Starting a business is difficult, and retailing is incredibly tricky. Any retailers have been forced to close or file for bankruptcy during the pandemic, including some of the more well-known brands, such as JCPenney, Kohl’s, Macy’s, and Nordstrom’s. However, wholesale companies, such as Amazon, saw profits skyrocket. It makes sense to consider a wholesale business, and a pandemic may be a good time to start one yourself.
What is a wholesale business or wholesaler?
Wholesale is when you sell your products in bulk to another retailer, usually at a reduced price, who then sell the product to their clients.
Keep in mind that creating a wholesale channel for your business will allow you to sell and advertise your product to the final consumer.
Thus, wholesalers sell their products at a lower unit price, the reason why are they sell in bulk, making a small profit on a massive number of products sold. Therefore, wholesale rates are much lower than retailers’ rates, usually only around 15-20% (compared to profit margins of 100% to over 1000% depending on product type).
Wholesalers play a crucial role in modern supply chains that reduce management costs and the time involved in the sales process. Producers or manufacturers are the monopolies of the supply chain, and most use a distribution channel involving wholesalers to serve the customers in retail sales better.
Wholesale companies perform the following necessary functions:
- Collect large quantities by purchasing truckloads or larger purchases
- Break up those bulky purchases to offer variety to the retailer
- Financing by purchasing to an end-user before sale to provide capital to manufacturers
- Transport
- Taking risks by accepting the risks associated with damage, theft, or obsolescence of products
- Sharing of information between manufacturer and retailer
The profitability of a wholesaler
As a wholesaler, you have access to a wide variety of sales points and allows you to connect with a large customer base. By offering wholesaler products, a wider audience gains access to the products manufactured by companies within the supply chain; hence, you can quickly expand the business. Here are the problems with running a wholesale business are listed below.
Wider expansion
A wholesaler provides a manufacturer a vehicle to go beyond the company’s own sales opportunities by maintaining close relationships with retailers. Imagine trying to sell your product to Walmart or some other big retailer? You never get to meet (or at least it is doubtful that you will have access to their buyers), so you would never enter the market.
As a wholesaler, you act as an intermediary between manufacturers and retailers by maintaining good relationships with both industry groups. Typically, you also send sales representatives to meet with retailer buyers to suggest new products, address issues, and provide personalized satisfactory customer service.
Hence, online wholesalers also function as a repository for retailers who wish to expand their offerings to customers. However, these online options are especially crucial for international retailers who want to offer unique products worldwide.
Think of a world without wholesalers where retailers deal with every manufacturer, creating a nightmare of interactions that the retailer has to manage. Likewise, our logistics system is not efficient for small shipments. Therefore, retailers in a world without wholesalers would offer limited product lines to customers. As a customer, that means multiple trips to different stores to meet your needs or huge payments for shipping products straight to your door.
Better brand awareness
Taking entrepreneurship as a wholesale business provides an excellent opportunity to generate brand awareness for the product portfolio you represent. Instead of consumers buying exclusively from a specific store with limited offers, they visit retailers selling a wide variety of products.
Collaborating in advertising and promotion through wholesaling to retailers means that many customers who might not otherwise know a product learn more about it and compare different options. This vast exposure allows you to reinforce the notoriety of your brand.
Harness the potential of various distribution methods
Wholesalers use various methods depending on the needs of retailers, the nature of the product, the distribution channels, and historical trends in the industry. While you could think of wholesalers as people who run massive warehouses with trucks of goods passing through their facilities every day (we call these full-service wholesalers), there are various other wholesale options.
Agents and brokers were representing manufacturers without owning the product, but working on commission.
Rack merchants – which represent perishable goods like bread and beer. They also work to store the product in the store, removing products that are nearing their expiration date to ensure that fresh produce is always available.
Dropshippers
Dropshippers are an attractive option for wholesale. When I first taught in the early days of e-commerce, a student made a living by working with drop shippers, who filled their orders by sending products directly to consumers as soon as they received an online order for the product you sell.
At this wholesaler, the order will come directly to you, and you will be the one who will do the shipping of the product now to your client. Moreover, this allows you to gain the benefits of being a reseller while retaining inventory ownership.
Other types of wholesalers used for specific functions include:
- Representatives of manufacturers who represent non-competing manufactures, usually in a similar niche, acting like a sales force for the company
- Forwarders who facilitate international distribution
- Limited-service wholesalers who provide specific subsets of services provided by a full-service wholesaler.
Final thoughts
In the supply chain, retail and wholesale are two essential aspects of the distribution process. The primary purpose of wholesalers is to sell products to retailers or businesses, then selling them to the end customer.
Both business forms offer essential opportunities. Above, we have mentioned some of the benefits associated with wholesale business. If these benefits match your business goals, then starting a wholesale business might be right for you.
