage in.
However, caution is required since some platforms have “bought/fake” reviews
that do not provide an accurate picture of the company’s service standards,
exposing the consumer to risks, a fact espoused by Fakespot (Fakespot.com) a
review monitoring site. Fakespot estimates that 30-40% of online reviews are
fake.
Secondly, institutions such as the Competition Authority of
Kenya (the Authority) should explore market studies that are imperative in
providing a deeper understanding of the operations of this type of business. In
collaboration with consumer protection networks such as the International
Consumer Protection and Enforcement Network, and consumer protection agencies,
the studies would clarify the dynamics and also the risks relating to drop-shipping.
The collaboration also presents opportunities for joint enforcement of
conditions. Due to the nature of online businesses, consumer protection
agencies should collaborate to protect the online consumer. For instance,
market studies would reveal the risks consumers are exposed to and propose
solutions that the Authority may enforce.
Third, once redress conditions have been issued, the
Authority should continue monitoring implementation or compliance. It is also
imperative that terms and conditions must be monitored regularly to ensure that
they do not have clauses that are harmful to consumers. Conducting regular
sweeps on drop-shipping websites in collaboration with other agencies will
ensure that consumer contraventions are addressed for later enforcement or
educative action. Most importantly, the terms must spell out an elaborate
complaint handling mechanism, detailing the person to whom the complaint is addressed
and a brief on how such matters are usually redressed.
Lastly, while consumer agencies may have enforcement powers
in their statutes, the drop-shipping transaction comes with various spheres,
the key of which is deceptive or misleading. There may also be issues of data
privacy because of the details in the custody of the intermediary. In such a
case, this would be treated as a criminal case and it is, therefore, important
that the Consumer Protection Agency works closely with other enforcement
agencies including the Office of Data Protection and the Directorate of
Criminal Investigations.
Revisiting my mother’s business, she has since expanded her
portfolio, all of which is sourced online and delivered to her premises. It has
not been smooth sailing as is the case with businesses. In 2019, she encountered
an issue with the quality of a product which was addressed by the supplier. As
earlier stated, the drop-shipper does not hold any stock, and may therefore, be
unable to ascertain the quality of products supplied. When the issue with the
quality of that particular consignment was noted, we lodged the complaint with
the drop-shipper, who informed us that he would notify the supplier for redress.
The supplier replaced the items that were noted to be of poor quality, at their
own cost, i.e. shipping and freight, to my mother’s satisfaction. In addition
to this, the drop-shipper committed to conducting regular market inspection on
the products offered on his platform to reduce such instances of poor quality in
future. While this worked seamlessly, many consumers, unaware of their right to
redress, continue to suffer silently, mostly tossed between the supplier and
the platform. The clarion call to consumer protection agencies, therefore, is to
enforce their regulatory mandates diligently, ceaselessly educate consumers on
their rights and obligations and purposefully collaborate with like-minded
institutions to enhance consumer welfare.
By: Ninette K.
Mwarania nmwwarania@gmail.com
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