Posted by Alex Jackson on November 17, 2017
A lot of people can get confused about the difference between wholesale and liquidation. In fact, it’s not uncommon to use the terms interchangeably but there are some very important distinctions that exist between the two, that you need to be aware of. So what are the differences? Is one better than the other? What are the advantages and disadvantages of each? Well let’s explore.
Wholesale- Wholesalers are manufacturers or distributors that sell only to other businesses, they may carry multiple product lines or just a single product but their customer is always another company. When talking about wholesale of consumer goods like clothing and home goods the items are typically sold for a percentage off their list price and this percentage varies greatly depending on the wholesaler, the product and the volume of merchandise being purchased. The advantage with buying wholesale is that you normally receive a fair discount off the list and if you want multiples of a specific item it’s not a problem. Buying from a wholesaler also means it’s made for the end consumer so there’s a lesser degree of risk of damages or defects to the merchandise. So what are the downsides? Price for starters, what you pay for the goods may look good on paper but once you have factored in your costs such as shipping processing and getting the goods to your customer is there any room for profit left? The answer is yes, but it may be very little. In today’s competitive internet retail, it is extremely difficult to build small business that purchases inventory from a distributor. Unless you are buying large quantities on a consistent basis like your big box retailers you are not getting the best price possible. Big box retailers rely on large purchasing power and economies of scale to deliver the best possible price. In addition, many in demand manufacturers rely on established network of retailers and will not sell to any new business. Some companies keep strict control of who sells their products and price at which these goods are sold, making it almost impossible to get your foot in the door.
Liquidation- Like wholesale this is strictly business to business transactions, how it differs is in the merchandise that is being offered. Liquidation merchandise can be anything from excess goods from a manufacture to last season’s goods from a big box retailer to seized assets from bankrupt retailer or manufacture. The big advantage of these types of goods is the price point, expect to pay anywhere from 60-90% off wholesale price for these goods. This means that you are literally paying a fraction of the what it cost for big stores to get this inventory. Sourcing from liquidator significantly limits your risk and makes turning a profit a lot easier compared to buying wholesale. Another big advantage is that you are able to purchase some brands that are otherwise restricted to few big retailers. In addition, the diversity of goods being offered. In a typical wholesale lot, you are getting a mix of brands, styles and sizes and diversification in your business is a key ingredient to success these days.
What’s the potential downside? Diversification which is a blessing in retail, can also be a curse. Meaning that you will have to process each item individually as opposed to large quantity you would buy from distributor. Liquidation typically also offers greater breadth of selecting than depth, for example if you are looking for a variety of name brand shoes this typically is not an issue but if you are sourcing multiples of a specific brand this may be a bit trickier unless the liquidation company has a relationship with that particular manufacturer. Overall, liquidation provides perfect leverage and allows small business to remain profitable while competing with large retailers.
Which is better for your business? It depends on your business but understanding how each can improve your bottom line is the first step.