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You are planning to start a jewelry business with high-quality products. You might be looking for the best way to bring this business to market, or you might already be selling these products in small quantities and planning to scale up.
Basically, there are two main ways to sell products – as a wholesaler or as a retailer. Each method has its advantages and potential drawbacks. When choosing the most suitable marketing channel, you must consider which model is the best fit.
What is the Difference Between Wholesale and Retail?
The biggest difference between wholesale and retail is the type of buyer. Retail involves selling products directly to the end consumer, while wholesale involves selling products in bulk to other businesses such as retail stores for resale.
What is Wholesale?
A wholesaler is an individual or company that sells products in bulk to various stores or retailers for resale. Wholesalers can sell products directly or through intermediaries. They can sell products in large quantities, allowing them to offer lower prices, thus reducing handling time and associated costs.
They typically offer large quantities of goods but can also accept small orders. Wholesalers may also be the manufacturers or producers of the products, but not necessarily.
For example, a wholesaler might buy 10 rings at $2 each, totaling $200. They can then sell the 10 rings to 10 different retailers at three times the original price (i.e., $6 per ring). After deducting storage and transportation costs, they can end up with a considerable profit.
What is Retail?
A retailer is an individual or company that sells products directly to customers to earn a profit. Retailers may be the manufacturers of the products or may purchase the products from distributors or wholesalers. Due to the markup, the price at which they sell the products will be higher than the wholesale price.
In short, retail businesses are the final touchpoint in the supply chain as they sell products directly to consumers.
For example, a retailer might buy 10 rings at $2 each and then sell each ring for $12. In this way, after deducting necessary transportation and storage costs, they can make a profit.
Should I Choose Wholesale or Retail?
Understanding the differences between wholesale and retail is not as important as understanding which model is the better choice for you. Let’s take a closer look at the benefits of each business model and the challenges you need to overcome to better guide your decision.
Advantages and Challenges of Wholesale
- Brand Awareness
Becoming a wholesaler is a great way to increase product awareness. Consumers don’t have to purchase from a specific store but can see your products in various stores. It allows you to connect with a wide range of consumers who might not otherwise be aware of your product.
- Lower Costs
Wholesale distributors can enjoy wholesale prices, allowing them to purchase goods at much lower prices than retail businesses. This reduces costs and increases profits.
- Longer Purchase Cycle
Wholesale businesses usually sign long-term agreements to supply products in bulk to retail businesses. This method provides income security and increases the average order value. It makes it easier for wholesalers to predict profit margins and maintain high inventory turnover rates as they regularly ship large quantities of goods.
- Business Expansion
As a wholesaler, you can reach a variety of sellers and a vast customer base. Offering your products wholesale allows more people to access your goods, and you can automatically reach shoppers in international markets, enabling you to quickly grow your business.
This can spark interest in your products and attract retail stores that see your goods have a steady audience and are more likely to want to stock your products.
Despite these benefits, it is also important to manage the challenges of running a wholesale business:
- Market Feedback
Wholesalers cannot respond promptly to the ever-changing needs and desires of the end users. Retailers are on the front lines of building relationships with consumers, while wholesalers lag at least one step behind and heavily rely on market research and retailer feedback to stay ahead.
- Industry Competition
The market is dominated by industry leaders. New entrants to the market need to work hard to establish their credibility to gain reliable customers.
- Increased Procurement Costs
Although wholesale businesses can enjoy wholesale prices, they must invest in large quantities of goods at one time. Procurement costs can easily increase when you have to purchase thousands of items to enjoy wholesale prices.
- Inventory Management
While wholesale businesses can enjoy lower fulfillment costs, you need to ensure you have enough warehouse storage space to facilitate these sales.
Additionally, you need to have a thorough understanding of your warehouse inventory to always know the quantity of each item in stock and be prepared for the large wholesale orders you will be fulfilling.
Advantages and Challenges of Retail
- Target Consumer Group
You can specifically target a customized consumer group. As a retailer, you can personally choose the marketing channels most likely to reach customers who need and want your products. You can also select the type of store that best suits your needs – physical stores, online stores, or both.
- Personal Connection
If you want full control over your product line and enjoy maintaining close contact with customers, operating as a retailer is an ideal choice. One of the greatest benefits of a retail business is the ability to build a brand and establish a personal connection with consumers.
By tracking retail sales, you can also learn who your best customers are, allowing you to offer personalized promotions to them. On the other hand, you can see which customers haven’t purchased from you in the past three months; you might want to send them personalized emails to encourage them to buy from you again. Understanding customers based on their purchasing habits allows you to personalize your service, and your customers will notice and appreciate this!
- Brand Image
You have complete control over how your products are displayed and marketed, as well as the quality of service provided. You can control the retail price, the placement of products, how they are displayed, and what other products they are displayed with. You can also control the marketing of your products, ensuring that the message released to the world is consistent with how you want your products to be presented.
This helps build a strong and consistent brand image without being affected by the shortcomings and mistakes of business partners.
- Pricing and Profit Margins
When formulating a retail strategy, you have the discretion to decide at what price to sell your goods and what the profit margin will be. If the current price does not meet your expected profit margin, you can easily adjust the price. All the profit will go directly to you, without sharing it with wholesalers. Therefore, retail businesses can generate considerable income through the right pricing strategy.
However, all these benefits come at a cost:
Retail businesses need to overcome many challenges, especially because they are directly facing the end consumer. Firstly, marketing products to various types of consumers is very complex, as each consumer may have different needs.
Additionally, distribution is a major issue, as consumers expect fast and reasonably priced shipping services. Retail businesses must deliver orders to customers in different regions, so strategically distributing inventory to ensure efficient and low-cost delivery to all customers is a significant challenge.
Can Wholesalers Retail?
Of course! This might be the perfect answer, as many large enterprises do not only engage in wholesale or retail. Many companies are involved in every link of the commercial supply chain, maintaining their own virtual or physical stores while rapidly growing their business.
However, there are many issues to keep in mind:
Since you are both a retailer and a wholesaler, you face the risk of directly competing with your own retailers, thus competing with your own products. These retail customers may perceive the wholesaler as encroaching on their market share, which can affect existing partnerships.
The complexity of operating a retail business is far higher than that of wholesale. Retail requires handling more orders, more customer service, and after-sales support, which is a new challenge for wholesalers.
Additionally, the demand in the retail market is often more volatile and seasonal, and wholesalers need to be prepared to deal with the challenges posed by fluctuations in sales.
Choosing the Right Channel for Your Jewelry Business
When choosing the most suitable market channel, you need to consider which model best fits your business development:
If you choose to become a wholesaler, prioritize selling to retailers, providing the best quality service to help them grow their business, and building trust to make them long-term partners.
If you decide to focus on retail, prioritize channels that can expand your business, thereby reducing reliance on dealers for turnover.
If you believe you can manage both wholesale and retail simultaneously, develop some strategies that allow you to grow your business in retail while also selling products to retailers without competing with your own business.
Conclusion: Wholesale or Retail?
The choice between retail and wholesale depends on specific business needs and goals. If you are still unsure which model suits you, we can provide valuable help, as Yehwang has extensive experience in meeting the diverse needs of both wholesale and retail customers.
