Knowing the difference between wholesale and retail is essential if you want to succeed in ecommerce. Every day, we play a part in wholesale and retail business models. Despite that, it’s easy to confuse the two.
How do they work? What’s the best ecommerce business model for you?
Ahead, you’ll learn everything you need to know about wholesale versus retail.
Table of Contents
What’s the difference between wholesale and retail?
Wholesale involves selling bulk goods to other businesses at discounted prices. Retail involves selling products directly to consumers at a retail price.
Another way of explaining the difference between wholesale and retail is by using the business terms “business-to-business” (B2B) and “business-to-consumer” (B2C).
- Wholesalers are B2B because they sell to other businesses.
- Retailers are B2C because they sell to individual consumers.
How wholesale works
Wholesaling is the process of buying goods in large quantities from manufacturers or distributors, storing them in warehouses, and then reselling them to retailers for a profit.
Wholesalers purchase enormous amounts of inventory at a time for a low price and then sell the products in smaller quantities at a higher price. For example, a wholesaler might buy 1,000 water bottles from this manufacturer for $2 per bottle. This would cost them $2,000.
Then the wholesaler could sell 50 water bottles to 20 different retailers for $6 per bottle—three times the price they originally bought each bottle for. Once they deduct their expenses, such as warehousing and delivery, they’d be left with a profit.
All in all, wholesalers:
- Buy products from manufacturers and distributors in bulk at a low cost
- Don’t sell directly to the end user of the product
- Resell these products to other businesses in smaller quantities and at a higher cost than they bought them for
How retail works
A retailer buys goods in bulk from a wholesaler, manufacturer, or distributor and sells them to end users. They are the last business in the supply chain.
So whenever you buy something for your own use as a consumer, you’re buying from a retailer. This includes the grocery store, hardware store, and clothes shop. What’s more, retailers usually sell products individually.
For example, a retailer might purchase 100 watches from a wholesaler for $20 each. Then, they could sell them to consumers for $55 each.
Simply put, retailers:
- Buy goods in bulk from a wholesaler or distributor
- Market and sell products individually to the end user
Now that we know what they are, what is the difference between wholesale and retail?
Comparison: wholesale vs. retail
Wholesale and retail businesses both make money by buying products at one price and selling them for more. This is called “markup.”
Markups are added to cost prices to pay for expenses and make a profit. Each step in the commerce supply chain increases the cost of goods.
This is what’s known as a “keystone markup.” It’s when products get marked up by 50%. This means the product is twice as expensive as it was when it was bought.
Many retailers use this strategy as a baseline for pricing strategies, although there’s no hard and fast rule.
2. Transaction volume
Wholesalers handle large quantities of products in fewer deals, each worth a significant sum. They specialize in managing logistics, warehousing, and storage efficiently for a smaller amount of recurring customers. It can be challenging to lose a major client because of the high value of each transaction.
Retailers, on the other hand, specialize in smaller, more individualized transactions. While the value per transaction is lower, the cumulative value is significant. Rapid inventory turnover and seamless customer experience require efficient inventory management and point-of-sale (POS) systems. With such a broad customer base, any disruption in their supply chain could affect many individual sales.
3. Storage and warehousing
Most wholesalers have huge warehouses that store a lot of stuff. The facilities prioritize efficient storage, easy bulk loading and unloading, and an optimized logistics flow. The emphasis is less on aesthetics and more on functionality, safety, and volume management.
For retailers, storage is split between back rooms and storerooms. Although smaller than wholesale warehouses, storerooms are designed to replenish stock quickly on the shop floor. Shelf and rack storage on the shop floor focuses on presentation and accessibility.
4. Range of products
Wholesalers typically stock fewer products, but in larger quantities. Their focus is on supplying bulk quantities of specific items to retailers or other businesses.
Retailers cater to the diverse preferences of consumers with a wider variety of products. Seasonal trends, customer feedback, and market research influence their stock.
Since they’re the final point in the consumer purchase journey, they need to offer a diverse range to meet individual preferences and needs. The result is often multiple brands, styles, colors, sizes, and flavors.
5. Fulfillment and expenses
Wholesale and retail must focus on different tasks to succeed. Wholesaling has fewer expenses to track and worry about. With such large clients and the majority of their income coming from repeat business, they need to focus on warehousing, shipping, and fulfillment.
However, retailers need to focus most on marketing, branding, selling, and customer service. Both wholesale and retail businesses need to spend time managing things like inventory, cash flow, and staff.
Finally, location is extremely important to both wholesale and retail businesses—just for very different reasons. Retailers need to be where consumers spend the most time, such as high streets and shopping malls. These locations are typically extremely expensive per square foot because of the demand.
Wholesalers need no such thing. This business model requires enormous amounts of storage space to store bulk goods. What’s more, shipping costs are one of the largest expenses wholesalers have. For this reason, it helps to be located next to a large intersection of highways or near an airport.
7. Purchasing process
The purchase process in wholesale is more formal. Transactions involve contracts, ongoing negotiations, and purchase orders. Given the high volume and value of goods exchanged, there’s more emphasis on setting clear terms, prices, delivery schedules, and payment conditions.
Retail purchases are more straightforward. Customers, whether shopping online or in a retail store, choose what they want and pay for it. The focus is on speed and convenience, which can mean paying with a preferred method like Shop Pay.
Pros and cons of wholesale
- Good for planners: The wholesale business model is ideal for those who enjoy planning, logistics, and maintaining client relationships.
- Close client relationships: In wholesale, close client relationships are crucial to success. This emphasis on partnerships can lead to loyal and lasting business connections.
- Repeat sales: The wholesale business model relies on repeat sales to the same retail buyers, which can lead to consistent revenue streams.
- Less marketing needed: Due to the focus on long-term client partnerships, there’s far less marketing needed in wholesale compared to retail.
- Business security: These relationships and repeat orders help to create a sense of security for the business, offering predictability in sales and revenue.
- Supply chain management: A lot of time needs to be dedicated to managing the supply chain, which includes tasks such as distributing wholesale products, overseeing warehouse inventory, and managing client orders.
- Payment on credit: Wholesalers tend to sell on credit, meaning payment isn’t received upfront. This can lead to potential cash-flow issues.
- Risk of non-payment: There’s always a risk that the client won’t pay their invoice, which can strain the business financially.
- Dependence on trustworthy clients: Just one untrustworthy client can create significant financial and inventory problems, emphasizing the importance of carefully selecting and maintaining client relationships.
Pros and cons of retail
- Meeting diverse needs: The retail business model is adept at meeting a wide range of customer needs.
- Direct customer interaction: Retailers get direct feedback and interaction with their end customers, which can provide insights for product and service improvement.
- Flexibility in sales channels: With a robust POS system, retailers can complete transactions in diverse settings—in-person, over the phone, or online.
- Opportunities for upselling: Selling products individually offers opportunities for upselling, cross-selling, and bundling to maximize revenue.
- Need for high customer turnout: Retailers need to attract a significantly larger number of customers compared to wholesalers.
- Heavy reliance on marketing: Retail businesses need to allocate a considerable portion of their time and budget on marketing activities to attract customers.
- Customer management: A lot of time is spent interacting with customers directly, be it in-store, over the phone, or online, which can be time-consuming and requires good interpersonal skills.
- Complex business model: Retail business comes with multiple tasks like ordering products, tracking inventory, sales management, employee training, and keeping an eye on competitors.
- Technological infrastructure: Retailers need to manage and update their technological infrastructure continually. Ensuring tools like the point-of-sale (POS) system are up-to-date and functional is vital.
- Competitive market: The retail sector often has stiff competition, requiring businesses to be innovative and adaptive to stand out.
Can you do both wholesale and retail?
Yes, you can do both wholesale and retail. Plenty of larger businesses don’t just stick to wholesale or retail. Many companies take part in every single aspect of the commerce supply chain.
Three examples of companies who do it all are Nike, Cartier, and Apple. These businesses design, manufacture, distribute, wholesale, and retail their own products.
Let’s see it in action with Apple. First, Apple will purchase materials and parts from wholesalers to manufacture its products. Once it manufactures the products, it distributes them to its retail stores and warehouses.
From here, it sells its products directly to consumers in retail stores and online. Apple also sells its products wholesale to other retailers, such as Walmart and T-Mobile.
It’s also worth mentioning that some large retailers often manufacture their bestselling products themselves to profit at each stage of the commerce supply chain.
Types of wholesalers
There are many different types of wholesale businesses. Let’s take a quick look at six of them:
- Merchant wholesalers. This type of wholesaler purchases and stores large quantities of products then resells smaller quantities for a markup.
- Sales and distribution for manufacturers. This type of wholesaler isn’t technically a wholesaler. This is when manufacturers act as their own wholesalers by creating a distribution department within the company. They sell their own products to other wholesale suppliers and retail businesses.
- Discount wholesalers. This type of wholesaler focuses on buying and selling significantly discounted stock. These goods are discontinued lines, returned or refurbished goods, or inventory liquidation.
- Dropship wholesalers. Again, this type of wholesaler isn’t technically a wholesaler. When online retailers make a sale, their distributor or wholesaler will ship the product directly to the consumer. In this way, the wholesaler is more like a retail partner. You can find tons of dropshipping wholesalers on platforms like DSers.
- Brokers. Brokers don’t actually move or buy products. Instead, they simply arrange deals between manufacturers and retailers. So this type of wholesaler doesn’t make money from markups—instead, they make money from fees and commissions.
- Online wholesalers. This type of wholesaler sells its products in bulk online, as opposed to more traditional channels such as trade shows.
Types of retailers
Now, let’s check out seven different types of retailers that exist in the marketplace today.
- Specialty stores. This type of retailer sells a very narrow product line within a focused niche, such as The Vitamin Shoppe.
- Online retailers. Online retailers are simply businesses that sell online through their website or a platform like Amazon or Etsy. For example, Haus sells aperitifs through its website.
- Department stores. This type of retailer sells goods in many different categories. For example, Macy’s has departments of its store dedicated to categories like clothing, shoes, homeware, bed and bath, and jewelry.
- Supermarkets. This type of retailer sells a large variety of food and household products.
- Convenience stores. These small neighborhood stores sell essential food, alcohol, and household items.
- Discount stores. This type of retailer is focused on providing customers with a wide range of products sold at a discount. Walmart is one of the largest discount store chains in the US.
Sell wholesale on Shopify today
It’s clear selling wholesale is a lucrative opportunity for any online retailer. With wholesalers focusing on volume, efficiency, and strong customer relationships, it can be a great sales channel for growing and established ecommerce brands.
Shopify streamlines B2B sales with tools for managing inventory, processing bulk orders, and maintaining relationships with customers. You can make a password-protected wholesale page on your ecommerce site and sell directly to other businesses. Or, you can sell in bulk online through wholesale marketplace Faire to reach a wider audience.
Unify your inventory management with Shopify
Only Shopify POS helps you manage warehouse and retail store inventory from the same back office. Shopify automatically syncs stock quantities as you receive, sell, return, or exchange products online or in store—no manual reconciling necessary.
Wholesale vs. retail FAQ
Is it better to buy wholesale or retail?
Buying retail provides the flexibility of purchasing in smaller quantities and often has a wider selection of products, but typically comes at a higher per-unit cost.