Should You Transition Your Business from Retail to Wholesale Sales?

The uncertainty caused by the coronavirus pandemic is placing a lot of stress on retail businesses. Many are doing whatever they can to stay afloat, including switching from retail to wholesale sales or supplementing retail sales with wholesale.

One of the main advantages of transitioning your business to wholesale is that wholesale offers high-volume sales to other businesses that market your products to their customers. But there are many factors to consider in contemplating whether to switch or to supplement with wholesale sales.

Should I switch to wholesale sales?

The first instinct of many brick-and-mortar retailers right now is to move online, considering that e-commerce sales are skyrocketing while foot traffic is plummeting.

"Most brick-and-mortar establishments, having operated under strain these past few months, are at a point where they understand they must adapt to reflect changes in consumer behavior in order to survive," says Nishank Khanna, chief marketing officer at Clarify Capital. "Wholesale comes into play by augmenting their efforts and increasing revenue streams," he adds.

But succeeding online isn't easy, and maintaining digital infrastructure adds another layer of difficulty to businesses that are already short on time and cash.

Wholesale sales are an entirely different animal, and focusing on this option allows businesses to avoid some of the headaches associated with depending on e-commerce for survival.

"Wholesale makes more sense for brick-and-mortar retailers because they can sell their products and increase the visibility without having to invest in their own online store," says Khanna. "It's essentially an efficient and timely way for retailers to share a piece of the e-commerce real estate and reap benefits from the surge in online sales."

Switching to wholesale allows retailers to tap into a new and vast universe of customers, providing much-needed security through diversification.

"If you're primarily retail, you're reliant on your own setup and channels continuing to be effective for sales," says Abir Syed, CPA and digital marketing consultant at UpCounting. He advises that, "If you switch to wholesale, you can diversify through a larger client base."

How can I transition from retail to wholesale?

How you transition from retail to wholesale will depend on the specifics of your business. If you source small quantities of relatively expensive products, for example, it won't be easy to shift to the volume of sales necessary for wholesaling.

"In general terms, you'll need a large variety and quantity of inventory, and the ability to acquire inventory at a low enough price to make the economics of being a wholesaler work," says Syed. "You'll also need a thorough distribution process," he adds.

Besides having a large inventory and a distribution process in place, there are other elements you need to consider.

• Team composition. You'll need a dedicated sales or business development team since wholesalers focus on B2B sales, in contrast to the B2C marketing retailers depend on.
• Wholesale pricing. Wholesale pricing is based on volume discounts, making up for lower margin percentages with higher volume and lower costs than are associated with retail.
• UPCs and barcodes. Wholesalers must provide UPCs and barcodes on their products so that retailers can easily stock them.
• B2B marketing collateral. B2B buyers want to see their purchasing options laid out via a product catalog, line sheet, or one-page sell sheet.

Plan out your business transition to wholesale sales

Shifting from retail to wholesale is not something you should take lightly, as it will represent a large change in how you operate and who your customers are.

Syed advises that transitioning businesses follow a three-part plan:

1. Do market research and reach out to potential customers to assess the opportunity.
2. Implement information systems internally to enact a different way of operating, build out a sales team, and start acquiring customers ahead of the transition.
3. Diversifying your client base is especially beneficial right now because the pandemic is scrambling the ability to plan for the future effectively.

"It's not easy to know which channels will work and what retail will look like in the coming years," says Syed. "So diversifying through many customers as a wholesaler can compensate for the risk associated with that uncertainty," he adds.