Wholesaling - Explained
What is Wholesaling?
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Table of ContentsWhat is Wholesaling?How does Wholesaling Work? Where Wholesaling Fits in the Supply ChainWholesale in Banking and Finance industryAcademic Research for Wholesaling
What is Wholesaling?
Wholesaling takes place when the merchandise are sold in bulk to a retailer who in turn repackages and resells those products in lesser quantum at a higher rate. The one who purchases the wholesale goods has to organize, reassemble, and repackage them into lesser quantities for selling them directly to customers. Because of the huge quantum involved, it is possible for the wholesaler to ask for a lesser price for every unit or item. The retailer sets the price of the product depending on the total costs involved in business operations.
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How does Wholesaling Work?
A wholesaler can offer just one product, one product line, or provide various products. There are some wholesalers who work as middlemen between the retail and wholesale businesses that have the requirement of various goods, or different elements of goods that one can procure from just one source. Key points to remember
- Wholesaling involves the distribution of products in large quantities to various firms that further package them in lesser quantum, and sell them to the final customers.
- Wholesaling is considered to be one major element in the supply chain that commences with the supply of raw materials, and finishes when the final sale is made to the customer.
- Most of the time, people confuse wholesalers with producers. Wholesalers main task is to distribute the final products.
It is not mandatory for wholesalers to produce the goods they sell. They purchase them from the original source, and focus on selling and delivering the products in bulk. A wholesaler is not the authenticated distributor for the product line of a specific brand. The wholesaler doesnt provide any assistance related to the product, and he or she may not have a direct relationship or connection with the firm from where it buys goods. Sometimes, he or she may not be completely familiar with the products. The wholesaler focuses on selling quality products.
Where Wholesaling Fits in the Supply Chain
Wholesaling is considered to be a part of supply chain that also involves the firm supplying raw materials, the producers of final products, and retailers to customers. Wholesalers sell products to retailers, who in turn, sell them at excessive prices to reap gains and cover their expenses. In terms of banking, wholesaling covers financial services that banks offer to big institutional clients instead of small retail customers. Supply chain management or SCM was devised in the 1980s for ensuring that the process involving the movement of products from initial suppliers to final customers remains highly efficient.
Wholesale in Banking and Finance industry
For financial institutions, wholesaling is the provision of financial services to big institutional customers including affluent corporate clients and real estate developers. As individual retail customers are smaller in size, they dont receive the benefits of wholesaling. In the financial services sector, a wholesaler can also work as a sponsor of a mutual fund or an underwriter in a fresh issue. An asset management company, that performs the function of formulating and managing mutual funds, hires a mutual fund representative, or mutual fund wholesaler for selling financial products to resellers. The wholesaler can be considered as a salesperson. Here, he or she makes it accessible for different firms to access mutual funds, and further avail them for the mutual fund investors. For instance, a company having a 401(k) plan may prefer contacting wholesalers prior to selecting the asset management company like Vanguard Investments, that will provide financial products to the staff of the firm. Mutual fund wholesalers earn a commission on the basis of the sale of mutual funds.