Primarily, the fundamental difference between wholesale and retail is the volume of product sales and the nature of end-users. Being two of the most critical elements of the supply chain, wholesale and retail are parts of a single process.
Therefore, understanding these two key terms becomes essential. As a result, students will be able to grasp the differences between these two processes central to business operations.
What is Wholesale?
Wholesale is a distribution point whereby a sale of products occurs from one mid-level distributor to another or a retailer. Companies or retailers purchase finished commodities in bulk to fulfil their business requirements. First of all, the sale of products is voluminous, meaning that the purchase of goods occurs in high volume.
Wholesalers generally park these high-quantity purchases in warehouses and inventories. Besides, they enjoy the leverage of buying these products at comparatively lower market prices due to a high volume of purchase. Also, wholesaler entities buy bulks of products from manufacturers and store them. For example, a wholesaler may choose to purchase a bulk of 2000 bed sheets from a manufacturer.
However, their purpose of storage is to sell these products to retailers. Therefore, retailers become customers of products that wholesalers offer for sale.
Besides, wholesale provides them with a chance to make higher profits. Since wholesale products have relatively lower cost liabilities, wholesalers primarily benefit from this category of purchase.
In addition, wholesalers add their margin of profit before reselling these products to retailers.
What is Retail?
Simply speaking, retail is the supply chain element that immediately succeeds wholesale. A retail company purchases products from wholesalers as per its requirements. For instance, a successful and established retailer places higher volume of order from a particular wholesaler. Conversely, an emerging retailer who is an entrant to the market has a limited scope for order, due to which placing a high order with a wholesaler is not possible.
Retail is different from wholesale in terms of its end-user involved. In case of retail, the purchasers are also the final consumers. They procure products from retailers according to their consumption capacity. For example, a small-scale retailer may buy 50 bed sheets from the wholesaler to sell them directly to customers.
Therefore, retail becomes the only link between a wholesaler and an ultimate consumer. A retailer usually operates via a shop which offers products for sale to consumers who are the last entity in a supply chain. On top of that, retailers add their margin of profit and sell these goods to consumers at a higher price than the one purchased at.
Differences Between Wholesale and Retail
As can be seen from their definitions, wholesale and retail are factors of the same process. Therefore, a manufacturer offers its products directly to a wholesaler who stores them as inventories in warehouses. This transaction is conducted at a lower price than a prevailing market rate.
The next step involves wholesalers offering their stored products for sale to retailers. As a result, retailers occupy the position of buyers while purchasing these products from wholesalers. Contrarily, retailers sell these commodities directly to the ultimate consumer.
Let’s consider an example to make the differences between these two key concepts clearer. Suppose, a manufacturing company X has produced 1000 laptops. It decides to sell these laptops in a bulk of 500 to two wholesalers, A and B. As the next step, A and B tie up with 5 retailers each. These retailers may be popular laptop brands such as Lenovo, Dell, HP, and many others.
Thus, each retailer receives 100 laptops from wholesalers A and B which they offer for sale to customers like us. As a result, we get to purchase laptops from retailer showrooms across several brands. This concludes the supply chain management, which begins with the manufacturer and ends with a common customer.
Therefore, wholesale and retail are the most important links between a manufacturer and an end-user, i.e., the consumer. More specifically, a wholesaler acts as a medium between a manufacturer and a retailer. On the other hand, a retail entity is a necessary bridge between a wholesaler and end consumers.
However, there are some finer points of differences between these elements knowing which will largely benefit individuals. The distinctions are as follows –
Volume of Purchase – Typically, wholesalers purchase a large amount of products directly from manufacturers at a cheaper rate. These purchases are in bulk. For example, a wholesaler may purchase 5000 kg of rice from a farmer to supply them to retailers.
Contrarily, retailers buy a limited quantity of goods from wholesalers depending upon their scale of business. For instance, a rice retailer may buy 500 kg from that wholesaler to sell that to several customers. Similarly, when the demand for a certain product is high, retailers procure a higher quantity of that product from wholesalers. On the other hand, the scale of purchase is limited in case a demand is low. It is not the case with wholesalers.
Level of Competition – Statistically, the number of wholesalers are lower than retailers. As a result, the scale of competition in the market is divided between a limited number of wholesale companies.
However, the competition between retailers is fierce due to a larger availability of retail entities. Therefore, they have to rely on innovative marketing and promotional measures to attract a maximum number of customers. Wholesalers, however, ideally have their customers defined and competition low.
Additional points of difference between wholesale and retail include their roles in the supply chain. While a wholesaler is closer in order to the manufacturer, a retailer deals directly with the customers. Therefore, the end-user changes as per retail and wholesale definition.
What are the Types of Wholesalers and Retail?
Wholesalers and retailers can be further classified into categories on the basis of their role in a market. Likewise, wholesalers include the following roles –
Brokers or Agents – Even though brokers or agents do not purchase from manufacturers, they act as a medium between wholesalers and retailers. Brokers strike deals between wholesalers and retailers, while skimming a percentage of the sales amount as commission.
Merchant Wholesale Units – Merchant wholesalers usually procure a large volume of products from a manufacturer and sell these among several retailers. Being the most prevailing form of wholesale, merchant wholesalers charge higher while selling goods to retail organisations.
Sales and Distribution Wholesale – This category of wholesale is applicable when manufacturers approach wholesalers for distribution of their products. This suggests that manufacturers turn wholesalers into potential clients under this category.
On the other hand, retail can be classified into the following categories –
Supermarkets – Supermarkets purchase different categories of products from different wholesalers and sell these to customers. A perfect example would be retailers such as Big Bazaar, and Spencer.
Shopping Malls – Shopping malls are also a fundamental part of the retail system. They obtain products such as groceries, home-kitchen-electronic appliances, and furniture from wholesalers. Customers can, in turn, purchase these goods directly from them.
Convenience Stores – Retailers operating convenience stores usually have their shops in residential areas, providing easy access of products to individuals living in a locality.
While this was all about wholesale and retail in a gist, it is a wide concept and requires in-depth study for proper understanding. For a detailed insight into the difference between wholesale and retail, access Vedantu’s official website today.
1. What are the Types of Wholesale?
The types of wholesale are mainly divided into merchant wholesale, brokers or agents, and sales and distribution channels.
2. What are the Types of Retail?
The fundamental types of retail are supermarkets, shopping malls, and convenience stores.