While we have seen many new direct to consumers businesses in the last decade, wholesale still constitutes a large share of the value chain. Direct-to-consumer seems to have a great advantage in skipping distributors and retailers in the value chain lowering the price to the consumers. But wholesale still has its advantages compared to direct-to-consumer businesses. In this article, we will walk through why wholesale still exists even though anyone can sell directly to consumers online.
Economics of Scale
Transactions in wholesale involve the purchase of larger quantities of products. That allows manufacturers and suppliers to take advantage of the economic scale in production and leads to cost savings. Lower production and distribution costs are passed to retailers and consumers.
In wholesale, suppliers can specialize in sourcing, production, and distribution of products and let retailers focus on marketing, sales, and customer support. As a direct-to-consumer business, you must be good at all parts of the value chain.
Wholesalers have already built distribution networks that have access to a wide range of retailers in different markets around the world. Building a presence as a retailer all around the world is a difficult task to accomplish.
Diverse Product Range
Wholesale can offer access to more products since the wholesaler sources multiple manufacturers or suppliers. Direct-to-consumer businesses can have a hard time building the same product range.
Wholesales sell in bulk, which retailers can benefit from as they get competitive pricing that makes a significant gross margin.
Logistics and Warehousing
Wholesalers specialize in storage, warehousing, and logistics. Direct-to-consumer businesses need to specialize across all parts of the value chain. As a business, it is difficult to be the best in the world across all parts of the value chain.
Specializing in Branding, Marketing, and Sales
Retailers can specialize in building a brand, marketing, and sales while leaving the sourcing and distribution of products to wholesalers.
Wholesalers provide retailers with the flexibility to restock inventory. The direct-to-consumer businesses must have their own inventory. The risk is that direct-to-consumer businesses end up having a large inventory, which can be a significant amount of cash, turning profits down.
Expertise and Support
Wholesalers are experts on product selection, market trends, and consumer preferences. The retailers can get access to the expertise from wholesales while direct-to-consumers businesses would have to achieve that themselves.
Regulations and Compliance
Some industries are more regulated than others. Some products are required to have a certain level of quality or certifications.
Supply Chain Complexity
Some products are complex and contain multiple components or materials. This is a complex task to handle in terms of supply chains, production, etc.
Wholesalers can serve a broad market and distribute products worldwide to different markets. Building the local network and presence is a difficult task but for direct-to-consumer businesses, this is even a market difficult task.