Business Knowledge: Wholesaler vs Retailers - Comparing Two Business Models

Link of the source: https://blog.handshake.com/wholesale-vs-retail/

1. What are the definitions of these two concepts?

The key difference between them is that whether the business entity directly sells the products to the end-users. On one hand, the wholesaler buys product from manufacturer (usually in large amount) and sell them to other businesses (aka. Retailers) with a higher price. On the other hand, retailers purchase products from wholesalers and sell them to the end-users directly.

There are another two concepts which are highly related: B2B and B2C. While B2B refers to business to business (in this case, wholesaler), B2C refers to business to customers (in this case, retailers).

2. What are the pros and cons?

1. Customer relationships + Marketing:

Being a wholesaler requires building long-term client partnerships, which means that there is far less marketing needed in wholesale vs retails. Wholesalers usually depends on those few long term and stable business partnerships and create business security with those repeat orders. One the other hand, retailers need more efforts on marketing and attract new customers. One example is the interior design of wholesaler such as Home Depot, wholefoods. Most of them have very rusty, warehouse-like interior furnishing. This is because the buildings serve more as a warehouse and less an attractive selling place for them. For a normal retailer, however, it might needs to make the interior fancy in order to attract more customers on the street.

Another consequence of this difference is that retailers need to invest more in the customer service, both in-store, on the phone, or through online messaging.

2. Cost:

Both retailers and wholesalers can make profits by increasing prices when selling to their customers. However, as we know, along the chain of manufacturer — wholesalers — retailer — end users, the cost increases at each step. Thus, wholesalers can buy products with a much lower unit price. However, the trade-off is wholesaler needs to buy products in a larger quantity. That means that wholesalers need to spend more money on the long-term storage, bearing higher risk of logistic uncertainty. Retailers, on the other hand, bears a higher cost but are more flexible in case the sales volume is suddenly shrinking.

3. Competition:

To become a wholesaler, it requires a larger capital to purchase products in larger quantity, warehouses, and better logistics equipment. Once a business becomes a wholesaler, it can sell at a lower cost and potentially making more profit. Thus, it’s apparent that wholesaler has less competition compared with retailers.

4. Location:

Retailers need to be where consumers spend the most time, such as high streets and shopping malls. These locations are typically extremely expensive per square foot because of the demand. On the other hand, wholesaler doesn’t require to be in a very expensive area. In fact, the nature of requiring large storage footage makes most of the retailers to choose suburban areas where the land is much cheaper. Maybe this is another pros of being a wholesaler.