If you’re just getting started with your business, and you’ve found yourself curious about the differences between retail and wholesale and which is right for you – You’re in the right place!
While there are a lot of similarities between the two – They both revolve around selling products after all – There are some key differences that you should know about that will help you decide which is the right fit for you.
Retail is selling goods and products directly to the end consumer, typically selling lower quantities of each item per sale. Wholesale, on the other hand, is selling products to a company that then sells it to an end consumer. So a wholesaler doesn’t sell directly to the end consumer like a retailer does. Wholesale usually deals in higher volume bulk orders per sale.
Merchandising & Display
Being in retail involves merchandising and displaying the product for your customers, whether in store or online. In wholesale you don’t usually need to worry about merchandising your product, because you most often sell it through your website, line sheets or catalogs. The exception would be if you choose to sell at trade shows or fairs, in which case you’ll have to create and merchandise a booth.
As a retailer, you’re responsible for the entire customer journey from beginning to end and really creating a fabulous customer experience.
As a wholesale business, you want to ensure your customers have a smooth and easy ordering process and a fabulous experience. And you want to make sure your messaging gets across, but you don’t have to manage as many customers at the same time because you’re selling more items, but to fewer people.
When selling products at retail you mark the product up to a retail price, that then allows you enough gross margin to cover all the other expenses of a store, like rent, payroll, utilities, advertising, bank fees etc. as well as as a profit.
Pricing wholesale products is different. It involves calculating your cost of manufacturing (or buying the product if someone else manufactures it) and then marking it up to allow for profit for you, as you sell to the retailer.
The markup won’t be as high in this case because your costs are all accounted for in the cost of the item, whereas a retailer has to also account for the cost of doing business.
Sales tax is handled differently between retailers and wholesalers. As a retailer, depending on where you live you’re typically responsible for collecting and remitting the sales tax to the states that you do business in.
Wholesale businesses are usually exempt from collecting and remitting sales tax, but of course, check with your local regulations to be sure.
Wholesale doesn’t require a storefront, although it might require a warehouse or some sort of storage space to hold the product in. But the location of this storage space doesn’t matter in relation to sales.
A brick and mortar retail store on the other hand does by definition require a storefront, in a location that makes sense for local traffic. Unless your retail store is exclusively online, in which case you have the flexibility of a warehouse or storage space.
In both retail and wholesale, you have to communicate the features, the advantages and the benefits of the product to the buyer, using a multitude of different platforms.
Retailers and wholesalers both also have to market their business itself to attract new customers. You should have a clear voice, brand and message that you share everywhere your customer interacts with your business.
Another key difference is that wholesale is usually focused around one type of product, for example only candles or bath products. A retail store usually encompasses a lot of different products in a specific category or brand, or more general collections.
The amount of capital you have access to also matters when you’re trying to make this decision. It takes a lot of capital initially, to open a store. Depending how quickly you want to scale, it can also take quite a bit of capital to pay for the manufacturing costs of wholesale, but the startup costs are more flexible.
Which is right for you?
So to recap, a retailer sells products directly to the end consumer through a sales channel, like a physical storefront or an online store. A wholesaler sells to businesses, who in turn sell the products to the end consumer.
If you love interacting with people and are passionate about curating a collection of products and telling a story, merchandising and marketing those products, then retail is going to be a good fit for you.
If you love supporting other businesses with products that suit their mission, or you’re passionate about a specific brand, product or manufacturer, wholesaling will be a better fit as it will allow you to focus on building fewer, but deeper relationships with the businesses who buy from you and the products you provide them with.
Let me know in the comments if this helped you clarify the differences between wholesale and retail! If you were trying to make a decision between the two … please share it!