Ah, the age-old question: which is better, wholesale or retail, when it comes to your business? Look, we know it doesn’t sound very Shakespearian, but trust us when we tell you that it’s one of the most commonly asked questions in the world of commerce, especially for first-time entrepreneurs.
Let’s say you have a product you want to take to market or a business you want to scale, and you’re trying to figure out the best approach to ensure long-term success. So, what will it be? Wholesale or retail? Why not both? Is there even an answer to this question? We know what we’re about to say is not what you want to hear, but the truth is that ‘it depends.’ On what, exactly? Let’s find out.
Wholesale vs. retail — which one is right for your business?
Right, so we know that choosing between wholesale or retail as a strategic approach for your business depends on several key factors. But what factors are we talking about here, and why are they important?
Well, each approach has its benefits and its challenges, and it’s always best to carefully weigh them before making a decision that could potentially make or break your business. You’ll need to factor in your target market and the best way to reach it, your brand identity and overall business strategy, the nature and quantity of your product(s), and much more. It’s not a cut-and-dry decision, so it’s important to know what you’re getting yourself into before you invest time, money, and effort in the wrong approach.
What is wholesale?
In a nutshell, wholesalers don’t sell goods or products directly to consumers. Instead, they buy products from manufacturers or often manufacture the products themselves and then sell them in bulk to other businesses, like retailers, outlets, or distributors. They usually sell these goods at a discounted price, which makes them attractive to businesses looking to buy large quantities of products from a single seller.
For instance, a wholesaler can buy 1,000 toothbrushes at $2 per item, amounting to a total of $2,000. They can then sell just 100 toothbrushes at a time to 10 different retailers at a price per item of $5 per item. Even after eliminating the delivery and storage costs, they can end up making a profit. A win-win situation for both the seller and buyer.
Advantages of wholesale
Running a wholesale operation comes with various advantages that can benefit your business both in the short term and in the long run.
- Dropshipping options — One important perk of running a wholesale business is that you can profit from the advantages of dropshipping. It basically means that an online retailer can fulfill orders without actually holding products in stock, removing the need for storage space and adjacent costs. Instead, the dropshipper redirects customers to a partner supplier, acting as an intermediary between the buyer and the supplier. You could be that partner supplier, handling the products without the hassle of handling the front end of things. You can establish long-standing partnerships with retailers and become their main supplier, which bodes well for your business, bringing you constant orders.
- Scaling potential — Another big perk of choosing to set up a wholesale operation is that it opens up a wide array of growth opportunities for your business. Selling products in bulk enables you to reach a wider, even global market much faster, and you can do this through your partner retailers. If the retailers you sell to on a regular basis have a global presence, then you will, too, and your products will reach a much wider target audience than they might through a B2C business model. You just have to ensure that you’re ready and able to cater to a wider market by streamlining your inventory management operations. Hint: you can do that with Katana — just saying.
- Brand awareness — Getting your products into the hands of your target customers and increasing brand awareness and trustworthiness is a real challenge in the early days of a business. By going the wholesale approach and working with different retailers or distributors, you’ll be able to achieve these things a lot easier. Basically, if your products are present and available on an online marketplace like Amazon, for instance, this might signal to potential buyers that your brand is trustworthy and reliable.
Disadvantages of wholesale
As it happens with everything in life, in the case of wholesale businesses, there are upsides and downsides. These are things to consider when deciding whether you want to get into the wholesale business, things that might weigh heavily in your decision-making process.
- Inventory management — One of the most obvious things to remember when looking to start a wholesale operation is that you will need storage space, and you might need a lot of it. This means you’ll have to pay rent, hire staff, store and organize items, and pay all the costs associated with these factors. You’ll need to get a good handle on your inventory management because your partners will depend on you, and you don’t want to end up overstocking products or reaching zero stock on popular items. Failing to deliver or overstocking and ending up with unsold inventory can drastically increase your carrying costs, hurting your bottom line at the end of the fiscal year. That’s why effective inventory management should become a top priority when first setting up a wholesale operation.
- Competition — One crucial challenge of running a wholesale business is standing out from the crowd of wholesalers, manufacturers, and distributors eyeing the same markets. The market is already dominated by established leaders in the industry, and any new seller looking to enter that market will need to build trust, and this can pose a real challenge. You can’t afford to make any significant mistakes during this phase because a small misstep will lead customers — and potential partners — towards a competitor they already know and trust.
- Brand identity — Building your brand identity can be tricky when you’re not marketing your product directly to consumers. Instead, you have to rely on your partner retailers and distributors to do that for you, and you need to accept the fact that your brand might sometimes get lost in the shuffle. A lot of people buying products from marketplaces such as Amazon don’t unfortunately pay close attention to the original seller or manufacturer. Some of them might even realize they’re buying products made by another seller. At the end of the day, you don’t have much control over how your partners decide to market the products in their catalog.
What is retail?
Being a retailer means selling products directly to the end-user or consumer without going through an intermediary like an outlet or distributor. This business model enables you to maintain total control over your product lines and product marketing and helps you forge a stronger bond with your customers. At the same time, you’ll be fully responsible for handling the customer-facing side of things, and this can also come with certain challenges.
Advantages of retail
There are several advantages to choosing a direct B2C retail approach to your business. Below we’ll go through the most impactful benefits, ones that you should consider in your decision-making.
- Direct contact with consumers — As we’ve mentioned above, going the retail route instead of wholesale allows you to engage and connect with your customers directly and manage that relationship on your own terms. You can also target a specific consumer base and select the right marketing channels to reach them while also having the freedom to pick how you want to sell products: online, in a physical shop, or a mix of both.
- Brand identity — If a wholesale approach means that your brand identity might get lost in the shuffle, the retail approach allows you to capitalize on branding and build brand awareness initiatives the way you want. You also have control over your retail price, product marketing, and presentation, similar products to display, and much more. You have full control over how your products are marketed to consumers, which allows you to align these marketing initiatives with your brand identity and overall business vision.
- Profit margins — Going the retail approach also means you get to decide on your pricing strategy and modify and update it as you see fit, whenever you see fit. Based on your target profit margin, you can decide your product rates and adjust according to market demand or economic fluctuations without going through an intermediary. And, at the end of the day, that profit will remain yours, and you won’t have to share it with a wholesaler.
Disadvantages of retail
Well, of course, nothing is perfect, and going the direct-to-consumer route is not all fun and games, either. Here are some challenges you might run into.
- Competition — The competition is just as intense on the retail side as it is on the wholesale side. The difference is that this time, you’re on your own because you won’t have a partner distributor or wholesaler to vouch for you and get your products in front of your target customer base. Instead, you’ll have to do your own product marketing and build brand awareness, trustworthiness, and loyalty from scratch.
- Dealing with consumers — While selling directly to consumers allows you to forge a stronger connection with them and have control over how they interact with your brand, dealing with people directly can be quite a challenge. You have to market products to different types of consumers with varying needs, and you might run into issues such as returns, warranty claims, complaints, negative feedback, and a lot more. You’ll have to be ready to deal with that in a timely and effective manner because you’re solely responsible and don’t have an intermediary to handle this side of the business for you.
The best of both worlds?
At this point, you might be asking the following question: Well, why can’t both be winners in this wholesale vs. retail face-off? Can you have your cake and eat it, too? The answer is not that simple. You can try to do both and leverage the benefits of wholesale to boost your own retail business, leading to higher revenue. However, it might get quite complicated, and you’ll have to think over your pricing strategy very carefully since you will basically be competing against yourself.
The rates you set up in your own retail store can’t be very low because you’d risk damaging your wholesale operations. You’ll also have to manage two separate inventory systems for your wholesale and retail orders, which can put a lot of strain on you and your staff.
Make the right choice with Katana
Regardless of which business model ultimately wins the wholesale vs. retail match for you, one thing’s for certain — you’ll need to streamline your inventory management operations to ensure that you fulfill your orders and keep your customers and your business partners satisfied. You can’t afford to overstock or run low on stock when trying to build brand reputation and customer loyalty, so you’ll need a digital partner to help you keep an eye on things. Enter Katana.
With Katana, you’ll be able to manage your wholesale and retail inventory and inventory requirements in real time, thus avoiding issues like overstocking, stockouts, or unsold inventory at the end of the fiscal year. Katana gives you a live overview of your entire inventory and gets you back in control over every aspect of your stock management. Reach out to us to learn more about how Katana can help your business reach new levels.
