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Every entrepreneur relies on the goods they sell to run a business. Entrepreneurial success weighs heavily on effective product sourcing, usually through wholesale distributors. Buying wholesale merchandise means purchasing retail items at deep ly discounted rates. Only businesses or individuals with a wholesale license can receive these special rates: Without a wholesale license, businesses and individuals would have to pay the suggested retail price for their items. This would lead to lower sales, lower profit margins, and lower competition. Businesses without wholesale connections will likely fail to provide the sales and service that draw customers.
Retailers, restaurant owners, and individuals can obtain a wholesale license if they have a registered business and sales tax license. This may be the easiest part of the whole process. In fact, half the battle lies in finding wholesale sources that sell products geared toward the buyer’s interest. Some retailers find wholesalers by word of mouth, while others look for their own. Retailers can often find wholesale products to sell in their stores by searching online, attending trade shows, frequenting buyers’ markets, and joining buyers’ groups.
Buying wholesale items presents several advantages for retailers. Buying in bulk saves money for both the consumer and distributor. Most distributors offer deep discounts off the regular retail price of large-quantity orders, mainly because bulk purchases lead to less handling and packaging expenses. This also enables the distributor to circulate inventory faster while providing an incentive for the consumer to return. Therefore, buying wholesale translates into bigger profit margins for retailers if they have sufficient storage space and money. Retailers with sufficient cash flow have greater access to the wholesale items offered by distributors. Greater availability means that retailers can pass the savings on to their consumers without fears of not finding items in other retail markets.
Buying wholesale offers greater flexibility for retailers. For instance, retailers can plan to buy wholesale items off-season when the overall retail prices remain low. With enough storage space, retailers can stock apparel and outdoor equipment until the following season. At that time, they can turn the product around for even higher profit margins. This same rule applies for food purchased off-season. Many retailers purchase produce only available during certain seasons and freeze it for months with little loss in quality. Restaurant owners can benefit from this by purchasing locally produced food, such as meats, at wholesale price and then keeping it fresh in backroom freezers. Retailers and restaurant owners need to ensure the quality remains fresh by rotating inventory frequently. People with large families may also choose to purchase food in bulk to save on grocery bills. The downside lies in estimating inventory turnover with the amount of storage space available. Having too much in stock can lead to clearance sales or spoiled perishables, which translates into decreased profit margins.
Retailers, restaurant owners, and individuals who buy in bulk must have enough money to purchase wholesale items upfront. In the majority of cases, wholesale distributors require consumers to pay for their order in full before anything leaves their warehouse. This makes it difficult for small businesses to compete with large-scale corporations who have enough storage space and capital to place large orders. Retailers may also find it difficult to project sales ahead of time before placing their next order. This same rule applies for restaurant owners and individuals who purchase bulk food. They sometimes do not have enough money to replenish their inventory at the deepest discounts available.
Buying wholesale-priced items allows for businesses to flourish by providing deep discounts on retail items. Businesses, restaurant owners, and individuals who buy items at the suggested retail price will find it difficult to increase their profit margins. In fact, businesses that rely on retail-priced items will likely go under due to stiff competition from other businesses with connections to wholesale distributors. The whole idea behind purchasing larger orders is to offer the lowest prices to keep customers coming back to spend more money. Only wholesale distributors offer that flexibility to businesses.
Follow these links to learn more about buying wholesale, including its advantages and disadvantages:
- Role and Benefits of Wholesale Markets
- How to Start a Cooperative Food-Buying Club
- How to Start a Wholesale Distribution Business
- How to Be a Wholesale Distributor
- Differences Between Wholesalers, Distributors and Retailers
- Retail and Wholesale Distinguished
- The Role of Wholesale-Salespersons and Incentive Plans in Promoting Supply Chain Performance (PDF)
- Direct to Wholesale Markets
- Buying Beef for Home Freezers: Advantage to Buying Wholesale Cuts? (PDF)
- Selling Wholesale (PDF)