Wholesale and retail represent two distinct entities in the supply chain. Distinguishing between the two was a lot easier in the days before wholesale clubs began popping up. Now, the line between them isn’t so distinct. Indeed, it can be quite blurry at times.
We used to define wholesale and retail by the customers each entity served. For example, Olympic Eyewear is a Utah company that distributes wholesale sunglasses to retailers. The retailers turn around and sell to consumers. The main difference between the two is their customer base.
Because corporate wholesalers are now operating in the retail realm, the customer base test doesn’t always work. So instead, we use another test: volume. If you regularly shop at a wholesale club, you should know what this test is all about.
Buying and Selling in Bulk
These days, the telltale sign of a wholesaler is volume. In other words, they sell in bulk. Again, let us go back to Olympic Eyewear. You wouldn’t be able to buy a single pair of sunglasses on their site. You would have to purchase several dozen at a time. The fact that they sell in bulk is that which classifies them as a wholesaler.
Understand that Olympic operates in a two-pronged business model. They manufacture some of their own brands, but they also import brands from overseas. They import in bulk – probably in terms of thousands of units – but sell in the dozens. There is bulk on both ends. It is just that their sales volumes are lower than their purchase volumes.
By contrast, a retailer will buy in bulk but sell individual units. An eyewear boutique might buy three dozen units of a particular style. Yet each pair of sunglasses is sold individually. It is the individual sales that make the boutique a retailer.
How Wholesale Clubs Work
The difference between wholesale and retail is easy to see in the Olympic Eyewear example. But let us move on to wholesale clubs. They get their products either from both distributors and manufacturers themselves.
The confusing thing is that wholesale clubs sell directly to consumers, just like the retail eyewear boutique. But again, we no longer measure the difference between wholesale and retail by customer. The difference is measured by volume.
Perhaps you buy toilet tissue from a wholesale club. When was the last time you bought a 4-pack? You are chuckling because you know you can’t buy in such small volumes. You are looking at a minimum of 12 to 16 rolls per package – and that’s if you’re lucky. You are probably buying packages of 24 or 48 rolls.
Even though wholesale clubs sell directly to consumers, they still sell in volume. Their boxes of cereal are huge. So are there cases of soda. Just about everything they sell is two or three times the size what you would get from the grocery store.
There Are Exceptions
One of the early points this post made was that the line between wholesale and retail is sometimes blurry. That’s because there are exceptions. You may have to buy twenty-four rolls of toilet paper at your local wholesale club, but you can buy cheap gas by the gallon.
Likewise, your wholesale club might sell turkeys around Thanksgiving. You are not forced to buy half-a-dozen birds. You can buy just one and still get a wholesale price. Wholesale clubs are willing to earn less on turkeys and gas because they bring customers in the door.
Today, the difference between wholesale and retail is defined by volume. There are some other differences in terms of how the two operate, but volume is the primary defining factor.