Retail vs. Wholesale: Understanding the Differences
When starting a business, it's important to understand the difference between retail and wholesale to determine which option is appropriate for your business goals and needs. There are several criteria to consider when deciding which choice is best for you. One helpful first step is to ensure you fully comprehend what makes retail and wholesale different.
In this article, we explore the definitions of retail and wholesale and describe several key differences between these two types of business operation methods.
What is retail?
Retail refers to the sale of services or goods in a way that the end user directly receives them. An example of a retail business is a department store. Patrons of department stores can enter the store and purchase goods directly in that store without relying on a third party. A retail business is one that distributes its final products directly to its customers. Most retail businesses sell a small number of services or goods, especially in comparison to wholesale companies.
Related: 12 Retail Jobs That Pay Well
What is wholesale?
Wholesale or wholesalers are companies that sell goods or services to other businesses rather than the end user. For example, a company that sells fruit and vegetables to different grocery stores in the area is a wholesaler. Most wholesalers sell bulk products at a low price and offer the buyers of these products discounts the more they purchase. A wholesaler may simply sell goods to another company for direct sales to consumers, or the wholesaler may also manufacture the goods up for sale.
Differences between retail and wholesale
The following are several key differences between retail and wholesale:
Who purchases the goods or services
A key difference between retail and wholesale is who purchases the goods up for sale. In a retail setting, the end user or consumer is purchasing the product directly from the retail store. A wholesaler sells goods to other stores in the retail industry rather than the consumer.
Retailers are business-to-consumer (B2C) companies. This means that the products offered by retailers are directly available for purchase by consumers. Wholesalers are business-to-business (B2B) organizations companies. This means that the wholesaler sells goods to another business rather than to a single consumer.
Concern for customer experience
Another major difference between retailers and wholesalers is that retailers are significantly concerned with customer experience, whereas wholesalers typically are not. Many retail companies sell goods in a brick-and-mortar location, online or both, and they work hard to ensure their business presence attracts customers and compels them to make a purchase with the business. The retail company's physical presence, customer service and marketing efforts all play a role in the customer experience, and retailers spend much of their time and money on ensuring these factors are effective.
Wholesalers are typically not customer-facing entities, which means they don't directly interact with customers and are not a physical presence for consumers. For this reason, wholesalers are far less concerned with customer experience.
Level of competition
Retailers often encounter much higher competition compared to wholesalers. There are often several similar retailers that offer the same or similar products, so retailers can act competitively to attract customers to their store rather than lose business to a competitor's retail offerings. For example, a customer may shop around at several stores before deciding which store to purchase from.
Wholesalers tend to have less competition. Whereas there are often hundreds or even thousands of similar retailers in an industry, there may only be a small number of wholesalers in that same industry. Because there are so many more retailers than there are wholesalers, wholesalers typically don't face the competitive issues retailers do when finding companies to sell their goods.
Price of goods sold
In general, retailers typically sell a product for a higher price than what they purchased it for from the wholesaler. Wholesalers typically offer their goods at a lower price when bought in bulk, allowing retailers to make a profit when selling these goods in their retail store. Wholesalers typically offer their products for a much lower price so that retailers can purchase these products in large quantities.
Control over product
Retailers tend to have more control over their products regarding how to sell it, when to sell it, the price of sale and where to sell them. Retailers also have the opportunity to directly interact with consumers to gain feedback and insight into how the product is performing and its reception by customers.
Wholesalers have less control over their products when it comes to when and how they sell them in a retail setting. This is because once a retailer has purchased goods from a wholesaler, the wholesaler no longer has a say in what is done with those goods.
Number of expenses
Retailers typically have several more expenses compared to wholesalers. Retailers consider advertising, marketing and other ways to attract customers, all of which cost money and require time. They may also account for retail overhead, such as the cost of rent and employee wages. Wholesalers typically don't face these types of expenses as the only customer they are concerned with is the retailer. Also, because wholesalers move products in bulk, their overhead costs and shipping expenses are typically lower.
Related: 10 Different Types of Stores
Retailers interact directly with customers much more frequently than wholesalers. Ways in which retailers deal with customers include talking to customers face-to-face in a physical retail location, answering customer questions and concerns and processing returns and exchanges for customers. Wholesalers don't interact with the end user on a regular basis because they send goods directly to the retailer after they sell them. This means that the only consumer a wholesaler typically interacts with is the retailer.
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