A Growing Giant: Wholesale Distributors

In official terms, a wholesale distributor is a business that sells products to retailers, merchants, contractors, or industrial, institutional and commercials users. In other words, a wholesale distributor is the “middle man” between the manufacturer and the retailer.

Wholesale distributors buy in large quantities directly from the manufacturer at the lowest possible cost. The prices are generally established through negotiation, a process that can take many months if the amounts to be traded are extremely large. Because wholesalers buy such large quantities, they receive much more favorable pricing than the buyers down the line. The wholesaler will mark up the cost of the product in order to make a profit and then sells the product to the retailers or other businesses who, in turn, marks up the product again before selling it to consumers either through a storefront or other business or online.

In the case of wholesale distributors who are selling to retail channels, a distribution network is established so that products can travel to the retailer efficiently under certain negotiated arrangements. This helps retailers save money since they do not have to bear the expense of storing huge quantities of the product. They can order what they need and have it delivered where and when they need it. The system also allows retailers to carry a wide variety of products since they can get their products from a wide variety of wholesale distributors. In fact, it is this wholesale distribution chain that allows retailers to exist at all. Imagine if your local grocery store had to negotiate purchase arrangements from every single manufacturer of the hundreds, maybe thousands, of products they carry.

To make the system work, wholesale distributors do not typically sell directly to customers. That is the job of the retailer. From time to time you may find a distributor who allows certain end users to buy direct but these cases are unusual.

In 2008 the wholesale distribution industry represented approximately $4.6 trillion or 7% of U.S. GDP. So it is easy to see why this massive industry is considered to be a key spoke in the supply chain logistics wheel. In fact, this segment of the economy essentially controls the entire supply of goods from manufacturer to distributor to the end user or consumer. If whole distributors cannot buy their product or they cannot store or transport it, then there are no items for the retailers to sell to consumers.

Every segment of the economy, from consumer electronics to construction equipment, has wholesale distributors who supply the goods they need. Along with this, each industry segment has its own supply chain network and all the members of the chain work together so that suppliers up and down the line can get their products and make a profit. When times are tough and distributors have trouble making the money they need to operate, the industry will begin to consolidate and distributors will either sell their operations to another company or close their doors. This is not surprising when you consider all the elements that go into making a successful wholesale distribution operation work. Items must be purchased then they must be stored and shipped. Along the way they must be tracked and accounted for. While it sounds simple enough, it can be complex and involved. Despite this, the whole distribution system does its job well and it keeps the economy running, store shelves stocked, internet stores supplied. It enables manufacturers to get their products to market and consumers to have access to the goods they want and need.

Not all wholesale distributors are big companies with warehouses and transportation lines all over the country. Especially in recent times we have seen the growth of small wholesalers who take advantage of drop shipping to create small wholesale networks. These wholesalers often sell over the Internet and their storage facilities may be the family garage or a rental storage unit. Many individuals have found this business to be quite lucrative and may even generate enough income to work in the business full time. This industry is here to stay. As technology improves and the world continues to become more global, more and more everyday people will find ways to capitalize on the business.