What Is Wholesaling ?
In simple words, wholesaling is an act of selling goods to the retailers. Wholesalers buy large quantity of goods from producers or distributors and sell to the retail stores. Retailers buy goods from wholesalers and sell to the final customers. Therefore, wholesalers bridge the gap between manufacturers and retailers.
Benefits Or Advantages Of Wholesalers
The main advantages of wholesalers can be highlighted as follows:
1. More Discount And Allowance
Wholesalers buy large quantity of goods from manufactures. They can receive cash discount and quantity discount because of bulk buying. It helps to reduce buying cost and increase profit. So, wholesale business enjoys the benefit of large scale buying.
2. Less Marketing And Advertisement
Generally producers market their products by using different methods of advertising. Retailers also use product display and demonstrations to attract potential customers. Wholesalers do not need such marketing activities because they buy from manufacturers and supply to retailers. So, it helps to eliminate marketing costs.
3. Profit Margin Is Fixed
Wholesalers do not need to worry about the profit because they earn fixed rate of profit. So, they should try to increase sales volume which helps to increase earnings.
Wholesale business does not face tough competition in the market because each wholesaler deals with specific product line from certain producer. So, there is less competition because of limited product line and fewer number of wholesalers.
5. It Does Not Require Special Skill
Wholesalers do not deal with final consumers, So, they do not require selling skills to attract customers like in retailing.
6. Link Between Manufacturers And Retailers
Retailers cannot buy large quantity of products because of the lack of capital. Producers cannot sell small quantity of their products to each and every retailer in the market. In this situation, wholesalers buy products from producers and supply to retailers. So, wholesaling plays great role to bridge the gulf between manufacturers and retailers.
Drawbacks Or Disadvantages Of Wholesalers
The major disadvantages of wholesalers can be described as follows:
1. It Requires Huge Capital
Huge amount of capital is required to start wholesale business. It requires sufficient fund to buy large volume of goods. Adequate level of stock should be maintained to avoid shortage of product in the market. Truck or delivery van is required to deliver goods to different retail stores. So, it cannot be commenced with little investment.
Also Read:
Advantages And Disadvantages Of Retailers
Difference Between Wholesalers And Retailers
2. Needs More Space
It requires more space to store large quantity of goods. Wholesalers need to spend huge storing expenses due to high commercial rent.
3. Less Profit Margin
There is less profit margin in wholesale business than in retailing. Usually wholesalers earn 2% to 8% profit on sale, but retailers may enjoy 10% to 20% profit.
4. Possibility Of Loss
Large quantity of goods should be kept in the store room safely and properly. Water, fire, and insects can damage the products . In this situation wholesalers have to face huge financial loss.
5. No Direct Interaction With Customers
As we know that wholesalers do not sell goods to the final customers, it means there is no interaction between wholesalers and customers. So, wholesalers cannot understand the interests and preferences of audience.
Pros And Cons Of Wholesalers In Short
Pros:
- Wholesalers get more discount and allowance from distributors because of large scale purchase
- Wholesaling business does not require more marketing costs
- Wholesalers do not have to face tough competition like retailers
- Selling skill is not require
- There will be a fixed profit margin
Cons:
- It needs huge capital investment and more space to start wholesaling
- There will be less profit margin than retail business
- There is no direct interaction with customers