That Parker Brothers game for sale in Target, that new Katy Perry CD in the music section of Wal-Mart, and those linens in Bed, Bath and Beyond all have one thing in common: they came to the store through a wholesaler. Wholesalers buy merchandise directly from the manufacturer (or are a separate entity of the manufacturer themselves), and then sell it at a markup to the retailers. This markup is very small, especially when compared to the markup retailers then put on the item to sell it to the public. Wholesalers make their money by keeping overhead low and selling in bulk.
Merchant wholesalers are the most common type. These firms make their money by being wholesalers in the true sense of the word. They buy their wares directly from the manufacturer, usually in huge lots, and then turn around and sell these products to various retailers around the country. Some of these wholesalers have explicit and exclusive contracts with only one retailer, but this is the exception rather than the norm. Sometimes merchant wholesalers sell their products to other wholesalers in case they are unable to fulfill enough orders or as a way of getting around exclusive contracts. Merchant wholesalers are sometimes referred to as distributors or jobbers.
Brokers essentially act as middlemen between the manufacturer and the retailer, but they do not usually take possession of the goods, which sets them apart from more traditional wholesalers. Brokers act on a commission basis and work for clients in the manufacturing business. These brokers then go out and make the best deals possible with various retailers who might be interested in the types of products their client sells. Often these brokers will continue to make a steady commission on further deals between the client and the retailer even if they are not directly involved in the transactions. These brokers are sometimes called commission merchants.
Manufacturers's agents work directly for the manufacturer, in their sales office. These offices are wholly run by the manufacturing company, but are almost always located separately from the manufacturing plant. Agents are responsible for direct distribution of the company's products to retailers. Sometimes these offices make direct deals with the public as direct-to-consumer wholesaling has become big business in the United States. In this way the middleman is skipped and the public is able to afford products at a substantially reduced cost.
Wholesaling used to serve a great need in American industry. Before the age of the Internet and increased global communication, wholesalers were necessary in order to spread products around the country and get them into the various retail establishments. While this is not the essential service it once was, wholesalers still make up a big part of the manufacturer-to-consumer chain. If nothing else, this middleman allows both retailers and manufacturers to keep their own costs down (in terms of manpower and warehouse storage), thus creating the opportunity for lower priced merchandise on the retail shelf.
With the dawning of a new age in technology and global competition, wholesalers have been forced to either move with the times, change their business models dramatically, or find themselves left behind. Many in the business industry, including prominent tycoon Warren Buffet, believe these changes will eventually mean the end of the wholesale business altogether. Others still see a place for wholesaling in the future, although likely at a greatly reduced role.