What Is Wholesaling?
Let me explain wholesaling directly to you: it's the process where I, as a wholesaler, buy a large volume of goods straight from manufacturers at discounted prices, then sell them to retailers at a markup to turn a profit.
You see, retailers take those goods, break them into smaller packages, and sell them to consumers at even higher prices. Because I purchase in such huge quantities at a discount, I can pass some of that savings on to the retailers, who then price their sales to cover their own business costs.
Key Takeaways
- Wholesalers aren't manufacturers; their role is distributing finished products by buying in bulk at discounts from manufacturers and selling to retailers.
- They offer cost savings to retailers who buy in bulk, allowing retailers to repackage and sell smaller quantities to consumers.
- Wholesaling is a step in the supply chain from raw material suppliers to end-users.
- In banking, wholesaling means providing financial services to large institutional clients, not individual retail customers.
Understanding Wholesaling
Most wholesalers like me don't produce the goods we sell; we buy them from the source and focus on sales and delivery to retailers. We're the intermediaries in the supply chain, and it's more efficient for us to buy in bulk at a discount than to purchase items one by one.
We then sell to retailers at a price higher than what we paid, but we can still give them a discount similar to what we got, especially when they buy large volumes. Take Walmart as an example: they buy thousands of bottles of hand moisturizer from wholesalers like me at a discount, stock their shelves, and restock from inventory as needed.
I might specialize in one product or category, or offer a range of goods from milk to electricity. Some of us even broker deals between other wholesalers and retailers needing various items from a single source.
Don't confuse a wholesaler with an official distributor for a brand; we don't usually provide product support, aren't directly tied to the manufacturer, and might have limited product knowledge. Plus, unlike distributors, many wholesalers sell competing products.
Where Wholesaling Fits into the Supply Chain
Wholesaling is one link in the supply chain that includes raw material suppliers, manufacturers, wholesalers like me, retailers, and finally end-users. Retailers buy from us and sell at prices that cover costs and yield profits.
Supply chain management emerged in the 1980s to optimize the efficiency of moving goods from suppliers to users.
Wholesaling in Banking and Finance
In banking, wholesaling means delivering financial services to big institutional clients like real estate developers, pension funds, or large corporations, not to individual retail customers.
In finance, a wholesaler could sponsor a mutual fund or underwrite a new issue. An asset management company might employ a mutual fund wholesaler—a salesperson—to sell the product to resellers.
Here, the wholesaler provides access to mutual funds for companies offering them to investors. For instance, a company with a 401(k) plan might consult wholesalers before selecting a provider like Fidelity or Vanguard for employee options. These wholesalers earn from the fees of the funds they sell.
Is Wholesaling Products Profitable?
You have to consider various factors to determine if a wholesaling business is profitable and manage it accordingly. Generally, it can be profitable because you're buying in bulk at discounts, allowing you to sell to retailers at higher prices where demand exists. That bulk discount is the core element driving profitability.
Is Costco a Retailer or a Wholesaler?
Costco is a retailer, just like Walmart. It sells goods directly to consumers for final use, not acting as a middleman buying in bulk to resell to other retailers. Costco sells in bulk to consumers who buy for their own consumption.
Where Can You Buy in Bulk to Resell?
If you're looking to buy in bulk for resale, the main approach is contacting manufacturers of the goods you want; you can find this info online through sites like Wholesale Central, SaleHoo, and Doba.
The Bottom Line
Wholesalers are the middlemen in the retail supply chain. We buy goods in bulk from manufacturers at discounts and sell them to retailers, passing on some savings. Retailers then sell to consumers for final use.
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