May. 27, 2024
Apparel
When we talk about wholesaling vs retailing, we can easily differentiate between the two in terms of who is on the receiving end. In wholesaling, a company buys goods in bulk from a manufacturer to resell them further, whereas, in retailing, an end customer purchases the products.
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Both wholesaling and retailing play a significant role in a supply chain. It&#;s all connected. First, a company manufactures an item; sells it in bulk to a wholesaler, who then sells it to a retailer. The retailer further sells it to the end customers.
In simpler terms, a wholesaler always buys goods in bulk from the manufacturer, sells them to the retailer, who then delivers them to ultimate buyers.
Wholesaling and retailing are the primary mediators of the supply chain. If any of these are missing, the entire supply chain may get disrupted. Read on to find out the significant differences between the two and which one can suit your business the most.
Wholesaling refers to selling goods to consumers such as retailers, industries, or any other entity in bulk quantities and at lower prices. A wholesaler buys products from the manufacturer in large quantities, splits them into smaller lots, repacks them further, and sells them to the next party.
One key aspect of wholesaling is that it focuses more on the number of goods over their quality. This business does not require any publicity, marketing, or advertisement. Though, the company&#;s large scale calls for considerable capital investment. The operations are entirely dependent on the clients your business has.
Wholesale business customers are spread in various cities, towns, and states. If you get into a wholesale company, you&#;ll end up with most of your goods on credit. Your purchase price will remain less as the profit margins are usually low.
The wholesalers that purchase products directly from the manufacturer are called merchant wholesalers. There is no restriction on the channel where these products are ultimately sold, offline or online. These wholesalers are commonly used in the FMCG industry or the agriculture industry.
Specialized wholesalers are those wholesalers who deal in specialised products only. For example &#; a used car wholesaler sells directly to other used car dealers.
As the name suggests, full-service retailers provide complete services to retailers. They generally operate in the retail market and deal in consumer durables or engineering products, taking responsibility for everything except the servicing of the product.
This type of wholesaler has a small turnover and sells products through a limited number of channels. For example, a wholesaler purchases products, stocks them and sells them online.
Retailing refers to selling goods in smaller lots, without any purpose of further resale, to the end customers. Retailers are the middleman between wholesalers and end-users, as they purchase goods in bulk from wholesalers and sell them further to buyers at higher prices.
The prices are comparatively higher because the retailer incurs many additional expenses. Expenses such as marketing costs, shipping and logistics costs, employee salaries, and warehousing costs are all included in the retail price of a product.
To become a successful eCommerce retailer, you need to consider the following factors:
These factors have to be given much importance in a retail business, as they leave a profound impact on the customers&#; minds.
The best thing about a convenience store is that it is located close to residential areas and hence, easily accessible to the customers. However, it&#;s relatively small and offers a limited range of groceries, FMCG products, etc.
Compared to convenience stores, departmental stores are larger. This is because various departments, such as food, apparel, beauty & personal care, are under one roof.
A supermarket has even more space than a departmental store, offering even more categories of products. These also include home decor, electronics and much more.
Needless to explain, a shopping mall is a space enclosing a combination of various retail stores. These retail stores share the area and do business individually. For a customer, everything is easily accessible in a single place. This results in a better shopping experience for someone who wants to purchase multiple products of multiple categories.
Retail chain refers to a chain of exclusively designed and promoted stores that deal in particular goods and services. These stores sell the same products under the same brand name, but multiple such stores are located in different regions. For example, jewellery stores by Tanishq.
Franchisee is an easier way of entering the retail sector. In a franchisee, a sizeable supporting organisation licenses a store to be owned and operated by you on its behalf. For example, Domino&#;s, Burger King, etc.
As the name suggests, a speciality store is a shop that offers a particular category of products such as medicines, stationery, food items, etc. The reach of this kind of store is limited to one specific retail market.
Factory outlets are those retail stores that sell the products directly to the customers at relatively low prices, without the involvement of any middlemen. Manufacturers own and operate these outlets. For example, the factory outlets of Reebok.
By now, you must have understood the basics of wholesaling and retailing. Coming to the point, how different are the two? This table will help give you a clear picture:
Point of DifferenceWholesalingRetailingMeaningA wholesaler purchases products in bulk from a manufacturer.A retailer purchases products from a wholesaler and sells them further in small quantities to the end customer.PriceLowerHigherTransaction VolumeLargerSmallerBusiness ReachBroaderNarrowerCompetitionLowerHigherProduct RangeLimitedWiderNeed For PromotionLessMoreCostLowerHigherCapital InvestmentHugeLittleWholesaling is a suitable business model for you if your goal is to build a large customer base without much effort. You will be able to grow your business faster if you&#;re into wholesaling, as your products will be accessible to more customers. Once you capture an audience for your products, retailers will prefer you for their business and will stock up on more of your products.
Wholesaling builds awareness for your product. Instead of consumers having to purchase exclusively from a particular shop, be it virtual or brick-and-mortar, consumers can see your products in various outlets. It can allow a wide range of consumers who might otherwise not have been aware of your products to build a relationship with your brand.
The wholesaling business model will also enable you to dropship. Dropshipping is a method where a merchant sells a product but doesn&#;t own the inventory. A retailer receives the order, and the wholesaler dispatches it directly to the end customer. This method gives you the advantage of retaining ownership while an expert retailer handles the front end of things.
International Expansion
Wholesaling makes expanding into global markets much faster and easier. Any growth and expansion are defined primarily by your relationship with those clients who buy goods from you. If they sell globally, so will you, as you&#;re just getting the goods to where they need to sell them.
From another point of view, you will be shipping goods internationally in a few large containers instead of sending hundreds of small retail packages when selling via wholesale. Depending on your workflows and product costs, this could be a cheaper way of selling internationally.
The retailing business model is ideal if you want to retain complete control of your product lines and establish a close relationship with your customers. There is a lot to think about if you&#;re in this position, but you can respond to your customers&#; demands and potentially changing needs.
Retailing lets you specifically target a tailored consumer base. You can personally select the most likely channels to reach customers who need and want your product. This may be a brick-and-mortar shop, an online shop, or a mix of both. An important thing here is to ensure you&#;re reporting on these sales channels so that you can make changes quickly if needed.
You can get to know your customer base in great detail. You&#;re dealing with them directly to get a sense of their preferences and habits, and your business can respond quickly. Reporting and analysis are also easy. You&#;ll be able to see who your best customers are, so perhaps you could target them with a personalised offer.
On the other hand, you can also see which customers haven&#;t bought from you in months; you may want to send them a personalised to get them to buy from you again.
Having control allows you to ensure that your brand identity isn&#;t diluted or damaged. You&#;re in control of where your product is seen, how it&#;s presented, and what other products it&#;s displayed with. You are in control of the product&#;s marketing to ensure that the messages being put out to the world are consistent with how you want your product to be viewed.
When developing a retail strategy, you can decide for yourself the price you will sell your product and its profit margin. The entire profit will be yours and won&#;t be shared with a wholesaler.
Manage Inventory and Marketing Based on the Need
As a retail business, you have a distinct advantage over wholesale businesses in that you can control your stock quantity to meet market demands. You can also completely dominate the sales channels you choose.
Given the variety of advertising options available, you can run a marketing campaign and create a buzz around your products. This includes in-store promotions, targeted ads or partnering with influencers on social media to promote your products when needed.
Brand Experience and Customer Satisfaction
Retailers can open large stores, small outlets or online stores to sell their products. If you have a physical outlet, you can create unique brand experiences. Visual merchandising, store layout, and customer service provide interesting and enjoyable experiences for your walk-in buyers. Such customer satisfaction enhances your brand identity. A well-designed retail space evokes emotions, encouraging customer interactions and leading to a positive brand image.
Increased Business Opportunity With Varied Product Options to Offer
A wholesale business often does not have all the commodities, but a retail does. Retail shops stock products from varied categories. Thus, a retailer can offer a variety of goods to the customers. This has two benefits. First, customers usually look for one-stop supermarkets from where they can buy almost all the needed items. Second, a customer entering the store to buy certain products will end up buying many others when they spot them.
While considering wholesaling vs retailing, the choice is entirely up to the person who is planning to set up a business. Consider various aspects like business control, funding, customer interaction needed, etc, to choose the right one for you.
Packaging
Packaging plays an important role in the journey of products from manufacturers to consumers, and the dynamics of packaging vary significantly between wholesaling and retailing. Each stage in the supply chain has unique requirements, reflecting its specific goals and audience.
From the practicality and efficiency of bulk packaging in wholesaling to consumer-centric and visually appealing packaging in retailing, the packaging journey reflects the diverse demands of the market.
When it comes to wholesaling, packaging is all about practicality and efficiency. Products are packed in large, robust containers or boxes designed for easy handling and storage in bulk. The primary focus is on ensuring the smooth transportation of substantial quantities. Durable materials are chosen to withstand the demands of bulk shipments, prioritizing functionality over aesthetics. The packaging serves the purpose of safeguarding products during transit within the wholesale distribution network.
In the retail environment, packaging takes on a different role. It&#;s designed to catch the consumer&#;s eye. Products are wrapped in visually appealing formats, featuring attractive branding and informative labels. The packaging is a strategic tool to engage shoppers, communicate product details, and create a positive buying experience.
It goes beyond protection, acting as a marketing element to stand out on shelves or online platforms. Retail packaging aims to entice consumers, making them want to pick up the product and take it home. It is a key aspect of the retail strategy, contributing to the overall presentation and perceived value of the product.
Now that you know about wholesaling and retailing in detail, it&#;s up to you to choose the right model for your business. Considering the wholesaling vs retailing debate, both have their pros and cons. Before choosing one, understanding how each of the two works is important.
Evaluate how much control you would want over your brand, how much face-to-face contact you wish to have with the customer, how much money you have in your bank to invest, and many more such factors. We hope this article will help you make an informed decision, and we&#;re happy to help you get started. Do let us know in the comments section below.
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Talk to any retailer and they will tell you without a doubt that there is a certain amount of risk that results from purchasing traditional inventory. This is because when retailers stock their products, they usually hope that they will sell enough to get a profit before their stock expires.
However, this will not always be the case. Merchandise can sometimes be overstocked or remain on the retailer&#;s shelves for weeks without the retailer making a single sale. This is when the inventory investment becomes a financial loss, and the retailer has to do something about it.
To ensure that they will not lose money, retailers have another option. They can incorporate a consigned inventory model, which operates differently from traditional inventory.
A consignment inventory works when a retailer purchases goods from the supplier, but rather than having them in their rightful possession, they rent them. This way, they have the goods and can sell them without the worry that they will go bad or be rendered ineffective by a competitor.
The main advantage of consigned inventory is that the retailer avoids dealing with excessive markdowns or even having to throw out consignment stock they didn&#;t sell from the retail store.
The downside of this method is that retailers can face obstacles in dealing with consignment inventory management, such as inventory discrepancies.
However, a consignment inventory is the answer to these obstacles, or at least reduces the stress that comes with them.
A complete guide to consignment inventory is presented below, so retailers can understand how consignment works, adapt to it, and avoid future problems in any consignment deal.
What is Consignment Inventory?
Consignment inventory refers to a business model/agreement or a supply chain approach whereby the consignor (manufacturer, supplier, or wholesaler) gives goods or inventory to the consignee (retailer/ retail store) for them to sell via different sales channels.
The consignee pays the consignor only when a customer purchases the goods and gets to keep the profits. In a consignment agreement, the consigner retains ownership of the goods until the consignee or retailer sells the goods to a client and makes the necessary payments to the consignor.
For instance, a retailer can strike an amicable consignment agreement with a medical device company and agree to incorporate a purchase inventory of their devices up front.
The manufacturer will conduct a stock transfer of the medical device&#;s inventory to the retailer and receive payment only from the sales of the devices. What the retailer will not sell (unsold products) will remain the manufacturer&#;s property.
When a consigned inventory is done right within the best-case scenario, it can offer a win-win situation to both the consignor and the consignee while the manufacturer/supplier still retains ownership.
Advantages of Consignment Inventory for Consignors
As mentioned earlier, consignors refer to manufacturers, wholesalers, or suppliers of goods. Since consignment inventory is similar to a rental agreement, the consignor can enjoy the advantages of a consignment model. These include:
Avoid Inventory Carrying Costs
Carrying costs refer to the amount of money/inventory costs a business will spend when holding a certain amount of inventory. In short, it refers to the cost of storing, owning, or keeping stock of the goods.
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Since the consignors/suppliers transfer ownership and do not have to keep the consignment stock, they can incur a minimal cost or avoid the holding costs altogether. As a result, they will have more money to put toward other expenses associated with running the business.
Test Market Interest in Consignment Products
Consignors can use consignment inventory to gauge the interest in their products before they commit to creating and storing a vast quantity of them.
This is because when a retailer takes on consignment inventory, they usually hold a significant percentage of that particular consignment stock. The consignor can avail of this and present products on a smaller scale to the public during the consignment. This way, they can test how much demand there is for their product.
Streamlined Supply Chain
Cutting costs and eliminating inventory is the most crucial benefit of a consignment inventory model. But it also means streamlining the supply chain as well.
Consignment inventory can help suppliers, manufacturers, and wholesalers avoid the costs of carrying stock and separate storage units.
Being able to create a supply chain that doesn&#;t have excess costs and space makes it more efficient for the entire consignment process.
Build Relationships with Retailers
Since a retailer is willing to take on most of a product&#;s stock, the consignee is taking on quite a lot of risk. This means they are more likely to be loyal to their consignor.
When you consider that a retailer&#;s success can very well depend on their supplier, a consignor needs to keep their retailer satisfied to ensure that they have no intentions of changing consignors.
Increase Cash Flow
Consignors who implement a consignment inventory model can increase the cash flow within their business. This is because selling off some of the stock to customers, depending on the ownership models, can create space for another vendor-managed inventory, which will then help them earn more profit.
Advantages of Consignment Inventory for Consignees
Consignees refer to retailers or companies taking the responsibility of selling the consigned inventory on behalf of a manufacturer or supplier. It means that individuals, corporations, and businesses can be consignees.
These individuals and businesses can also enjoy advantages from consignment inventory:
A Wider Variety of Goods to Select From
When a retailer takes on consignment inventory, they usually request the product in bulk and put it in their store. Depending on the product, this will give them a wide variety of consigned goods to choose from and select based on their clientele, location, and market.
Cost Effective
It is essential to consider that a retailer pays for the number of consigned goods they sell from their store. In return, they do not have to carry the cost of consignment products that don&#;t sell and can avoid any possible markdowns or inventory losses.
Product Visibility
When retailers take on consignment inventory, they can benefit from product visibility. Since the retailer can incorporate selling inventory, they are more likely to promote and market the products to make more consignment sales.
Increase Cash Flow
Consignees can use this approach to increase sales and their income flow. This is because selling off some of the stock can create space in their store for another vendor-managed inventory, which will then help them earn more profit.
Stronger Relationships with Suppliers
Since a retailer is willing to take on most of a product&#;s stock, they are taking on quite a lot of financial risk.
The more they market and promote the consignment products, the more they establish a relationship with their suppliers since they share the same objective. This is important as it means they are more likely to be loyal to their supplier.
Disadvantages of Consignment Inventory
As with anything, there are disadvantages to consignment inventory as well. The most common ones include the following:
Low Visibility on Consignment Inventory
Low visibility can have adverse effects on retail stores, especially when it comes to new consignment products. It is usually hard to sell them.
The most common approach to overcome this problem is marketing the product to attract potential customers.
Although it may be a relatively easy experience for consignees, it requires lots of effort for them to sell.
Higher Carrying Costs to the Retailers
The retailers will be responsible for collecting the inventory from the warehouse. The higher it is, the higher their carrying costs and the more they have to pay to maintain it on the retailers&#; shelves.
It also means that they will have to pay for additional costs like storage and upkeep of their stock in their warehouse. In short, it will cost them more and affect their margins after selling.
Cash Flow Issues
Retailers who use the inventory will not be able to collect payments until they sell the product. It means they can&#;t always use their money immediately when they expect more sales to happen.
It Is a Risky Approach
Being able to take on most of the product&#;s stock from the warehouse means that the consignor is taking on quite a lot of risk. This is because retailers can be unsuccessful in selling the products.
When this happens, the consignor/supplier may end up losing out on a lot more money than usual and the possibility of having to expand the inventory.
Additionally, some consignment products can be rendered ineffective after a certain period making it difficult for the retailer to sell those consignment products. This will also result in extra inventory costs and loss to the supplier.
Increased Challenges When It Comes To Managing Inventory
This supply chain strategy can also bring up challenges in stock management. This is because retailers need to track consigned items separately from those not consigned. It will help them monitor sales and restock consignments as needed from the supplier&#;s warehouse.
However, since these consigned items do not incorporate any upfront supply costs, it would be difficult for retailers to track their margins, thus making it difficult to make profits.
Consignment Inventory Management: Best Practices
Managing consignments is difficult; keeping track of stock and making appropriate payments that reflect recent sales require the utmost care and diligence. The following section has compiled a few best practices to help you manage your inventory effectively and gain more knowledge to make consignment inventory work for you.
Know Your Product
First and foremost, it is essential to know what your product is as a retailer. Different customers prefer many different types of products and goods. Knowing this will help you better understand what styles and items are currently in demand.
Knowing your product&#;s durability, quality, and marketability is also essential in a consignment model before making any sales.
Avoid Excess Supplying Of Consignment Products as a Consignor
As a consignor/supplier, it is vital to monitor and manage your inventory supply on a consignment basis. You must supply only when necessary and in the correct quantity.
It is preferable to have a comprehensive production plan to help you determine the necessary supply amount to achieve this. It will help avoid oversupplying from your store and save you from unnecessary financial burdens.
Use a Contract That Is Mutually Agreeable To Both Parties
Consignors and consignees must have contracts that are mutually agreed upon. It will help them avoid any possible miscommunication in the future that can lead to unexpected losses. The contract must incorporate at least the following:
Accurately stated freight policy and shipping costs.
A sustainable sale commission rate of the consignment inventory arrangement.
A precisely indicated return policy (for goods not sold).
Contracts that do not reveal this information can cause unnecessary misunderstandings, which can be expensive to the parties involved.
Incorporate the Use of Inventory Management Software
Inventory management software is changing the way people do business daily. It has made it easier for businesses to boost sales and product margins by handling tracking, accounting, and forecasting.
An effective inventory management system will help you keep track of your consignments by noting the items and their current and projected sell-through rates.
Here are a few examples of currently available inventory management software:
NetSuite:
This inventory software offers various features like cost management, consigned stock tracking, barcoding, shipment tracking, and other helpful tools to handle consignment inventory effectively.
Zoho Inventory:
This is a user-friendly cloud-based software that operates on a subscription basis. It will provide you with everything you need in your consignment arrangement. It is one of the best inventory systems for small retailers and large distribution companies.
Ecomdash
: This cloud-based software provides users free access to several built-in features like product comparison, items by category, and order tracking at multiple locations. It is best for small and medium businesses that want to manage consignment inventory effectively.
Cin7
: This software offers a comprehensive set of tools for tracking and reporting. It also comes with automated reporting and enables users to communicate and share information quickly, conveniently, and efficiently.
Fishbowl:
This is another high-performance software for enterprise customers and growing brands. It has a wide range of customizable features that can be customized and tailored to meet an organization&#;s specific consignment arrangement.
Wrapping Up
A consignment inventory, unlike traditional methods, is a cost-effective way to maintain a profitable business at low risk. However, it can be challenging to manage consignments if you do not have the right tools and expertise. The above-mentioned best practices should help you streamline inventory management up to the end user.
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