As more people start opening their own online storefronts and begin documenting their retail journeys on social media, various business terms that usually don’t ever hit the ear of the layman are suddenly appearing more often. Case in point: wholesale.
Defining wholesale is simple, but there is more that needs to be explained to truly understand the online wholesale market and why it can be so important for up-and-coming entrepreneurs to understand it. From the benefits and drawbacks to a simple word definition, this article will help you do just that.
Defining wholesale
You’ve likely come across an online storefront that you’ve never heard of before, found out they’re a recent business and been confused as to how they have so many products to sell. The answer is that they buy products wholesale or in a quantity intended for retail sale.
The average person won’t have any need to consider purchasing items wholesale, even if they use them every day. A business, however, has to ensure that they fulfill the needs of their customers.
For reference, stores like Walmart work directly with manufacturers to purchase their products in massive quantities with the expectation that they’ll be sold fast enough to make this bulk purchase worth it.
Many online businesses won’t be able to work with these brands directly, though. They’ll most likely end up using a middleman that has both a direct line of communication with manufacturers and a warehouse to store the products in.
Some may do a bit of both, using an online wholesale marketplace to purchase some products and a middleman for the rest. The specifics vary from business to business.
Understanding the benefits
There are a wide range of benefits for retailers when buying products wholesale. The biggest one is the cost. Whether you’re dealing with a distributor, a manufacturer or even a supplier, they will offer discounts to those purchasing large quantities of product.
There are a few reasons for this, such as ensuring the business doesn’t have to raise prices significantly to break even and being pleased that a lot of their inventory is being moved at once.
This discount benefits customers as well, as it means that the prices of the items they purchase from the store aren’t insanely expensive. When the price increases for a retailer, they’ll have to increase the price the customer pays to make a profit on the sale.
This means that customers will purchase fewer items due to monetary limitations and no one will be happy, as decreased customer purchases means retailers will purchase that product less, and the manufacturer will get fewer sales and have to make less product. No one is happy with this, so bulk discounts are a net positive.
Another benefit of wholesale is a streamlined supply chain. If retailers had to contact each manufacturer individually for all of their shipments, there would be a massive delay in when the product is able to hit the shelves and customers would go elsewhere to find what they’re looking for.
Wholesalers consolidate many products from many brands into one place, making it easy for manufacturers to sell and retailers to buy. This benefits all parties, as wholesalers make a percentage off of each sale and manufacturers and retailers can put their focus onto their businesses.
Considering the downsides
Of course, there are disadvantages to consider as well. A big one is that wholesalers usually have both a minimum and a maximum order quantity, which is designed to ensure that shipping the requested goods is worth it cost-wise. However, this can cause some issues for retailers.
They may end up with excess inventory if a product isn’t as popular as predicted. Many will avoid stocking niche products completely to prevent this. A lack of niche or generally less popular items and brands results in fewer options for customers, especially those with allergies, medical conditions, or sensitivities and reduces the overall appeal of the store.
Excess products would need to be sold at a discount, which makes the time more likely to sell. However, the hidden cost of this is that customers will trust the product and brand less, seeing the massive discount as a sign of low quality.
Another disadvantage is variable quality. One of the benefits of wholesale purchasing is that the retailer can receive a lot of variety in one order. While most of these items will be high-quality, there will inevitably be some lower-quality items that slip in.
How often this will happen varies, but it is always a negative as it will decrease customer trust in both the retailer and the brand and result in refunds, returns and replacements. While some trust can be regained through good customer service, there will still be some reputational damage.
Common wholesale products
A large variety of items can be purchased wholesale, but some are more common than others. Some items are more profitable to sell than others, making them the more popular items to buy wholesale. An example of one of these products is clothing.
Everyone needs clothing so there is always a market for it. It is also becoming more popular for people to purchase an item of clothing, such as a pair of pants, wear it for a while and then replace it when the newest trend arises. This has helped the clothing industry explode in growth. This is why many retailers will sell clothing along with other items, even if it makes little sense to do so at first glance.
Another popular wholesale item is electronics. Everyone uses electronics every day, from smartphones to computers to headphones. They have become an integral part of our lives, but they can be incredibly expensive. Wholesale purchases can reduce the price customers pay and allow them to purchase multiple different types, which will benefit the business as much as the customer.
Finding success in wholesaling
The wholesaling industry is a complicated one to understand, especially if you’re not someone who deals with them regularly. However, they are an important part of the supply chain.
Hopefully, you now understand why some items are more expensive or frequently unavailable and give you a new appreciation for how the system that we all rely on works.
