When starting a business, the debate of wholesale vs. retail is one of the most significant features of developing your strategy. After all, your decision will influence your approach to branding, selling, and order fulfillment. The overall impact on your bottom line can be huge.
There are thousands of success and failure stories in both retail and wholesale. This guide will underline the benefits of either option while also looking at wholesale vs. retail examples in the process. By the end of this article, you should have a much clearer picture of the advantages and disadvantages of both systems.
There are over 32.5 million businesses in the U.S. right now. While not all of them are in the business of commerce and selling goods, millions of them are. And they all face the same dilemma: go wholesale, retail, or a combination of both.
Before deciding which sales approach is right for you, it’s essential to know what they are. The retail definition states that this method of selling revolves around providing goods directly to the consumer or end-user. In most cases, this means selling individual items or products in small quantities.
Conversely, wholesale vendors focus on selling products in bulk quantities. While they can also sell products in smaller quantities, it is often done in large volumes.
The wholesale trade explanation also states that it involves selling items to outlets and retailers and is rarely focused on selling to the end customer directly.
Both the wholesale and retail business models can be used by manufacturers that produce products in-house. Similarly, both models can support brands that focus on acquiring goods from other companies.
While not entirely accurate in all cases, wholesale is often used for B2B, while retail focuses more on selling products to customers.
Wholesale selling focuses on lower costs because the large volumes mean sellers can afford a lower profit margin per item. Moreover, handling costs and other related expenses are far smaller. Retail companies usually charge more because they are focused on selling smaller quantities per transaction.
In many cases, retailers procure their products from wholesalers and subsequently need to add a markup before selling the products on.
Market research is vital in all aspects of business management, especially when looking at the pros and cons of wholesale or retail. Some of the key industry facts you should know include the following:
Both wholesalers and retailers can make big money if they are supported by a strong business plan and promote the right products to the target audience. When determining the best option for your business, it will be necessary to consider the products you are hoping to sell and whether you are more likely to achieve a large sales volume from retailers or lots of individual sales from end-users.
It also makes sense to look at the differences between retail and wholesale methods by analyzing some practical examples.
Retailers can range from huge online outlets like Amazon to small local brick-and-mortar businesses. Meanwhile, many large companies like Walmart operate in both digital and physical spaces.
In addition to store retailing, companies may look to non-store retailing, covering direct marketing and sales, distance selling, and online sales.
Retailing can take many forms, from online fashion stores to department stores or traditional brick-and-mortar stores. However, the fundamentals of business will remain largely the same:
While running a retail business is complex and involves hundreds of tasks, from hiring sales staff to printing shipping labels, the basic buying and selling model is that you purchase large quantities of a product before selling individual items at a higher price.
Wholesale involves buying much larger quantities (or manufacturing them yourself) before selling them to retailers. So if you think about the supply chain, wholesalers generally come one step before retailers.
There are well over 400,000 wholesale distributors in the U.S. This includes many types, such as those who work exclusively online, some that focus exclusively on dropshipping, numerous discount wholesalers, and more. In general, we can split them into three groups:
Whichever route is taken, wholesalers usually serve to bridge the gap between the manufacturer and the retailers who will sell those goods to the end-users.
Now that we've given a retail trade explanation and a wholesale definition let’s look at the pros and cons of retail and wholesale distribution. Understanding these should help you determine which arrangement is best for your company.
As shown above, both retail and wholesale have advantages and disadvantages. In today’s climate, many business owners can combine elements of both selling methods to maximize profits. Setting up two sister websites or brands - one aimed at wholesale and one at retail is a relatively simple task and allows you to enjoy the best of both worlds.
Whether choosing one of the methods or a combination of the two, the most important thing is that you understand how each distribution method will benefit your company and what potential problems each can bring. When you do, success will be far more likely to follow.
Wholesale is a business practice in which companies sell products in bulk rather than individually. This most commonly means selling to various types of retailers at low prices, who will subsequently sell them to the end customer at a higher price. In some cases, wholesale suppliers will also provide smaller quantities to the end-users through specialized stores, but this is not a common practice.
Both share many similarities, but the difference between wholesale and retail in terms of quantities and buyers means wholesale is not considered retail. Instead, they are different distribution arrangements that work together within the supply chain.
Wholesalers can fall into three categories. Merchant wholesalers are the most common type and buy products in large quantities before selling them to retailers. Brokers tend to serve as middlemen who act between manufacturers and retailers. Finally, manufacturers often have sales branches for both retail and wholesale sales.
As an industry, global wholesale suppliers generate over $8 trillion per year, while retail is worth around $5.2 trillion. However, individual businesses can thrive in either sector. When comparing wholesale vs. retail, the right option will depend on numerous factors. These include stock availability, the demand from end-users versus retailers, the industry you’re operating in, and where you’ll sell your items.
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