What is retail? What is wholesale? This guide is for small business owners
It doesn't matter if you are a business owner or a buyer/seller of goods. Understanding the supply chain is essential. You will need to make a critical decision about whether you want wholesale or retail.
It can be difficult for small business owners to decide between wholesale and retail. There are many factors that go into choosing the right choice for your small business.
We're here today to answer your questions about "What is retail?" or "What does wholesale mean?". This guide will help you quickly understand the differences so you can determine the right structure for you business.
What is retail?
Retail is the direct sale of goods and services to end-users. There are many distribution channels that retail sales can take place through. There are many types of retail stores, including but not limited to:
- Department stores
- Online stores
- Discount stores
- Brick-and-mortar stores
A retail transaction is different from a wholesale sale because the sale involves the buyer. Retail doesn't necessarily refer to the distribution channel, but the parties involved. Retailers are intermediaries between wholesalers and consumers.
You can be considered a retailer if you sell products with the sole purpose of selling "final products".
If you are purchasing goods for personal use, it will be a retail-based transaction. If you buy a printer at your local office supply shop, such as a Staples, or Office Depot for your new business, then you have participated in a retail-based transaction.
Retailers typically sell very small quantities of goods. If your business grows to that extent, 100 printers could be purchased from Staples. This is not a typical order and would take some time to fulfill. Wholesalers sell more products than retailers, so retail customers are often able to buy smaller quantities.
What is wholesale?
Wholesalers are people who sell products to businesses and other outlets that are not the end-user. Wholesalers do not sell small quantities of goods as retailers. They sell bulk products at a lower price. Wholesalers will charge you less per product if you order more.
Imagine you are a manufacturer and need raw materials. Let's take lumber as an example. You can walk into your local hardware shop and buy lumber. This is what you did when you first created prototypes and products.
As your business grows, so will the demand for lumber. You might open two factories that each use hundreds of tons of lumber daily. Wholesalers would enable you to buy lumber in bulk to suit your needs.
Wholesalers don’t always have to be wholesale. Wholesalers don't have to be wholesalers only. They can also act as retailers or manufacturers. For example, General Mills produces various foods, including cereal. The cereal is then distributed to grocery stores, which sell the goods to end-users. General Mills acts as both the wholesaler and manufacturer in this instance.
Apple is another example. Apple products can be purchased in WalMart, Best Buy, and through your mobile phone carrier. You can purchase products from Apple stores or directly on the Apple website.
Apple acts as both a wholesaler and a manufacturer in this situation. They get parts from wholesalers, and then they assemble the parts into products such as iPhones. Then, they sell the products in bulk to retailers. They also sell products in bulk to retailers by selling them on their website or in store.
What are the main differences between wholesale and retail?
The key differences are that retailers sell goods directly, often in small quantities, to end-users. Wholesalers on the other hand sell goods directly to end-users to other retail store owners or others who then sell the goods back to the end users. Wholesalers can sell many products at once.
You're likely to have heard the terms B2B or B2C when talking about wholesalers or retailers. B2B is "business-to-business" and B2C is "business-to consumer".
B2C transactions are conducted by retailers. They purchase a product from a wholesaler and then sell it to customers. B2B sales is what wholesalers do. Wholesalers receive products from manufacturers or manufacture them themselves and then sell them to other businesses.
There are some other differences between wholesalers, and retailers. One is that retailers are more competitive than wholesalers, and they care much more about customer service.
If you are shopping for a product you will likely shop around to find the best deal. Some people shop at one store because of their location, or their customer service.
Wholesalers face less competition. There may be fewer wholesalers than there are retailers.
Take General Mills again as an example. General Mills makes cereals and distributes them directly to grocery stores. There are many other cereal producers. Food Industry says there are almost 40,000 grocery shops in the United States.
Wholesalers don't have to worry about advertising costs. Retailers, however, are often concerned with this. Wholesalers are often limited in their product range, while retailers can handle many products simultaneously.
The model for a retail business
Selling retail generally means that you will charge more per unit for the product than wholesalers. Wholesalers purchase products in large quantities and mark up the price by using their own formulas.
You, as a retailer, have complete control over the product. This includes where and when it is sold. It also determines how much profit you make. You can interact one-on-one with customers and get their feedback in real time.
You as a retailer need to be mindful of advertising costs, and instead focus on getting customers into your store to purchase your products.
A point-of-sale (POS) system is another component of retail management. A POS system that facilitates B2C transactions is essential for retailers. This includes the ability to accept credit card payments. Your business could be in serious trouble if you fail to coordinate sales and accounting using an integratedPOS system.
Customers are also dealt with by retailers on a regular basis. It could be talking to customers in person at a brick-and-mortar store or answering questions online. Retail may not be the right model for you if you are uncomfortable with this situation.
Your success as a retailer will depend on your ability sell your product, and to continue doing so while you make new products.
Retailing might not be for you if building a brand, marketing programs, and dealing directly with customers sounds horrible to you. You are the retailer's marketer, salesperson and fulfillment specialist.
Wholesale business model
Wholesalers can sell large quantities at once. Wholesale sales can open up new revenue streams for you and put you in touch with thousands of consumers. Wholesale offers more stability as the wholesale buyer is responsible for selling your product directly to consumers.
There are also fewer expenses associated with wholesaling, at least when you compare it to the amount of money that is spent on standard retail overhead and in-store marketing year round. If you don't wish to, there's no need to worry about marketing. You can also move products in bulk which reduces your overhead. You also save shipping costs.
A large part of your time as a wholesaler will be spent managing supply chain and logistics. This includes getting products to a specific location, supervising the manufacturing process and tracking and maintaining inventory.
To ensure that potential clients are legitimate, you will need to spend some time screening them. You might need to run credit checks. This research could result in lost funds or inventory being lost if you don't.
Although wholesalers may not require a point-of-sale system, they will need to handle invoicing. You will need simple-to-pay invoices.
- Numbers for customer purchase orders (PO) or billing codes
- Pricing and itemized lists for goods
- Lengthier payment terms
You won't receive an upfront payment so there is always the chance that the buyer will not pay their invoice. It is crucial that you only work with reliable buyers when you are a wholesaler.
Wholesale or retail: Which one is best for you?
You might consider becoming a retailer if you are just starting your business. It is likely that you don't have the ability to fulfill wholesale orders. It is important to take the time to develop your product and create a loyal following. Online sales are possible and products can be shipped directly to consumers.
You might consider wholesale suppliers as a way to expand your brand and make large quantities of goods. You could also open brick-and mortar stores on your own.
You don't need to choose between the two. Many businesses grow by using both. We've even created a guide on how you can wholesale to retailers to help you become a retailer.