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Dropshipping is a business model gaining popularity in New Zealand due to its ease of access and start-up benefits. Customers place orders through your business website or online marketplace at retail price, and you purchase stock from a manufacturer or dropshipping supplier at wholesale price, pocketing the difference. You do not have to worry about inventory or storing stock, as your supplier will ship its goods directly to the customer once you send through orders. What you have to worry about is the business’s customer service, promoting and advertising the goods you sell.

You can start a dropshipping business using your own website, or using online marketplaces like:

  • Aliexpress;
  • eBay;
  • Amazon; or
  • Shopify.

However, starting a dropshipping business is not as simple as it seems. Despite its benefits, there are legal aspects to the business that could sneak up on you. This article will shed some light on what those legal issues are, and what you need to do about them.

Product Safety and Quality

Dropshipping means lower risk for your business because you do not have to worry about storing and maintaining inventory, and its costs. On the other hand, this means you sacrifice being able to personally verify the products’ quality. Things are out of your control if something goes wrong in delivery or shipping. When you sell products to consumers, you have a responsibility to make sure that they are of acceptable quality and suitable for the use that the customer bought them for. Products should be:

  • acceptable in appearance and finish;
  • free of minor faults;
  • fit for purpose;
  • safe for use;
  • the same as the description you gave the customer, e.g. matching the photo on your website;
  • durable; and
  • able to be legally sold by you.

If something goes wrong with a product, and a customer comes to you with a complaint, you have to give them a remedy if it is a legitimate issue.

A remedy would be a:

  • repair;
  • replacement; or
  • refund.

This can be difficult to facilitate when you do not deal with the products yourself. So, it is important to work this out in your agreement with your dropshipping supplier.

If they are a reputable supplier, they should have contingencies if a product is faulty or needs repairs. Make sure you have planned for customer complaints like this beforehand, so it is easier for you in the long run. You could do this in a refund policy.

Advertising Legally

As the dropshipper, one of your key responsibilities will be advertising the products and finding customers to buy them. This could mean buying ads on popular websites or running a good marketing campaign. You need to ensure that your advertising aligns with NZ’s laws around fair trading. This means you:

  • do not mislead or deceive customers;
  • do not make claims about the products that you can’t prove;
  • need to provide all relevant and important information; and
  • need to keep your prices clear and accurate.

You are ‘in trade’ as a frequent seller of goods, so New Zealand consumer laws apply to you. You need to uphold consumer guarantees and follow through on promises you make to customers.

This should be outlined in your business terms and conditions for easy access.

You have to make sure you have the goods to fulfil customer orders and make sure that any statements you make about stock availability or delivery times are accurate. It may be a good idea to put a disclaimer in your terms and conditions covering what happens if there are stock issues or delays.

Website Use and Privacy

Because you are an e-commerce business, you will have the legal considerations of running an online store on your own website. This can include:

  • registering a domain name;
  • defining your website terms of use;
  • any issues with displaying trade marks and intellectual property; and
  • privacy concerns.

Your website will take personal information about your customers, like email addresses and payment details, so you need to be clear about protecting their privacy interests. This would mean making sure you use a secure online payment service and safely storing customer information.

Tip: If your dropshipping supplier sells branded goods, check to make sure they have permission to supply those goods, as there may be trade mark and intellectual property issues.

Business Administration

There are the usual legal considerations to setting up and running a business as well, such as:

  • tax obligations, particularly if you buy from or sell to international parties;
  • whether you hire employees;
  • how you decide to structure your business, e.g. as a sole proprietor or company; and
  • whether you will trade mark a logo or your business name.

Key Takeaways

If done right, dropshipping can be an excellent way to make a profit and set yourself up as an online entrepreneur. But, you should be aware of its legal aspects early on in the process so that you do not open yourself up to liability later. If you would like more information or help with your dropshipping business, contact LegalVision’s New Zealand online business and ecommerce lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is dropshipping?

Dropshipping is a kind of business model. It is the process where you purchase products from a manufacturer at a wholesale price, display those products on your website at retail price, and customers make orders through your website. The manufacturer then ships the products directly to your customers.

How do I start a dropshipping business?

First, you should identify what kind of products you want to use for your dropshipping business. It is a good idea to conduct market research for this. You need to find a reputable supplier of this product and vet them accordingly. You also need to build an e-commerce website or decide on an online marketplace to sell your products. It is also a good idea to develop a good marketing plan for getting customers.

What are good items for dropshipping?

Products that do not have high shipping costs or rigorous safety standards are good choices for dropshipping. These include phone cases, tech supplies, or lifestyle products.

Is dropshipping legal in NZ?

Dropshipping is legal in New Zealand, as long as you comply with the laws that are attached to selling online. These include consumer protection and privacy laws.

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