What Is Wholesale?
Wholesale refers to the sale of goods or services in large quantities to be resold by a retailer. Wholesalers purchase products from manufacturers in bulk for a low price per item and sell smaller quantities to retailers for a profit, who then market them to consumers.
How Does the Wholesale Business Model Work?
Wholesalers serve as intermediaries between manufacturers and retailers. They buy products at a discounted price as they make high-volume purchases. The wholesaler then sells the products in smaller quantities at a markup to retailers. However, the wholesale price is still lower than what the retailer will charge consumers. This allows the retailer to make a profit while also passing on some of the wholesale discounts to consumers.
Recently, it has become drastically easier to reach end customers with online stores and digital marketing, cutting the need for some wholesalers to use retail partners to sell their goods. This model doesn’t technically fit under the definition of wholesaling but it has most of the same benefits while cutting out another middle man. The downside is that you have to do the marketing and sales work yourself.
Wholesalers may focus on a specific product category, such as electronics or apparel, or offer a wide selection of goods. They provide vital distribution and logistics services like warehousing, delivery, and inventory management for retailers. Wholesalers sometimes also offer marketing guidance, sales support, and product expertise.
Types of Wholesale Models
There are a few main wholesale models:
- Merchant Wholesalers – Take ownership of inventory and sell a variety of products to many retailers. Offer services like warehousing and delivery.
- Agents and Brokers – Act as intermediaries between buyers and sellers. Do not take ownership of goods. They earn a commission on the sales they facilitate.
- Manufacturers as Wholesalers – Producers can also distribute and sell products directly to retailers. This puts them in direct competition with traditional wholesalers.
- Specialized Wholesalers – Focus on specific product categories, market segments, or geographies. They develop deep category expertise and form long-term partnerships with both manufacturers and retailers.
Advantages of Wholesaling
Wholesaling benefits the wholesaler as well as both ends of the supply chain. For manufacturers, wholesalers provide an efficient distribution channel without the need for extensive sales operations. Wholesalers also give retailers access to a wider selection of inventory from multiple vendors.
Other advantages of wholesaling include:
- Cost Savings – Bulk purchasing allows for better prices, improving profit margins for the wholesaler.
- Convenience – Retailers can obtain many products from a single wholesaler.
- Category Expertise – Specialized wholesalers sometimes offer valuable product knowledge.
- Warehousing – Wholesalers usually handle storage and inventory management.
- Transportation and Logistics– Wholesalers can provide product transportation and logistics services.