Wholesale vs. Retail: Differences, Meaning, & Where to Start

One of the most strategic decisions a business owner can make is which business model they plan on utilizing – whether it is general B2C ecommerce retail, selling directly to consumers, or B2B ecommerce route and getting into wholesaling.

This choice will influence the remaining business strategy and how the business’s supply chain is set up.

If you’re a small business that is having a hard time choosing between the two, this post will help you make an informed decision. In this guide, we discuss wholesale vs retail and compare the benefits of each model. Let’s dive in.

What is the difference between wholesale vs. retail?

The key difference between wholesale and retail is in the type of buyer. Wholesale involves selling products in bulk to businesses like retail stores, while retail involves selling products directly to the end consumer. Wholesale sells business-to-business (B2B) and retail sells business-to-consumer (B2C).

Wholesale is the process of buying large quantities of goods from manufacturers or distributors and then reselling them in bulk at a discounted price to other businesses.

Alternatively, retail is the process of selling products directly to the end-user. A retail business would buy goods in bulk either from a wholesaler, distributor, or manufacturer at a discounted rate. They would then sell them individually at a higher price, which allows them to make a profit from the transaction.

In short, a retail business serves as the final point of contact in the supply chain as they sell the products directly to consumers.

When comparing wholesale and retail, there are major considerations you should keep in mind as you decide which model to go with.

Should I do wholesale or retail?

For some, it’s less about understanding the differences between wholesale and retail and more about which one would be the better choice for them. So let’s take a closer look at the benefits you can enjoy and the challenges you need to overcome for each type of business model. This will give you the information you need to better guide your decision.

Wholesale benefits and challenges

It’s important to weigh the pros and cons of managing a wholesale business. Here are some of the notable benefits and obstacles.

Pricing and profitability

Wholesalers buy and sell their items for a lower price per item because products are bought in larger quantities. Since wholesale distributors have access to wholesale pricing, they can buy goods at a significantly lower rate than retail businesses. As a result, their overall spending is lower, which gives them a good opportunity to earn huge profits.

Moreover, wholesale businesses typically have long-term deals to supply products in bulk to retail businesses. This has a twofold benefit – not only does it give them assured long-term income, it also enables them to enjoy higher average order value. This makes it easier to predict their margin of profit so they can plan their budget and spend ahead of time. Additionally, they have a good chance of maintaining a high inventory turnover ratio since they’re shipping out large quantities of orders at one time.

When selling wholesale products, your brand will be dealing with larger transactions overall because the businesses you’re selling to buy in bulk quantities. As a result, there’s a good chance you’re able to scale your business. The business model allows for a lower cost per unit and higher revenue, which can support scalability.  Also, since your client size is small, and revenue per customer is high, it is easier to offer exceptional customer service. You could set up a hotline through your call center software with dedicated account managers – something that may not be viable in a retail operation.

Competition and overhead

One of the major challenges to overcome is in terms of competition since the market is dominated by leaders in the industry. New businesses entering the market need to work on building their credibility to gain reliable customers.

Additionally, although wholesale businesses have access to wholesale pricing, they have to invest in enormous amounts of goods at a time. The cost of procurement can easily build up when you have to buy thousands of units to qualify for wholesale pricing.

Warehousing and order fulfillment

Another important consideration is storage and order fulfillment. While wholesale businesses can enjoy lower fulfillment costs (due to automation and scale), the process of fulfilling large quantities of orders comes with its own set of challenges.

For starters, storing large volumes of inventory requires significant warehouse space. Moreover, there may be transportation risks and capacity restrictions involved with shipping out bulk orders.

Retail benefits and challenges

Retail also has its own set of benefits and obstacles to keep in mind.

Customer experience and brand identity

For retail businesses, one of the major benefits is the ability to build a brand and a personal connection with consumers. Since retailers are selling goods directly to the end customers, they have the chance to build a relationship with them.

This also means they can gain access to first-party behavioral data that can inform their marketing and procurement strategies. For instance, it becomes much easier to provide personalized product recommendations based on each customer’s buying history.

Without intermediaries involved, retailers also have more control over their brand identity. They’re completely in control over how their products are displayed and marketed as well as the quality of service they provide. This enables them to build a strong and consistent brand image that isn’t affected by the shortcomings and mistakes of business partners.

Pricing and profitability

This increased control also extends to pricing strategy, which gives retailers the freedom to decide their prices based on their target profit margin. That also means they can easily adjust their pricing if their current rates aren’t delivering the kind of profit margins they expect. As a result, retail businesses are able to generate considerable revenue with the right pricing strategy.

However, all these benefits don’t come without a price. Since they work directly with end consumers, retail businesses need to prioritize their product offerings, customer experience, and more. It’s complicated to market their products to different types of consumers who may have varying needs and pain points.

Order fulfillment

If retailers have a brick-and-mortar store, they can simply sell their inventory in a storefront.

However, if they sell their products online, fulfillment can be a major headache because consumers expect fast and affordable shipping.

In order to simplify and streamline their fulfillment operations, brands doing retail can outsource their order fulfillment to a partner that will fulfill customer orders on their behalf. This way, they can leverage a network of fulfillment centers that can ship orders to customers across different regions to ensure efficient and low-cost delivery.

What about wholesale & retail?

Alternatively, you might not even need to choose between the two options. You can get the best of both worlds by selling both wholesale and retail. This is a great way to expand your audience base since you’re distributing goods through your own retail store and also leveraging the established customer base of other retail businesses. Naturally, this will translate to increased sales and revenue for your business.

Another benefit is that you have a backup revenue source even if you face disruptions with the other. So for example, if one of the retail store partners cancels their agreement, you’ll still be able to generate sufficient cash flow from your retail business to tide you over until you acquire a new distribution partner.

On the other hand, you have to be really strategic with your retail pricing strategy since you’re essentially competing with yourself. You’ll have to make sure that the rates at your retail outlets are not so low that you’re undercutting your wholesale business.

Additionally, managing both a wholesale and retail supply chain can be extremely complicated. Not only will you have to manage your inventory separately, but you’ll also need to maintain separate systems for processing orders, fulfilling them, and shipping them out to your customers.

Getting started with wholesale & retail

Considering these challenges, it’s crucial that you have proper plans laid out for managing your retail and wholesale business separately. For starters, establish a strategy for retail warehousing and wholesale inventory storage. Will you keep both retail and wholesale inventory in the same warehouse but in different sections? Or will you maintain several small retail fulfillment centers while you store wholesale inventory in a larger warehouse?

Your inventory strategy should also be carefully established keeping both retail and wholesale inventory in mind. How will you keep track of your inventory movement? How will you differentiate between retail and wholesale inventory? Moreover, make sure you set reorder points so you can replenish your stock on time and maintain optimal inventory levels at all times.

Another crucial factor to consider is your logistics and fulfillment. It’s important to strategically assess how each aspect of the process will be carried out, especially since your wholesale and retail logistics will function separately. Consider your partnerships and supply chain processes for each business model and how you can seamlessly manage both without causing mix-ups and confusion.

For wholesale, you’ll have to look for reliable distribution partners who can help you sell your products to the end consumers. Plus, you’ll have to think about how your wholesale orders will be fulfilled vs. how your retail orders will be fulfilled. Will you work with separate shipping partners for wholesale and retail? Or will it be possible to partner with the same shipping company for both types of deliveries?

In spite of the many benefits that come with combining both wholesale and retail, there are a number of challenges you need to overcome. Make sure you carefully assess your options and your resources before deciding on this option.

Is there a fulfillment solution for wholesale & retail?

Whether you plan on taking either the wholesale or retail route or you decide to do both, partnering with a fulfillment solution like ShipBob can simplify your operations. You can leverage ShipBob’s fulfillment services and powerful proprietary software to streamline wholesale and retail fulfillment.

Retail fulfillment

ShipBob offers retail fulfillment services, taking care of every aspect of your DTC fulfillment process. From receiving new inventory and storing it in our state-of-the-art facilities, to efficiently picking and packing orders and shipping them out to your customers, ShipBob can manage the entire fulfillment process on your behalf. By outsourcing fulfillment to the experts, you can delegate time-consuming fulfillment tasks to us so you can focus on scaling your business.

ShipBob’s network of over 50+ global fulfillment centers allows you to store your inventory strategically in different regions so you can keep your shipping costs low while increasing your delivery speed. With our Inventory Placement Program (IPP), you can trust ShipBob with your inventory distribution, placement, and rebalancing so you don’t have to tediously manage inventory.

“Having the ability to reduce shipping costs through distributed inventory is probably the difference between profitability and unprofitability for most businesses in the DTC space – so the fact that ShipBob’s network enables brands to do it so easily is a huge differentiator.“

Neil Blewitt, SVP of Operations at Bloom Nutrition

B2B fulfillment

ShipBob simplifies B2B fulfillment with a powerful B2B fulfillment suite that has robust API capabilities. Additionally, you can process wholesale orders more efficiently using the EDI automation feature, which automatically pulls data from purchase orders into the ShipBob dashboard. This allows you to instantly create new orders and packing slips and get your wholesale orders ready for shipment.

No matter if you’re selling via retail dropshipping, retail distribution, or marketplaces, ShipBob’s B2B fulfillment capabilities can delight your retail partners and consumers alike.

Omnichannel order management

If you plan on selling both retail and wholesale, you have to handle multiple sales channels. ShipBob simplifies omnichannel order management for you using proprietary software that seamlessly manages your inventory and orders from multiple sources.

“Being an omnichannel brand is critical for us, so we can reach more pet lovers from more places. We’re glad that ShipBob helps us keep up with demand from all the places we reach our customers.”

Stephanie Lee, COO at PetLab Co.

Wholesale vs. retail FAQs

Here are answers to the top questions addressing the differences between wholesale and retail.

What are some advantages of wholesale?

The biggest advantage of wholesale is the ability to generate huge revenue since you’re dealing with large order quantities. In addition, higher inventory turnover and lower fulfillment costs are some other major benefits.

What is the difference in price between wholesale and retail?

Wholesale price involves setting a price that would allow producers or distributors to earn a profit from the cost of producing the goods. Retail price involves adding a markup to the cost of acquiring inventory so retail businesses can earn a profit.

What is the cost of buying wholesale?

The cost of buying wholesale is always lower than the cost of buying products in bulk for retail sale. It is the sum of the cost of producing the goods and the manufacturer’s profit margin.

Why are wholesale prices lower than retail prices?

Wholesale prices are lower than retail prices because wholesalers purchase their inventory in bulk and have lower overhead. Retailers markup their products in order to achieve greater profits.

How does an Amazon wholesale business work?

An Amazon wholesale business involves brands purchasing bulk items from manufacturers or distributors to sell on Amazon. Brands procure their products, set up a Professional Seller Account on Amazon, list the products, and sell them via Amazon Fulfilled By Amazon (FBA) or Fulfilled By Merchant (FBM).