Many of you wonder what are the critical differences between wholesaling and retailing. In the entire supply chain sector, wholesale and retail play a significant role in the distribution process. In simpler terms, a wholesaler always buys goods in bulk from the manufacturer, sells them to the retailer, who then delivers them to ultimate buyers. Wholesaling and retailing are the primary mediators of the supply chain. If any of these are missing, the entire supply chain may get disrupted.
About important things
Let’s begin at the beginning and talk about how wholesale and retail work.
How does wholesale work?
Wholesaling is the process of selling goods to consumers such as retailers, industries, or any other entity in bulk quantities and at lower prices. A wholesaler buys products from the manufacturer in huge lots, split them into smaller lots, repacks them further, and sold them to the next party. In short, wholesalers are basically the “middle man” between suppliers or manufacturers and retail stores.
One key aspect of wholesaling is that it does not focus on the quality of goods; instead, it emphasizes quantity. This kind of business does not require any publicity, marketing, or advertisement. However, there is a considerable capital investment required as the size of the company is large. Their business is entirely dependent on the clients they have.
How does retail work?
Now that we know how wholesale works, let’s take a moment to examine retail.
Retailing is the process of selling goods in smaller lots, without any purpose of further resale, to the end customers. Retailers can typically be called the “middle man” between wholesalers and end-users, as they purchase goods in bulk from wholesalers and sell them further to buyers at higher prices.
The prices are comparatively higher in retailing because there are many additional costs in this kind of business. Expenses such as marketing costs, shipping and logistics costs, salary to employees, electricity expenses, warehousing costs are all included in the retail price of a product.
To become a successful retailer, there are several factors that eCommerce business owners have to consider. Location of the shop, the look and feel of the store, product displays, quality of products, customer support, and delivery speed are a few of the factors that have to be given much importance in a retail business, as they leave a profound impact on the customers’ minds.
What are the key differences between wholesale and retail?
Wholesale vs Retail: Pricing
When it comes to pricing, both retailers and wholesalers are concerned with getting the lowest price possible when buying inventory, but pricing tends to have a bigger impact on wholesalers. Because wholesalers buy such large quantities, getting the lowest unit price possible has a major impact on their ability to turn a profit. The lower the amount they pay for products, the more potential profit they can make when selling to retailers. Or, if there’s a lot of competition in a product category, they can be more competitive if they can offer lower prices to retailers. Paying less for products upfront gives them more wiggle room to undercut competitors and still make a profit.
Price is important for retailers too. However, since retailers aren’t required to buy huge quantities, they have more flexibility when it comes to ordering. They’ll still need to purchase stock at a price that allows them to make a profit after purchase, warehousing, and the other costs associated with running a business.
This is why often the relationship between wholesalers and retailers is called symbiotic. They must work together to ensure both make a profit. If the wholesaler prices things are high, retailers will not be able to make a profit and will not buy the items. Retailers, meanwhile, need to build realistic profit margins and manage their inventory levels effectively so they can make a profit while still paying a wholesale price that allows the wholesaler to profit as well.
Wholesale vs Retail: Competition
Wholesale does have a slight advantage in that wholesalers can choose from a huge range of products and markets to target. As long as there are businesses interested in reselling the products at retail, and the wholesaler can procure the goods at a fair price, there’s nothing stopping wholesalers from offering widely varied product lines. Retailers, on the other hand, tend to have less flexibility in this regard. The main point here is that you should be doing research on the amount of competition you’ll be up against before deciding what to retail or wholesale.
Wholesale vs Retail: Marketing
Marketing is less important for wholesale because wholesalers have a potentially smaller customer base. They’re not looking for individual buyers, they’re looking for buyers from retail companies who will buy in bulk. The customers who come to a wholesaler are already informed about what they want, who they can get it from, and what it will likely cost. Because of that, wholesale can spend significantly less on marketing than a retail business. Retail sellers, on the other hand, will need to spend significantly more on marketing because they’re trying to reach multitudes of individuals who may buy one or two items.
Wholesale vs Retail: Fulfillment and expenses
For retailers, fulfillment is crucial. Whether you realize it or not, you’re competing against Amazon, which can deliver items in a day. Customers have come to expect fast shipping and fulfillment. This is a legitimate issue for retailers because faster shipping means more expenses in most instances. Wholesalers, meanwhile, don’t face these issues in the same way. Wholesalers sell huge amounts of products in bulk. Customers order ahead of time, so there’s rarely a need for an item to get there the next day (or even the next week in a lot of cases). All in all, this is another area where wholesalers have an advantage over their retail counterparts.
Wholesale vs Retail: Location
Location is important for any business, but when it comes to retail versus wholesale, it’s definitely more important for a retail business.
If you’re a retail business with physical stores, location is everything. Pick the wrong spot for your business and you might be out of business before you get started. Wholesalers don’t have these issues. They can get away with the industrial park warehouse space because many of them aren’t open to the public. Orders are placed online or over the phone. Plus, since they often need huge amounts of space, it’s not feasible to have a location in an area of prime real estate.
Wholesale vs Retail: Relationships
The connection between retailers, wholesalers, and customers is important. Without customers, it’s challenging to stay in business.
However, this is another area where retailers have to put forth more time and effort to be successful. Retailers will need more customers than wholesalers. It’s simple math. If each retail customer only buys one item, you’ll need significantly more customers to be successful. Wholesalers, on the other hand, could theoretically get by with a handful of really big customers placing huge bulk orders regularly. Retailers will have to constantly search for new customers and lure previous buyers back to purchase more. Wholesalers’ customer relationships are generally less complex and often far more stable. Once a company chooses to do business with a wholesaler, they will continue to do so unless they find a better deal or the wholesaler fails to deliver the products required.
Summary: Final Say
In short, the definition of wholesale vs retail is as follows:
- Wholesalers purchase products in bulk from manufacturers and distributors. Then they resell these products to retailers. This is a B2B (business-to-business) model.
- Retailers purchase goods in bulk from wholesalers and then work to sell these products directly to consumers. This is a B2C (business-to-consumer) model.