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Wholesale Trade vs Retail Trade: Exploring Pros and Cons

Wholesale trade vs retail trade can be hard to understand. We’ll show you how they’re different, the pros and cons of each, and help you determine which one is right for your business.
By
Jacob Lee
January 25, 2024
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As described by the National Retail Federation (NRF), wholesale trade vs retail trade are two unique business markets. Wholesale trade is business-to-business (B2B) where bulk goods are sold to other companies at a reduced price. Retail trade is a buyer-to-customer (B2C) strategy used for selling goods to customers.

We’ve got more information about wholesale trade vs retail trade. Our guide will help you identify the one that’s best for you. 

A fully stocked warehouse

What’s the Difference Between Wholesale Trade vs Retail Trade?

Wholesale trade and retail trade represent two distinct ways of running a business. Besides wholesale being B2B and retail being B2C, each one has distinct differences. 

Let’s break down the main differences across eight different angles.

1. Scale of Operations

  • Wholesalers operate on a larger scale because they deal with bulk quantities of items. Therefore, their operations are much larger to keep up with the inventory they have to move. 
  • Retailers operate on a smaller scale, as they focus only on their in-person or online stores. These are much easier to manage than large warehouses.  

2. Wholesale Price vs. Retail Price Formula

  • Wholesaler sell their inventory at lower prices per unit. They generate their profits through high volume sales with customers and typically maintain longstanding relationship with them. 
  • As for retailers, they price their items higher per unit. Their profit generation is reliant on numerous individual customer transactions from regular consumers. 

3. Target Audience

  • Wholesalers sell their goods to other wholesalers or to retailers that will sell the items in their stores. They work behind the scenes, where they go unnoticed by average consumers. 
  • Retailers sell their products to individual customers that visit their in-person or online stores. Their focus is on appeasing these consumers to keep their business afloat. 

4. Logistics and Distribution

  • With profits coming from repeat business, wholesalers have to focus extensively on warehousing, shipping, fulfillment. As a result, logistics and distribution is an important focus in their operations. 
  • Retailers establish storefronts and online platforms to reach their consumers. Their logistics focus on inventory and fulfillment, especially if they function purely as e-commerce.

5. Product Variety

  • Wholesalers have less product variety, but they store and sell the goods they do have in bulk. This makes them specialists in the items they have for sale.
  • Retailers have less of specific items. However, they offer a greater variety of different goods that cater to the needs of each customer. 

6. Control of Product

  • Wholesalers have a limited level of control over the products they distribute. They’re only concerned about storing and sending their items to retailers. 
  • Retailers have more control over their products. They can curate, display, and market their items however they choose. 

7. Location

  • Wholesalers set their operations close to major transportation arteries like highways, major roads, and airports. This allows for quicker transport when sending items to their buyers
  • .It’s imperative for retailers, especially those with brick-and-mortar stores, to be near their customers. They set their stores up in places like malls, towns, and cities. E-commerce operations can technically operate anywhere, but they need fulfillment services 

8. Purchasing Process

  • Purchasing goods from a wholesaler is a formal process. It often involves contracts and purchase orders.
  • For retailers, purchasing is much more straightforward. Customers simply go to a physical or online store and by the item they want. 
Two business men shaking their hands

What Are the Pros and Cons of Wholesale Trade?

Wholesaling offers a variety of useful benefits for businesses that can lead to large amount of profit. 

Advantages of this strategy include:

  • Streamlined operations
  • Relationship building
  • Repeat sales
  • Market reach
  • Product specialization

One great benefit of wholesaling is the simplicity of operations. Companies don’t require a vast number of buyers to earn a profit. Wholesalers focus on selling large quantities of products to a small amount of customers. As a result, order processing and fulfillment is much easier. 

Wholesaling involves a large amount of relationship building between buyers. This gives companies a loyal and lasting customer base to rely on. Once a relationship as been established, businesses can expect repeat sales and a predictable cash flow. 

The reach of a wholesale market vs retail market is much easier to grow, at least in theory. Once the quality of their products is established, wholesalers simply have to send their products to retailers. They don’t generally require salespeople to promote them or their goods once they have an established customer base. 

While wholesalers have a smaller variety of products, they specialize in the ones they do sell. This expertise gives them in-depth knowledge on the market they’re operating. Despite these benefits, there are downsides to wholesaling that businesses should know. 

These include:

  • Supply chain management
  • Extensive price negotiation
  • Payment on credit
  • Risk of Non-payment
  • Consumer demand

One of the primary focuses for wholesalers is supply chain management. These types of businesses are constantly sending products to other wholesalers and retailers. Therefore, an extensive amount of time is required for preparing goods, booking transport, and working out routes. 

The wholesale purchase process is formal and very drawn out. Companies will likely go through intense negotiations with their buyers before a sale can be made. 

Many wholesalers sell on credit, which means payment won’t be received up front. While cash flow can become predictable, companies don’t always receive their payment quickly, so having multiple contracts in place is often essential. 

Another risk is that buyers won’t pay their invoices after receiving their goods, which can put strain on a business. This is a legal matter that wholesalers can minimize by having the necessary legalized contracts in place. 

Finally, wholesalers have to abide by consumer demand. If certain goods fall out of style, retailers will be hesitant to order large quantities. This can negatively impact the operations of a wholesaler.  

If wholesaling is of interest to you, then read our article on becoming a wholesale distributor. 

What Are the Pros and Cons of Retail Trade?

Retail trade also has numerous benefits that businesses will find appealing. 

These include: 

  • Higher profit margin
  • Direct consumer interaction
  • Flexibility in pricing strategies
  • Able to meet diverse needs
  • Flexibility in sales channels

Retailers price their products higher per unit. Thanks to this pricing strategy, they’re able to earn more when they sell individual items, rather than relying on bulk buys. 

Another benefit retailers get to enjoy is the opportunity to directly interact with consumers, which allows them to obtain feedback on their operations. Having this advantage gives them the opportunity to quickly improve their interactions with repeat and future customers.

Retailers have greater control over pricing, allowing for flexibility in pricing strategies. They can either bundle, upsell, or run special sales at reduced amounts. Retail pricing can be adapted based on market conditions and consumer behavior as well.

Retail  businesses sell a much greater variety of products. Thanks to a diverse inventory, these companies are better suited to fulfilling the unique needs of their customers. 

The final benefit that retailers have is their flexibility in sales channels, which include:

  • In-person
  • Over the phone
  • Online

Thanks to these options, retailers can diversify their selling opportunities. They don’t have to limit themselves to a single sales channel, and in fact, they shouldn’t. 

Before committing to the retail method, businesses should know about the cons that come with this strategy: 

  • Complex business model
  • Inventory risks
  • Market competition
  • Need for high customer turnout
  • Marketing difficulties

The retailing method is a more complex business model than wholesaling. There are various aspects to this operation that companies will have to run.

These include:

  • Order management
  • Tracking products
  • Managing sales
  • Training employees
  • Monitoring the market and competitors

Performing these tasks takes a considerable amount of time and flexibility. Retailers must carefully manage inventory to avoid overstocking or running out of popular items. This requires businesses to perform a balancing act to ensure they always have enough items. 

Market competition is another challenge retailers consistently face. Many companies utilize the same business strategy and sell similar products. Staying ahead in a competitive market requires strategic differentiation and innovation. 

Retailers sell a larger variety of goods to their customers, often with a greater profit margin. That said, they still require a significant number of sales for their business to flourish. 

This requires a heavy reliance on marketing to appeal to customers. With every buyer having different pain points, retailers will have to craft unique campaigns to make their items more desirable to specific audiences

What Types of Wholesalers Are There?

There are  three main types of wholesalers. You’ll have to learn about each to find the one that aligns with your personal business goals and practices.  

Merchant Wholesalers

Merchant wholesalers serve as a go-between for manufacturers and consumers. They purchase products in large quantities and then resell them in smaller portions to multiple consumers.

Being a merchant wholesaler includes performing the following tasks:

  • Sourcing and purchasing: Merchant wholesalers have to identify reliable manufacturers and purchase the goods in a bulk amount. 
  • Warehousing and storage: With so many goods to sell, warehousing and storage space will be essential. 
  • Order fulfillment: After goods are bought, they’ll need to be shipped to retailers and other customers.
  • Risk management: Merchant wholesalers will need to manage the risks they’ll face in their operations.

Becoming a merchant wholesaler is a great option if you want to play middleman between manufacturers and buyers. It may involve importing products from overseas and setting yourself up as a local distributor to domestic retailers. 

Sales and Distribution Manufacturers

Sales and distribution manufacturers aren’t the same as other types of wholesalers. These are manufactures that perform their own wholesaling operations. They make their own goods, sell them, and ship the orders to buyers. 

The method is good to use for manufacturers that don’t want to go through a middleman to reach their customers. That said, this option does require the resources on the part of manufacturers to reach their customers. 

For business operating their own factories and manufacturing centers, this is a viable option to avoid dealing with a middle man. 

Brokers

Wholesale brokers don’t actually own the goods or move the products. Their job is to arrange deals between manufacturers and retailers. Rather than making a profit on selling products, brokers/agents make their profit through fees and commissions. 

Key tasks of this wholesaling option includes:

  • Connecting buyers and sellers: Brokers help retailers and manufacturers come into contact with one another.
  • Market analysis: Reviewing the market will give insights into current trends and pricing dynamics.
  • Negotiation and pricing: Brokers help facilitate sales by negotiating for both parties to ensure favorable terms for each one. 

Becoming a wholesale broker/agent is a great option for those that don’t want the operational costs that come with handling, storing, and shipping goods to retailers. 

Learn more about the types of wholesalers from our article discussing the various types. 

A business person checking stock levels in their warehouse

What Are the Types of Retailers?

Like with wholesalers, there are a multitude of retail operations that businesses can model themselves after. What your business is selling and how you plan on distributing it directly to customers will have an impact. 

Retailers include a wide scope of businesses, from giant department stores operating in locations nationwide to localized small businesses.

You could also be a purely online retailer operating from an eCommerce platform. 

If you sell products directly to the end user, you are operting as a retail business. 

Semi trucks leaving a warehouse

Is It Possible To Be Both A Whole Seller and Retailer?

Yes, businesses can operate as wholesalers and retailers. Utilizing both methods gives companies the opportunity to service different market segments. They’ll also be able to expand their revenue streams. 

Other benefits of being a wholesaler and retailer include:

  • Vertical integration: Businesses can achieve vertical integration by controlling both the supply chain (wholesaling) and the end-consumer experience (retailing).
  • Optimized inventory management: Dual distribution facilitates better inventory management, as businesses can balance large wholesale quantities with smaller retail quantities.

When operating as a retailer and wholesaler, it’s important for businesses to ensure effective coordination between wholesale and retail channels is crucial to avoid supply chain issues. 

How Much Money Do Wholesalers and Retailers Make?

Before you get into selling wholesale or retail products, it’s essential to know what kind of profits can be made. Fortunately, we have some data showing how lucrative these businesses can be. Consider the top performing retailers in the country.

Top Five Retailers In the U.S. by Sales (2023)

RetailerSales
Walmart$499 Billion
Amazon.com$233 Billion
Costco$163 Billion
Kroger$148 Billion
The Home Depot$146 Billion

Provided by Visual Capitalist

While these are the top performing retailers in the U.S. based on sales, there are still plenty of opportunities for smaller businesses to fill in the gaps. Businesses like the ones above are always looking for new items to introduce. Some even feature sections in their stores where local small businesses can get their products additional exposure. 

There are also numerous opportunities in the wholesale market, since these chains operate nationally and must have access to massive wholesale contracts. 

While the size of the industry declined by -2.7 percent in 2023, the size of the market has grown an average of 1.6 percent between 2018 and 2023. 

Empower Your Retail and Wholesale Operations with Product Distribution Strategy

At Product Distribution and Strategy, our comprehensive suite of services is designed to elevate your retail or wholesale distribution operations. Our team consists of logistics personnel that have years of experience in the industry. With their advice and assistance at your disposal, we guarantee your logistics operations will run smoothly. 

Services we offer include:

  • Warehouse Consultants: Streamline your storage and inventory management for maximum efficiency.
  • Trade Show Consultants: Make a lasting impression at industry events, ensuring your brand stands out.
  • Return Logistics: Handle product returns with ease, enhancing customer satisfaction and loyalty.

Schedule a consulting session or contact the team at (855) 863-7672, and let’s embark on a journey towards distribution excellence together.

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