What is wholesale?
Wholesale refers to a type of business that buys large quantities of goods directly from manufacturers or distributors, warehouses them, and resells them to other businesses. Due to high-volume purchase orders, wholesalers are typically able to buy products from manufacturers at a lower price and add their margins.
What is the difference between a Distributor, Wholesaler and Retailer?
A product has to come a long way until it reaches a paying customer. Wholesalers, distributors and retailers are all middlemen that are featured in the supply chain and make that journey possible. Each has its own purpose and set of responsibilities that define their role in the network.
Distributor is an independent agent that enters into an agreement with a manufacturer to sell their products to wholesalers or retailers. Distributors often face limitations from manufacturers and are not allowed to sell other product lines or competing products, however that often boils down to the type of industry and agreement that’s put into place. Typically, distributors carry a very large amount of stock and often have the capacity to warehouse goods for up to a year. Whenever a manufacturer is approached by a potential new buyer, they have to deal with the chosen distributor that becomes their direct point of contact.
Wholesaler is a middleman that buys in bulk from a distributor and resells at a wholesale price to a retailer. Wholesalers can specialize in a certain type of product, such as women’s shoes, or carry a wide range of stock destined for retailers in various different industries. Wholesalers who only stock non-competing products are deemed distributors. Besides breaking bulk orders into smaller quantities, wholesalers can also assemble goods as part of the process. Wholesalers typically tend to warehouse products for shorter periods of time compared to distributors, most commonly for up to six months.
Retailers are for-profit businesses that sell directly to consumers for the purpose of consumption and not resale. To make a profit, a retailer needs to find a wholesaler or a distributor that sells products at the right price point and in the right quantities. Generally, retailers make money by purchasing goods from wholesalers in small quantities at a wholesale price and reselling them at a relatively high price to cover for advertising costs and other expenses, such as staff salaries, rent, utility bills, etc.
Recently, a new type of online retailer known as “drop shipper” has caught fire among eCommerce entrepreneurs. Drop shipper is a retailer who doesn’t keep any stock but earns commission on orders transferred to his wholesale supplier. The biggest advantage of this retail fulfillment method is that you don’t need to own or keep the stock you’re selling. When you receive a new order, you simply pass it on to your wholesale partner who handles the product shipping and take a commission on that. eCommerce businesses that run on a drop shipping model are hugely reliant on wholesale suppliers and need to be strategic about choosing the right partner.