Page 161 - DMGT554_RETAIL_BUYING

Retail Buying

Notes 11.1.2 Pros and Cons of Buying Wholesale

Savings and immediate availability are two advantages of buying wholesale items. In general,
buying in bulk is one of the best ways to save money, and purchasing those items when they are
in abundance can yield the deepest discounts. Having enough storage space and money are two
potential downsides to buying wholesale items, however. These downsides primarily affect
small businesses and individuals rather than large corporations who have sufficient cash flow.
The primary advantage of buying wholesale items is the savings one can get for purchasing in
bulk. In fact, many companies increase the discount as a customer’s order grows. Generally,
businesses can afford to give deep discounts because bulk purchases lead to less handling,
packaging materials, and spoiled or expired goods.

Example: A business might be reluctant to sell one case of canned tomatoes every day
for less than a certain amount, but it will gladly sell 100 cases of canned tomatoes for far less.
Both the business and its consumers can reap the benefits of such arrangements.

Another advantage of buying wholesale items is acquiring goods that are only available then,
or only available at certain prices then.

Example: Some vegetables and fruits are only available mid-year, but can be stocked
and preserved or frozen for months with little loss in quality.

Clothing can also be purchased at times of the year when it is cheapest, like flip-flops in winter,
then resold for the highest profit margins in summer.
A potential downside of buying wholesale items is storage space to put the bulk purchases. If the
goods must be refrigerated or frozen, consumers need to adequately judge the space they have
available. The same goes for the backroom of storefronts. In addition, these goods sometimes
have an expiration date or, in the case of clothing, the items go out of style or season. These are
all things consumers must take into account when buying wholesale items.

Lastly, even if a person has enough space, 40% off retail price means nothing if one does not have
enough money upfront. In most cases, wholesale items must be paid for in full before the goods
can be delivered and put to use. While individually these items are likely affordable, all together
the purchase might be very expensive. New businesses in particular are susceptible to not
having a lot of cash flow, and therefore cannot make as much profit as a business that has enough
money to spend on wholesale items. The same goes for individuals who purchase food wholesale;
they sometimes do not have enough money to get the deepest discounts.

11.1.3 Types of Wholesalers

Strictly speaking, although a wholesaler may own or control retail operations, wholesalers do
not sell to end customers. Indeed, many wholesale operations are themselves owned by retailers
or manufacturers. Wholesalers are extremely important in a variety of industries, including
automobiles, grocery products, plumbing supplies, electrical supplies, and raw farm produce.

Wholesaling involves that part of the marketing process in which intermediaries, i.e., those
between the producer and end consumer, buy and resell goods, making them available to an
expanded buyer’s market over an expanded geographical market area. As middle agents,
wholesalers are only effective when the price they charge for goods and services is less than the
value placed by customers. By facilitating the transfer of title of goods, they are involved in the
bulking and distributing of goods.

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