As you probably know, manufacturers produce products and
retailers sell them to end users. A can of motor oil, for example, is
manufactured and packaged, then sold to automobile owners through retail outlets
and/or repair shops. In between, however, there are a few key operators-also
known as distributors-that serve to move the product from manufacturer to
market. Some are retail distributors, the kind that sell directly to consumers
(end users). Others are known as merchant wholesale distributors; they buy
products from the manufacturer or other source, then move them from their
warehouses to companies that either want to resell the products to end users or
use them in their own operations.
According to U.S. Industry and Trade Outlook, published by
The McGraw-Hill Companies and the U.S. Department of Commerce/International
Trade Administration, wholesale trade includes establishments that sell
products to retailers, merchants, contractors and/or industrial, institutional
and commercial users. Wholesale distribution firms, which sell both durable
goods (furniture, office equipment, industrial supplies and other goods that
can be used repeatedly) and nondurable goods (printing and writing paper,
groceries, chemicals and periodicals), don't sell to ultimate household
consumers.
Three types of operations can perform the functions of
wholesale trade: wholesale distributors; manufacturers' sales branches and
offices; and agents, brokers and commission agents. As a wholesale distributor,
you will probably run an independently owned and operated firm that buys and
sells products of which you have taken ownership. Generally, such operations
are run from one or more warehouses where inventory goods are received and later
shipped to customers.
Put simply, as the owner of a wholesale distributorship, you
will be buying goods to sell at a profit, much like a retailer would. The only
difference is that you'll be working in a business-to-business realm by selling
to retail companies and other wholesale firms like your own, and not to the
buying public. This is, however, somewhat of a traditional definition. For
example, companies like Sam's Club and BJ's Warehouse have been using warehouse
membership clubs, where consumers are able to buy at what appear to be
wholesale prices, for some time now, thus blurring the lines. However, the
traditional wholesale distributor is still the one who buys "from the
source" and sells to a reseller.
Getting Into the Game
Today, total U.S. wholesale distributor sales are
approximately $3.2 trillion. Since 1987, wholesale distributors' share of U.S.
private industry gross domestic product (GDP) has remained steady at 7 percent,
with segments ranging from grocery and food-service distributors (which make up
13 percent of the total, or $424.7 billion in revenues) to furniture and home
furnishings wholesalers (comprising 2 percent of the total, or $48.7 billion in
revenues). That's a big chunk of change, and one that you can tap into.
The field of wholesale distribution is a true buying and
selling game-one that requires good negotiation skills, a nose for sniffing out
the next "hot" item in your particular category, and keen
salesmanship. The idea is to buy the product at a low price, then make a profit
by tacking on a dollar amount that still makes the deal attractive to your
customer.
Experts agree that to succeed in the wholesale distribution
business, an individual should possess a varied job background. Most experts
feel a sales background is necessary, as are the "people skills" that
go with being an outside salesperson who hits the streets and/or picks up the
phone and goes on a cold-calling spree to search for new customers.
In addition to sales skills, the owner of a new wholesale
distribution company will need the operational skills necessary for running
such a company. For example, finance and business management skills and
experience are necessary, as is the ability to handle the "back end"
(those activities that go on behind the scenes, like warehouse setup and
organization, shipping and receiving, customer service, etc.). Of course, these
back-end functions can also be handled by employees with experience in these
areas if your budget allows.
"Operating very efficiently and turning your inventory
over quickly are the keys to making money," says Adam Fein, president of
Pembroke Consulting Inc., a Philadelphia strategic consulting firm. "It's
a service business that deals with business customers, as opposed to general
consumers. The startup entrepreneur must be able to understand customer needs
and learn how to serve them well."So if you are looking for Wholesale
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