Most medium to large scale manufacturing and trading businesses engage a chain of distribution for the sale of their goods. This chain begins from the production factory and ends with sale of goods to the end consumer. Manufacturers sell goods to wholesalers/distributors who in turn sell to retailers who in turn sell to individual end consumers.
This article looks at meaning of and differences between two parts of this chain of distribution – wholesales sale and retail sales.
Definitions and explanations
Wholesale sales involve sale of goods in bulk quantities from wholesalers to retailers. In the case of a manufacturing entity – wholesale sales connect the manufacturer to the distributor/wholesaler and furthermore the wholesaler/distributor to the retailer.
Wholesalers procure goods in bulk quantities and at bulk prices from manufacturers. Wholesalers then bifurcate the goods into smaller yet bulk lots, add their margins and make further wholesale sales onwards to various retailers. Wholesale sales take place at prices considerably below the list price of the goods.
It is difficult for manufacturers to engage directly with end consumers. Wholesale sale is thus employed so that they can engage multiple wholesalers or distributors through whom they can distribute their products. Wholesalers then make wholesale sales to retailers who ultimately sell the goods to end consumers.
Wholesalers generally operate at considerably large scales as they require to purchase and stock goods in large quantities. They may purchase from one or more manufacturers and sell further to multiple retailers mostly across several locations.
Example – A wholesaler of surgical disposables procures goods of different brands from different manufacturers and sells the same in bulk quantities to various retailers such as hospitals and pharmacies
Retail sales involve sale of goods in small/individual quantities from retailers to end consumers. Retail sales connect manufacturers/wholesalers to the end consumer through retailers.
Retailers procure goods in bulk quantities i.e., in wholesale from wholesalers and then sell the goods individually to several end consumers. Retail sales typically take place through a brick and mortar shop. In recent times though considerable retail sale also take place through e-commerce channels.
Retail sale generally takes place at list prices. Retailers however operate in a competitive environment and thus some retailers may offer discount on list prices to attract customers
Continuing the above example – Once procured from a wholesaler, retailers namely hospitals and pharmacies make retail sale of surgical disposables in individual quantities to end consumers in the form of patients or over the counter customers.
Difference between wholesale sales and retail sales
The difference between wholesale sales and retail sales has been detailed below:
- Wholesale sale is essentially sale of goods between wholesaler and retailer in bulk quantities.
- Retail sale is essentially sale of goods between retailer and end consumer in smaller, individual quantities.
- The purpose of wholesale sale is for resale by retailer.
- The purpose of retail sale is end consumption by the consumer.
3. Seller involved
- The seller in wholesale sale is a wholesaler/distributor who procures goods from the manufacturer.
- The seller in retail sale is the retailer who procures goods from the wholesaler.
4. Buyer involved
- The buyer in wholesale sale is the retailer.
- The buyer in retail sale is the end consumer/customer.
- Wholesale sale occurs before retail sale in the distribution cycle of a product.
- Retail sale occurs subsequent to wholesale sale in the distribution cycle.
- Wholesale sale necessarily takes place only in bulk quantities. The quantum being determined by the seller i.e.: the wholesaler.
- Retail sale generally takes place in considerably smaller and even at individual quantities. The quantum being determined by the buyer i.e., the end consumer.
- Wholesalers generally deal in limited variety of goods.
- Retailers generally deal in a much wider variety of goods to offer more options to their consumers.
8. Sale price and margins
- Wholesale sale takes place at lower prices and at lower margins since the quantities are large.
- Retail sales take place at higher prices – generally at the list price and at higher margins for the retailer.
9. Credit period
- As wholesale sale is made in bulk quantities, wholesalers can offer credit period i.e.: time frame for making payment, by the buyer.
- As retail sale is in individual quantities, retailers generally do not offer any credit period and sales are made on cash basis.
10. Discounts offered
- Wholesale sale can involve offering of trade discount by wholesaler to retailer for purchase in larger quantities as well as cash discount for early payment.
- Retail sale, on the other hand can offer incentive discounts on the list price to attract its customers and increase its sales.
11. Capital requirement
- Wholesalers require significant capital as they must operate at large scales.
- Retailers can operate at large or small scale. They can thus operate with much less capital.
12. Geographical reach
- Wholesale sale generally takes place across a wider geographical area – from one wholesaler to retailers in different cities.
- Retail sale generally takes place in a narrower geographical area – generally within the same city or area. E-commerce retailers are however now also operating across different geographical locations simultaneously.
13. Marketing efforts
- Wholesale sale generally occurs within an established distribution cycle, thus requiring minimal marketing efforts.
- Retail sale is highly competitive due to multiple retailers offering multiple products and thus requires considerable marketing efforts to be a success.
14. Customer service
- Wholesale sale does not focus too much on customer service. Their primary aim is to ensure the required products are made available in the required quantities to retailers.
- Retailers engage considerable efforts and funds towards customer service. These can include delivery services, after sales services etc. This is essential to maximize their sales in a competitive retail environment.
Conclusion – wholesale sales vs retail sales
Wholesales and retail sales are both equally important in ensuring products manufactured by manufacturers reach the ultimate consumers. This is especially true in large companies where direct link between manufacturer and end consumer is not practical. Both these components of a distribution cycle need to be robust to ensure there is smooth transition of goods.