About Wholesale Distributors

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About Wholesale Distributors
About Wholesale Distributors (Image: Wiki Commons)

Wholesalers are businesses that purchase large quantities of products from manufacturers and resell them for a higher price. They are able to make a profit because they get big discounts for buying in bulk. And because they are selling smaller lots to their customers, they can charge more for each item than they paid. The manufacturers are willing to sell at relatively low prices because they are selling so many units per order that they are getting a guaranteed profit. Traditionally, the wholesaler simply buys and resells and does not modify the product, but that is changing over time, with some businesses doing more than simply reselling.

Function

While the official economic definition of wholesalers relates to a company that buys and resells a product, today's wholesale distributors are constantly expanding their role in the supply chain process. Many will purchase goods that they will assemble or modify before selling. They have also begun to change the product packing and replace it with private labeling. From their large purchases, they will also break down the shipment into smaller packages before reselling.

Features

Wholesale distributors have many options when deciding where to sell their goods. The largest and most profitable is the retail market, which includes chain stores, box retailers and smaller independent retailers. Another popular choice is the restaurant market, where food and beverage sales are frequently done through wholesalers. Finally, there is the huge government market, which requires many goods to ensure proper operation of government offices and facilities.

Types

Wholesale distributors can be broken down by what type of products they specialize in. One of the biggest markets for wholesalers is clothing, where distributors purchase foreign-made apparel in bulk to resell in the United States and Europe. Another popular type if the closeout wholesalers. These businesses buy goods that are discontinued or damaged at cut-rate prices. They then fix them up or resell them as is to make a profit. Finally, many wholesalers specialize in imports and exports. They take advantage of their experience with customs and tariffs to make international sales that the manufacturers themselves are unsure how to achieve.

Warning

If you plan to start a wholesale distribution company that will be profitable in the long term, you must consider what type of product you will sell and which geographic region you will sell it in. Most wholesalers will not be profitable for several years. If you sell a small niche product in a limited region, your market will be saturated before you ever make your first profit. If your product grouping is narrow, expand your market and if you want to sell only in a small area, be sure to offer a larger product selection. This will help ensure long-term profitability.

Considerations

Many new wholesale distribution businesses underestimate how much money is required to run a company successfully. The biggest financial requirement is a large warehouse space for receiving and shipping goods. Whether you lease or own, this can be a major expense. You will also need extensive software and computer systems to track purchases, sales and inventory. Finally, plan to purchase warehouse equipment, such as forklifts and pallets, as well as trucks to make your deliveries. Most of these items will need to be purchased up front and can easily put a large dent in your budget.

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