The process of selling products to retailers who turn around and make the final sale is known as wholesale distribution. Wholesale distributors are the middle man between the retailers and the manufacturers. In some cases, the distribution is done by a separate branch than the manufacturing portion of the company. In other cases, the distributor is private that has a good idea of what is available and what is needed on the retail market. In addition, there re the wholesale distributors that run their own retail operations in the form of warehouse stores.
When it comes to wholesale distribution, it is critical that quality products that are in high demand are sold at low prices. Of course, this is easily achieved with the high volume that is bought. When products are purchased in bulk, the wholesale distributor can get a lower price per unit. Then, the wholesaler sells it once again in bulk at a higher price per unit, keeping the difference as their profit.
Unfortunately, there is some risk to this type of business. The distributor ends up absorbing the cost of shipping to the retailers from the manufacturers. Therefore, the pricing of the products end up being more likely to be raised when fuel and transportation costs rise. In many cases, the wholesalers have limited room for inventory to be stored. This means that they are reliant on goods being efficiently moved to the retailers. If the retailers are not willing to sell the products that are being offered or the retailers set prices that are too high, the flow is interrupted.
On the other hand, a distributor uses the opposite strategy- they always have a high inventory of products that are needed by their retailers. Of course, this brings about the risk that the retailers’ needs are going to shift and the inventories will remain on the shelf- which ties up capital. Wholesale distribution is a tricky business, but it can be quite lucrative.