Wholesaler vs Retailer: Understanding the Differences and Benefits of Each
Wholesale vs Retail: Which one is for you?
You have a product, and it’s a good one. You may be looking at the best way to take that product to market, or you may already be selling it and are now planning for growth.
Essentially there are two main ways to sell your product - either as a wholesaler, or as a retailer. Each has its benefits and potential pitfalls. When choosing the most appropriate avenue to market, you must consider which model fits best with:
Your strengths and personality as a business owner
The brand identity of your business and its product or products
How best to reach your target market
Let’s discuss this in detail...
What’s in the guide?
You have put your all into developing your business and you want your product to get to its target market in the most effective way possible. The choice of retail vs wholesale, or even a bit of both is a big decision. Read this guide to discover the options available to reach your customers and help decide what is the best model for your business.
We will focus on:
What are the differences between wholesale and retail?
Why being a wholesaler might suit you?
Why being a retailer might suit you?
Can wholesalers sell retail and vice versa?
What do you need to know for multichannel retailing?
What else do you need to consider?
Wholesale vs Retail
First things first, what is the difference between a wholesaler and a retailer? And why are those differences important?
A Wholesaler is a person or company who sells products in bulk to various outlets or retailers for onward sale. Wholesalers are able to sell their products for a lower unit price as they are selling in bulk, which reduces the handling time and costs involved. The Wholesaler may also be the manufacturer or producer of the product, but they don’t have to be.
A retailer is a person or a company who sells products directly to their customers for a profit. The retailer may be the manufacturer of the product, or may acquire relevant products from a distributor or a wholesaler.
Why being a Wholesaler might suit you?
Being a Wholesaler gives you access to a diverse range of outlets and allows you to reach a large customer base. Offering your product as wholesale allows a larger audience access to your wares, therefore you are able to grow your business quickly. This can drive interest in your product and can make you attractive to retailers who can see that there is a solid audience for your goods and are more likely to want to stock your product.
Acting as a Wholesaler is a great way to build awareness of your product. Instead of consumers having to purchase exclusively from a particular shop, be it virtual or brick and mortar, consumers can see your product in a variety of outlets. It can allow a wide range of consumers who might otherwise not have been aware of your product to build a relationship with it.
As a wholesaler, you can take advantage of a method of selling known as drop-shipping. A retailer or merchant sells the product, but doesn’t own the stock. Instead, the order comes directly through to you and you dispatch the product directly to the customer. By doing this, you gain the advantages of being a retailer (such as targeted branding and a direct line to the customer), while a specialist retailer handles the front end of things. You retain ownership of the stock.
When drop-shipping, the system at the center of your business should offer you the flexibility of being able to differentiate your drop-ship orders from others. Whether this be in the form of a drop-ship symbol against orders, a different order status or a report filter; you should be able to separate out these orders at a glance, quickly and easily. This allows for simple and effective reporting; as well as your team being able to process the orders quickly and in the correct way, according to your drop-shipping workflows, allowing for more time to be spent on growth activities instead.
When selling goods via wholesale, it is much faster and easier to expand into global markets. Any growth and expansion is defined primarily by your relationship with those clients who buy goods from you. If they sell globally, then so will you as you’re just getting the goods to where they need to sell. Ensure your accounting system is setup to allow for multicurrency transactions so that you can sell across multiple currencies to your various clients, quickly and easily. Another part to this is that when selling via wholesale, you will be shipping your goods internationally as one large container, as opposed to sending hundreds of individual retail packages. Depending on your workflows and product costs, this could be a cheaper way of selling internationally.
A wholesaler is not able to be as responsive to the changing needs and desires of its consumer. Whereas a retailer is at the front line of building a relationship with the consumer, a wholesaler is at least one step away and relies heavily on market research and feedback from retailers to stay ahead of the game.
Retaining Brand Identity
By trusting your product to a retailer, you are putting faith in their ability to retain the brand identity of your product. It may not always be possible to have control over how your product is merchandized, how it is discounted or what competitive products it is displayed alongside.
Marketing Your Product
As a wholesaler, you still have responsibility for marketing your product to consumers. You cannot expect the retailer to do all of the work for two reasons:
You need consistency of message regarding product placement and brand identity of your product. You cannot expect each retailer to market the product as they choose while still retaining any consistency in message.
If there is no awareness of your product, or any desire for it from the end consumer, it may not be an attractive choice for a retailer to stock your product.
Selling wholesale means that you will likely be selling your products in large quantities to many different retailers and distributors. This means you need to ensure you have plenty of warehouse storage space to facilitate those sales. Whilst we’re on the subject, it’s also important to ensure your warehouse processes are streamlined and efficient to help minimize any packing errors or wasted time locating goods in your warehouse. The stock in your warehouse should integrate seamlessly with your wholesale management platform, so that you always know how many of each item is in your warehouse, ready for those large wholesale orders you’re going to be fulfilling.
Why being a Retailer might suit you?
Operating as the retailer is ideal if you want to retain complete control of your product lines and you enjoy having a hands on relationship with your customer. There is a lot to think about if you are in this position, but you are able to be responsive to the demands of your customer and their potentially changing needs and desires.
Targeted Consumer Base
You are able to specifically target a tailored consumer base. By being the retailer, you can personally select the the channels that are most likely to reach customers who need and want your product. This may be a brick and mortar shop, or more likely an online presence instead of (or in addition to) your physical shop.
The important thing here is to ensure you’re reporting on these sales channels, so that you can make changes quickly (if needed). Maybe there are a particular brand of products that are selling well on Amazon, whereas your website is the go-to place for every other brand? Or is there a particular type of product selling well on eBay versus your own brick and mortar store? However you decide to slice and dice your reporting, use the analysis to your benefit, get your products on the best channels and go where your shoppers are.
You can get to know your customer base in great detail. You are dealing with them directly, so you can get a sense of their preferences and their habits, and your business can respond quickly to that. Reporting in your business system is also very handy here - with various customer, sales and product reports, you can very quickly see what are your best sellers versus no sellers.
You will also be able to see who your best customers are, so perhaps you could target them with a personalized offer? On the other hand, you can also see which customers haven’t bought from you in say 3 months, and so you may also want to send a personalized email to them in order to get them buying from you again. Knowing your customers based on their buying habits allows you to personalize your service, which your customers will notice (and appreciate)!
Control Over Brand Identity
Having control allows you to ensure that your brand identity isn’t diluted and isn’t damaged. You are in control of where your product is seen, how it is presented and what other products it is displayed alongside. You are in control of the marketing of the product, so can ensure that the messages being put out to the world are consistent with how you want your product to be viewed.
Price and Profit Margin
As the retailer, you can decide for yourself what price you are going to sell your product for and at what profit margin. All of that profit margin will sit directly with you, not shared with a wholesaler. Use the margin reports in your system to ensure your products are making you the best margins possible and make changes if needed.
You should also keep an eye on your margins across your sales channels as each platform will incur different costs, such as eBay or Amazon fees. Don’t forget those landed costs such as insurance, shipping and taxes! You will need to be on top of all of these to ensure your profits are accurate and growing.
Can Wholesalers sell Retail and vice versa?
Why not have the best of both worlds? It could be the perfect answer to both keep control of the business from start to finish, maintain your own virtual or brick and mortar shop and to grow the business quickly; all at the same time.
In theory, it sounds like an ideal answer for many companies who are able to juggle multiple channels at once; and want to retain direct contact with the consumer. However, there are a number of issues, both positive and negative to bear in mind before going down this path.
Competing Against Yourself
By being both retailer and wholesaler, you are at risk of directly competing against your own re-sellers, therefore you are competing against your own product. It’s essential that you don’t undercut your re-sellers, as this would damage your wholesale relationship with them and retailers would be reluctant to take your stock in the future. Keep an eye on those all important reports! You should have separate price lists based on either vendor or sales channel (or both). This will ensure you’re not undercutting your competition or damaging your own profits.
Different Ranges Of Products
One way to avoid directly competing against your re-sellers would be to offer one line of products in your own outlets, and to offer a different range of products for wholesale. This could be completely different items, or the same product in different designs, colors or sizes. This is easy to do through effective product and SKU tracking so that you know which outlet has which items and how well they’re selling.
If choosing to sell wholesale as well as retail, you need to be sure that your wholesale prices cover your costs and still make a profit. This is where understanding your true inventory costs comes in. For instance, landed costs are often those slightly more hidden costs that you may not always think about, such as insurance, fees and taxes. You should always take these into account when pricing products, as well as the usual costs for shipping goods out to your customers, and receiving goods into your warehouse. Having a grip on all of these inventory costs before pricing your products will ensure you are making the most profit, in line with the items you sell and who your target market are.
Whether choosing to become a retailer, or taking advantage of drop-shipping, consumers are choosing to shop from an ever increasing array of outlets. While many still like to browse traditional brick and mortar shop spaces, others also choose to shop online via a myriad of marketplaces; including a company’s own website, Facebook, Pinterest, Etsy, Ebay and Amazon to name but a few.
With increasing numbers of consumers making marketplaces like Amazon the starting point for their shopping journey, the increased exposure can be second to none. The same goes for similar marketplaces, such as eBay. In order to provide a convenient experience for the customer, each channel needs to be fully integrated and easy to manage. By using order management software to integrate orders from all of your channels, you can make the whole process seamless; from gaining orders to maintaining inventory levels and pricing, as well as managing the financials.
If selling on a variety of sales channels, you want to be able to update your stock levels in real-time across the channels to prevent over-selling. Equally, those stock levels will only be updated if your orders download into a central hub so that they can be allocated and fulfilled. The orders should seamlessly link with your Accounting system (in real-time) so that profits and financials are up to the minute and easy to see at a glance.
Achieving success using multiple channels can be daunting, so check out our “Guide to Mastering Multichannel Retail” to find out more about how to achieve success in the multichannel world. And at the end of this Wholesale vs Retail guide, we’ve added a load more cool resources you can use to dominate multichannel selling, and to conquer the world of retail and wholesale.
What else do you need to consider?
Remember to evaluate the strengths of your product and your employees and assess the avenues open to you. Also take into account how much control of the product you want to retain, and how much face to face contact with the consumer you need or want to have.
Focus your energies on what needs to be done to make the best offering you can as either a retailer, a wholesaler or both:
If choosing to become a wholesaler, prioritize selling to retailers by providing your resellers with the best service to allow them to grow their business and trust you as a repeat supplier or vendor.
If choosing to focus on retail, prioritize the channels that will grow your business to reduce the need to rely on resellers to provide you with turnover.
If you feel able to manage both wholesale and retail, think about strategies that allow you to grow the retail side of your business while being able to sell to retailers without competing against yourself.
By successfully supporting all of our customers, we have developed extensive experience in meeting the diverse needs of both types of seller. We hope that now you feel a little more prepared to make the right decision for your business. By picking the model that suits you best, your business will thrive.