As consumers, we have been contributing to the wholesale and retail business model most of our lives.
As a commerce business, it's important to know the difference between the wholesale and retail business models in order to be successful.
Many businesses wonder what sets wholesale companies and retail stores apart from one another, which actually works, and what business model is right for them. Let's explore this.
Wholesale vs Retail
How does wholesale actually work?
Wholesaling is the process of buying goods in bulk from distributors or manufacturers, storing them in large quantities in warehouses, and then selling the goods to individual retailers for a profit.
Wholesale requires business connections to gather goods from many different brands.
How do wholesalers make a profit?
Wholesalers can sell their goods to retailers for a higher price than they bought them for. They do this by buying the goods in a massive quantity for a low price, then sell smaller portions of their inventory to retailers for a higher price, resulting in a profit.
Here is an example:
A wholesaler buys 10,000 packs of instant noodles from a manufacturer in Asia for 10 cents per pack, costing them $1000 dollars for the entire 10,000 unit inventory.
The wholesaler then sells 5000 packs to 2 different retailers in Asia for 3x the original price at 30 cents per pack. Totaling $3000 of instant noodle¹ sales.
The wholesaler then deducts the original $1000 investment from the $3000 return, resulting in a profit of $2000 dollars. Shipping costs and warehouse expenses are then deducted from this profit and the money is usually reinvested into another inventory.
How does retail actually work?
Retailing involves buying goods from a wholesaler and selling them at slightly higher prices to consumers and end-users.
Retailers are the last part of the supply chain to the consumer or end-user.
As a consumer, you will buy goods from retailers almost every day, this can be both in-person or online such as supermarkets, clothing stores, or online stores² like Amazon.
How do retailers make a profit?
Retailers will sell goods individually. They will charge a higher price for each item that they bought from a wholesaler.
Here is an example:
A retailer buys 5000 packs of instant noodles at 30 cents per pack for a total of $1500.
They then sell the packs of noodles for $1 each for consumers to buy in their retail store.
After selling all 5000 packs, the retailer will have hauled in $5000, that's $3500 of profit.
What are the Main Differences Between Wholesale vs Retail?
Here are the main differences between the wholesale and retail business models:
- Wholesalers buy goods in large quantities, store them and sell them to retailers in smaller quantities
- Retailers buy goods from wholesalers and sell them on a small scale for a higher price straight to the consumer or end-user.
- Wholesaler business models are also called "B2B" sales as they buy from a manufacturer (business) and sell to a retailer (business).
- Retailer business models are also called "B2C" sales as they buy from the wholesaler (business) and sell directly to the end-user (customer)
Whether you are a business looking to get started in selling goods or a consumer wanting to find out more about how it all works, let take a look at each model in depth:
The Wholesale Business Model
The wholesale business model is one of the founding fathers of the B2B sector of sales³.
A typical wholesale supply chain looks like this:
Wholesalers very rarely sell directly to end customers, they sell to retailers. The more the retailer buys from the wholesaler the less they will spend per unit.
The wholesale business model is great for businesses that are good at planning, logistics, and client relations.
As a wholesale business, you can expect to be managing supply chains, orders, and overseeing the warehouse inventories.
In order to be a successful wholesaler, you must build and maintain healthy relationships with both buyers and retailers. This is because the wholesaling business model relies on repeat sales. The best way to ensure repeat sales is a long-term partnership with each retailer.
Long-term partnerships not only increase job security but also reduces the amount of outreach and marketing efforts your business will need in order to work with new retailers.
Why Wholesale Might Not Be the Best Option
If you don't like spending time in the warehouse and planning logistics, wholesale can prove to be difficult. Here are some of the considerations and challenges of wholesale:
- You must have the resources to manage the warehouse and logistics on a large scale, due to the volume of goods
- It can be stressful to fulfill large orders
- You have to be extremely meticulous during the entire process, small errors can cost your business and customers a lot of money
- You need to be able to negotiate and build relationships with suppliers to ensure consistent supplies at fair prices
Wholesale is great for those looking to deal with other businesses rather than many different customers. It's a great business model for mass-producing goods and getting them on the market. If you are business savvy and enjoy managing logistics, wholesale is a great option.
The Retail Business Model
A typical retail supply chain looks like this:
Retail businesses must meet the needs of their customer base. Although wholesale businesses require good relationships with other businesses, retailers need to have a customer-focused approach.
Selling goods requires more customers for retail vs wholesale. This means a lot of your budget will be dedicated to marketing and advertising your business in order to grow your audience.
The retail industry is completely different from the wholesale industry, especially in terms of customer interaction. One of the key differences is that as a retail business, you will spend the majority of your time dealing with customers face to face, over the phone, or via email.
There are many moving parts that make up a successful retail business model. You will be responsible for the day-to-day smooth running of the business, training employees, ordering and storing goods, and marketing and selling goods.
Above all, you will need to focus on creating a robust way that customers can purchase the goods on sale. This can be in the form of websites, apps, or retail stores where a good point-of-sale system is in place.
Why Retail Might Not Be the Best Option
Here are the considerations and challenges of retail:
- You will be responsible for customer-facing interactions
- The work can be fast-moving, orders can flood in over the course of one night, especially during peak sales times
- You will need to be extremely creative with marketing to stand out from the competition
- You are responsible for providing customer service via many different outlets such as online checkouts, face to face sales, and 24/7 customer support
The success of your goods will largely depend on how well you can sell them. It's all about making relationships with the public and building brand awareness.
The Key Differences Between Wholesale vs Retail
Let's look deeper into what makes wholesale vs retail different from one another:
Wholesale vs Retail: Marketing
Due to the sheer number of retail stores out there, there is a lot of competition.
A lot of what it takes to be successful, especially in 2021, comes down to marketing your goods.
Unlike wholesale, retail stores need to be more diligent of modern trends and "what's hot". To do this, retail businesses must have a strong presence on social media platforms such as Facebook, Twitter, or Instagram. This is a great tool to attract new customers and introduce them to your goods and services, network with other businesses, and purchase targeted ads to encourage new audiences to check your goods out.
Wholesalers rely heavily on traditional relationship-building methods such as outreach, liaising, and business partnerships. But there are also some elements of advertising and marketing that a wholesaler can take advantage of to create hype and demand for the brands and products they carry.
Wholesale vs Retail: Costs & Prices
One thing that makes both wholesale and retail similar is that they both buy products for a lower price and sell it for a higher price, this is called "markup".
The amount of markup that the retailer puts on the product determines how much money they make from selling the item. Here is an example:
If you add a 60% markup to a pair of wireless earbuds that cost $50, you work out what 60% of $50 is and add that number to the original cost ($50), to get a markup of $80.
A "keystone markup" is a term that describes when a product is sold for twice the price that it is bought for (or marked-up by 50%)
Markup is the reason why goods get gradually more expensive as they move up the supply chain. Here's is an example:
- The manufacturer makes a pair of wireless earbuds for $10
- The manufacturer sells the earbuds to a wholesaler for $40
- The wholesaler sells the earbuds to a retailer for $50
- The retailer sells the earbuds to the public for $80
Using markups doesn't automatically result in a profit. As a retailer, you are responsible for utility costs, advertising, employee wages, insurance, and much more, which should be taken into account when deciding upon a suitable markup price.
Although wholesalers generally buy products for a cheaper price than retailers, it doesn't mean they make more money. The only reason the wholesalers purchase goods for a lower price is that they buy them in large quantities.
Technically they do pay a lot less money for each product, however, they spend a lot more in total as they buy so many goods. So if you want to become a wholesaler, you will need a larger budget than those looking to start a retail store, which is a relatively cheap business option.
Wholesale vs Retail: Location
Retailers need to be where customers and shoppers reside such as high streets, malls, or shopping centers. As you can imagine, the busiest spots are the most expensive to set up shop in.
The type of goods you plan to sell will determine the best location to sell your goods. For example; Grocery stores would benefit from being in open areas where large trucks can deliver without causing traffic and parking can be implemented to allow customers to get in and out of the store with ease.
Location is also important for wholesalers, but the focus should be on the size of the space that will store the goods.
As you can imagine, the main costs of wholesaling are logistics, i.e getting your items to retailers across Asia or the world.
If a wholesale company plans to sell goods within Asia, a central location should be selected that has easy access to highways and main roads for the delivery trucks to travel up and down the region.
If a wholesaler sells goods across the world, location is even more important. Utilizing warehouses near an airport could save lots of money on logistical and shipping costs.
Online marketplaces are one of the best ways buyers can connect with suppliers. Most marketplaces pre-screen their suppliers to ensure they are reliable. But, what are some of the best marketplaces out there, and what makes them so good? Let’s take a look.
Here's a handpicked list of the best online marketplaces that sell goods throughout Asia:
The Trustana wholesale marketplace⁴ works with over 300 suppliers in order to offer a wide range of snacks and beverages from many different brands.
Whether you are a wholesaler or retailer, Trustana is a one-stop shop for your cross-border needs.
Trustana focuses its efforts on connecting you with suppliers, they offer the option to “request a quotation” if you can't find a product that you are looking for and they will see if they can source it for you.
Trustana’s expertise helps suppliers better understand the various export processes. They also suggest safety certifications you should apply for such⁵ as Halal certification⁵, which will allow you to reach a wider market.
You can purchase healthy and popular snacks and beverages in bulk or you can even become a supplier and offer your goods to sell through their marketplace. They are a great all-rounder marketplace that sells Asian goods across the country.
Similar to Trustana⁶, Saladplate offers Malaysian food and beverage products from bottles of vinegar to packets of dried ramen. Although Trustana has over 400 more products to choose from, Saladplate still sells many brands.
You can buy products from them in bulk or supply them. Saladplate provides suppliers with a database of buyers covering 95 countries.
They can also help your business with digital marketing services and if you feel like getting even more involved, you can join one of their online food festivals.
Aliexpress is a great site to find cheap items for dropshipping. One benefit is that you can always find suppliers that are ready to sell units.
They offer diverse categories of goods such as electronics, jewelry, entertainment, toys, and clothing.
Aliexpress has English support but if you want to buy goods in bulk quantities, head to their main website 'Alibaba' which is the largest wholesale marketplace you can find.
Summary: Wholesale vs Retail
To summarise the differences between wholesale and retail:
- Wholesalers purchase products from manufacturers and distributors and resell these products to retailers at a higher price. This is also called business-to-business (B2B) sales.
- Retailers purchase goods in bulk quantities from wholesalers and resell these products to consumers at a higher price. This is also called business-to-customer (B2C) sales.
- Both of these business models sell the goods for more than they bought them for (markup).