There are numerous factors to consider when deciding to enter the e-commerce market. For example, omnichannel retail would necessitate a strategic decision about which sales channels to use and how to combine them seamlessly. One of the most important factors to consider is the business model–whether you want to do general B2C e-commerce retail or go the B2B e-commerce route and get into wholesale.
The rest of your business strategy and supply chain will be influenced by the business model you choose. So, if you’re having trouble deciding between the two, this post will assist you in making an informed decision. In this guide, we will look at the differences between wholesale and retail, as well as compare the advantages of each model. Let’s get this party started.
Wholesale vs. Retail
The primary distinction between wholesale and retail is the type of buyer. While retail involves selling products directly to end-users, wholesale entails selling products in bulk to other businesses such as retail stores.
What exactly is wholesale?
Wholesale is the process of purchasing large quantities of goods from manufacturers or distributors and reselling them in bulk to other businesses at a discounted price. Although wholesalers sell their goods at a lower price, they still make a profit because their selling price is higher than their original purchasing rate.
A wholesaler, for example, might spend $2,000 on 1000 pairs of socks at $2 per pair. They could then sell 100 pairs of socks to each of ten different retailers for three times the original price of $6 per pair. They may end up with significant profits after deducting the costs of storage and delivery.
To summarize, wholesalers:
- Purchase large quantities of products at wholesale prices from wholesalers and distributors.
- Profitably resell the products in bulk (but in smaller amounts) to retail stores and other businesses.
- Don’t sell to end-users directly.
Manufacturers may also sell their finished products directly to retail stores in some cases, becoming the wholesaler themselves rather than relying on a third-party intermediary.
What exactly is retail?
The process of selling products directly to the end user is known as retailing. A retail establishment would purchase goods in bulk from a wholesaler or distributor, or directly from the manufacturer, at a reduced price. They’d then sell them separately at a higher price, allowing them to profit from the transaction.
In short, because they sell products directly to consumers, retail businesses serve as the final point of contact in the supply chain.
For example, a retailer may purchase 100 pairs of socks at a cost of $6 per pair and sell them for $12 each. This enables them to turn a profit after deducting the necessary shipping and storage costs.
To summarize, retailers:
- Purchase products in bulk at a lower cost from a manufacturer, wholesaler, or distributor.
- Profitably resell the individual products to the end user.
- Sell to end users directly.
Because retail businesses must sell directly to consumers, they must also effectively market their products in order to attract customers. In the case of direct-to-consumer brands, the brand handles the entire process of manufacturing, marketing, and selling products directly to the end user without the use of an intermediary such as a retailer or a wholesaler.
Is it better to sell wholesale or retail?
For some, it’s less about understanding the distinctions between wholesale and retail and more about determining which is the best option for them. So, for each type of business model, let’s take a closer look at the benefits you can reap and the challenges you must overcome. This will provide you with the information you require to make a more informed decision.
Wholesale Benefits and Drawbacks
Wholesale distributors can buy goods at significantly lower prices than retail businesses because they have access to wholesale pricing. They can also benefit from lower fulfillment costs because they can ship products in bulk. As a result, their overall spending is lower, providing them with an excellent opportunity to earn large profits.
Furthermore, wholesale businesses typically have long-term contracts with retail businesses to supply products in bulk. This has a dual benefit: not only does it provide them with guaranteed long-term income, but it also allows them to enjoy higher average order value. This makes predicting their margin of profit easier, allowing them to plan their budget and spend ahead of time. Furthermore, because they ship out large quantities of orders at once, they have a good chance of maintaining a high inventory turnover ratio.
Another significant advantage of selling wholesale is that you have a good chance of growing your business because you are dealing with a high average order value. The business model allows for lower unit costs and higher revenue, which can help with scalability.
Despite these advantages, it is also important to consider the challenges of running a wholesale business. One of the most difficult obstacles to overcome is competition, as the market is dominated by industry leaders. To gain dependable customers, new businesses entering the market must work on establishing their credibility.
Furthermore, while wholesale businesses have access to wholesale pricing, they must invest in massive quantities of goods at once. When you have to buy thousands of units to qualify for wholesale pricing, the cost of procurement can quickly add up.
Another critical factor to consider is fulfillment. While wholesale businesses can benefit from lower fulfillment costs, the process of fulfilling large quantities of orders presents its own set of challenges. To begin with, storing large quantities of inventory necessitates a significant amount of warehouse space. Furthermore, there may be transportation risks and capacity constraints associated with shipping out bulk orders.
Retail Benefits and Drawbacks
One of the most significant advantages for retail businesses is the ability to create a brand and a personal connection with customers. Retailers have the opportunity to build relationships with their customers because they sell goods directly to them.
This also implies that they will have access to first-party behavioral data that will help them with their marketing and procurement strategies. For example, based on each customer’s purchasing history, it becomes much easier to provide personalized product recommendations.
Retailers have more control over their brand identity because there are no intermediaries involved. They have complete control over how their products are displayed and marketed, as well as the level of service they offer. This allows them to create a strong and consistent brand image that is not influenced by the shortcomings and mistakes of business partners.
This increased control extends to pricing strategy, allowing them to set their rates based on their desired profit margin. That also means they can easily adjust their pricing if their current rates aren’t delivering the profit margins they’re looking for. As a result, with the right pricing strategy, retail businesses can generate significant revenue.
All of these advantages, however, come at a cost. Retail businesses face a number of challenges, particularly because they deal directly with end consumers. For starters, marketing their products to different types of consumers with varying needs and pain points is difficult.
Furthermore, with customers expecting quick and low-cost shipping, fulfillment can be a major headache. With retail businesses having to deliver orders to customers in various locations, there are challenges associated with strategically distributing inventory to ensure efficient and low-cost delivery for all of their customers.
What about wholesale and retail sales?
Alternatively, you may not need to choose between the two options at all. By selling both wholesale and retail, you can get the best of both worlds. Because you’re distributing goods through your own retail store while also leveraging the established customer base of other retail businesses, this is an excellent way to broaden your audience base. This will, of course, result in increased sales and revenue for your company.
Another advantage is that you have a backup revenue source in case the primary one suffers a setback. So, if one of your retail store partners cancels their agreement, you’ll still be able to generate enough cash flow from your retail business to last until you find a new distribution partner.
On the other hand, because you’re essentially competing with yourself, your retail pricing strategy must be extremely strategic. You must ensure that your retail rates are not so low that you are undercutting your wholesale business.
Furthermore, managing a wholesale and retail supply chain can be extremely difficult. Not only will you need to manage your inventory separately, but you’ll also need to maintain separate systems for processing orders, fulfilling them, and shipping them to your customers.
Starting Out In Wholesale And Retail
Given these challenges, it’s critical that you have proper plans in place for managing your retail and wholesale businesses separately. To begin, devise a strategy for retail warehousing and wholesale inventory storage. Will you keep retail and wholesale inventory in the same warehouse but in separate sections? Or will you keep a few small retail fulfillment centers open while storing wholesale inventory in a larger warehouse?
Your inventory strategy should also be carefully planned, taking into account both retail and wholesale inventory. How will you keep track of the movement of your inventory? How will you distinguish retail from wholesale inventory? Furthermore, set reorder points to ensure that you can replenish your stock on time and maintain optimal inventory levels at all times.
Another critical aspect to consider is logistics and fulfillment. It’s critical to consider how each step of the process will be carried out strategically, especially since your wholesale and retail logistics will operate independently. Consider your partnerships and supply chain processes for each business model, and how you can manage them both seamlessly without causing confusion and mix-ups.
For wholesale, you’ll need to find dependable distribution partners who can assist you in selling your products to end-users. You’ll also need to consider how wholesale orders will be fulfilled versus how retail orders will be fulfilled. Will you have separate wholesale and retail shipping partners? Will it be possible to use the same shipping company for both types of deliveries?
Despite the numerous advantages of combining wholesale and retail, there are a number of obstacles to overcome. Before deciding on this option, carefully consider your options and your resources.