Following the dip in wholesale trade due to the global pandemic, the industry is seeing a swift rebound. Wholesale distribution is projected to increase by 18.4% in 2021, with an estimated market size of $10 trillion dollars in revenue.
As one of the fastest-growing industries in the U.S., wholesale distribution plays a major part in the overall supply chain. A wholesale distributor buys products directly from a manufacturer and then resells them to the next business along the supply chain, usually a retailer or e-commerce business.
What are wholesale distributors?
Wholesale distributors (also known as wholesalers) purchase products in bulk quantity directly from manufacturers and then sell those products to retailers or other commercial establishments.
Wholesalers aren’t involved in producing products or directly selling to end customers. Instead, they function as middlemen between manufacturers and retailers and are focused on distribution.
It can be difficult for businesses along the supply chain to agree on favorable terms and order requirements. Wholesale distributors help connect these businesses, buying large quantities of inventory from manufacturers and making them available for retailers at lower minimum order quantities (MOQs).
For manufacturers, wholesale distributors place high-volume orders at a low price, reducing production costs and increasing inventory turnover. Fast turnover is important for manufacturers, as they can’t hold large inventory quantities and still continue production. Selling to wholesalers also gives their products exposure to a wider market without any additional marketing or sales.
For retailers, on the other hand, buying from wholesalers comes at lower MOQs than those set by manufacturers. Many wholesalers also offer a range of other products for retail stores to choose from.
What is the difference between wholesalers and distributors?
Wholesalers and distributors are two types of businesses that are easy to confuse with one another. They’re both resellers involved in distributing products from manufacturers to customers, and it’s common for some supply chains only to use either a wholesaler or a distributor.
However, there are several distinctions between wholesalers and distributors. A distributor typically has a formal business agreement with the manufacturer to bring its products to the market, whether selling to wholesalers or retailers. Its services include not only distribution but promotion and marketing as well.
Distributors actively represent the manufacturer, which means they don’t work with competing products and are often paid a percentage of the total sales they make.
Wholesalers are focused on selling products to retailers. They purchase in bulk from distributors or manufacturers, but don’t maintain exclusive relationships with anyone—they’re free to carry a variety of wholesale products. Outside of their distribution efforts, wholesalers aren’t required to perform any marketing or additional services. Their earnings come from reselling the products at a higher price to retailers.
Note: In many cases, the terms wholesaler and distributor are used interchangeably and refer to any business that performs the basic service of bringing products from the manufacturer to the retailer or customer.
How does wholesale distribution work?
Wholesale distribution bridges the gap between manufacturers and retailers.
A wholesale distributor deals directly with manufacturers, buying large volumes of product at discounted prices. Wholesalers are responsible for picking up, transporting, and storing these products using their facilities, often maintaining several warehouses.
Before reselling the products, wholesalers set their MOQs at a lower number targeted to retailers and, if needed, repackage the products according to these quantities. They also calculate a higher price per product to cover costs and generate a profit.
Wholesale distributors sell to a network of retailers, which market and sell the products to their customers.
Who uses wholesale distributors and why?
As intermediaries across the entire supply chain, wholesale distributors are used by a growing number of businesses.
Manufacturers and suppliers sell to wholesalers that can meet their MOQs and distribute their products to a broader market. Maintaining high volume orders enables manufacturers to increase the rate of inventory turnover and save on overhead costs.
At the other end of the supply chain, retailers, e-commerce, and other online stores rely on wholesale distributors to sell products at lower MOQs. While the products are still sold in bulk, they’re more manageable for small businesses and still come at a lower cost than buying products per unit.
Dropshippers are another type of online retail business that work with some wholesale distributors. Rather than purchasing products in bulk at one time, however, dropshippers function as more of a marketing and sales arm. When a product is sold, the dropshipper notifies the wholesaler to process and deliver the product to the customer.
This type of service goes beyond what traditional wholesale distributors provide. But as the number of dropshippers continues to grow, it’s becoming more common for wholesalers to expand their services to accommodate this industry.
Challenges to finding a good wholesale distributor
There are 408,000 wholesale distributors in the U.S. alone, making it an overwhelming task to find ones that meet specific business needs.
As you start looking for a good wholesale distributor, here are some common challenges that may arise:
Wholesaler distributors don’t advertise through the usual channels
While it’s easy to find retailers and other direct-to-consumer companies, wholesalers aren’t as active in public marketing efforts. Wholesale distributors are usually found in industry directories, trade fairs, or through word-of-mouth recommendations.
Unfortunately, many published listings only include basic contact information or may even be out of date. Look for how long the wholesaler has been in operations, business reviews, and any additional information about their services. Ask others in your industry if they can verify the wholesaler’s reliability.
Not every wholesaler may be able to meet your requirements
Some wholesale distributors are limited in their scope of service, whether it’s a restriction of the manufacturer or their operations. For instance, a wholesaler may not be able to distribute to specific geographic locations or sectors. Many wholesalers also don’t accommodate e-commerce stores or dropshipping business models that need order processing or fulfillment services.
Settling on the right wholesale distributor takes time
Even after narrowing your search to a few potential wholesale distributors, it takes research and time to find the best ones for your business.
In addition to product pricing and MOQs, there are other factors to consider:
- Payment methods
- Shipping services
- Delivery lead times
- Product availability
- Refund or return policies
- Customer support
- Ease of communication
Compare each wholesale distributor against your business requirements and determine which ones are the best fit.
(Keep in mind that a wholesaler may also ask for some information about your business.)
Tips for finding a good wholesale distributor
As a business continues to grow, it’s common to work with several wholesale distributors. Here are some tips to use for finding a good wholesale distributor:
Narrow your search to specific requirements
Focus on the specific brands or products you want to sell. Include the zip code of your business to see which wholesale distributors serve your region. And if you prefer to work with wholesalers located within a particular area, say in Europe or the U.S., include this in your search as well.
These details will filter out most potential wholesale distributors and save a significant amount of time and effort.
Actively network within your industry
The best wholesaler distributors are likely ones already working with other similar businesses. To get these recommendations, it’s a good idea to attend trade shows, join professional groups, or even reach out to the manufacturer of the product you’re interested in. Talking to others in your industry can expedite the research process and confirm the quality of any wholesalers you’re considering.
Personally contact each potential wholesaler
If a wholesale distributor looks good on paper, the next step is to reach out and learn more about their operations and services. A personal call also shows a serious interest in forming a long-term relationship with them.
Request samples to check whether the wholesaler provides high-quality products and meets expected delivery times. This is especially important if the wholesaler is located in another country.
Ask about the wholesaler’s full catalog—they may offer other products or general merchandise to consider stocking in the future.
Resources for finding wholesale distributors
There are many places to start your search for a wholesale distributor. Here are some of the most recommended resources:
Wholesale directories for your industry provide a list of distributors and suppliers, allowing retailers to browse all the available options in one place. They are either free or paid, with the latter usually offering more selective, reputable listings.
Similar to industry directories, B2B marketplaces provide lists of wholesale distributors and suppliers, with the added option to purchase straight from the website. The most notable B2B marketplaces are Alibaba.com, Global Sources, eWorldTrade, ThomasNet, EC21, and Amazon Business.
Publications, such as trade magazines, blogs, and newsletters, are a rich source of industry information. In addition to relevant news and studies, publications also provide directories or supplier info, as well as advertisements placed by the top wholesaler distributors and suppliers.
Trade shows are a great way to instantly connect with wholesale distributors, suppliers, and other professionals in your industry. Trade shows take place on location or online, and are typically annual events. While they aren’t an immediate resource, trade shows are still worth checking out to discover new products and establish other connections who may be able to connect you with a trusted wholesale supplier.
Manufacturers or suppliers
If you already know the precise product and brand you want to sell, it’s often easier to just reach out to the manufacturer. Most will be happy to point you to their verified wholesale distributors or representatives who serve your area.
Wholesale distributors are essential components in a supply chain, helping to move products from manufacturers to the market.
Purchasing directly from manufacturers, wholesalers then provide retailers with inventory storage, transportation and logistics, and products at manageable terms.
Wholesale distributors can significantly impact cash flow and potential growth and ultimately help your business deliver the best products to customers. By using the tips in this article and taking the time to evaluate all your options, you’re on your way to finding and establishing a long-term relationship with the right wholesale distributor.
This post first appeared on QuckBooks Blog