What Is Wholesaling?

Wholesaling is the sale of merchandise in bulk to a retailer for repackaging and resale in smaller quantities at a higher price.

The buyer of wholesale merchandise sorts, reassembles, and repackages it into smaller quantities for direct retail sale to consumers. Due to the quantities purchased, the wholesaler can charge less per item. The retailer sells at a price that reflects the overall cost of doing business.

Understanding Wholesaling

A wholesaler may specialize in a single product or product category or may offer a variety of goods. It can be anything from milk to electricity.

Some wholesalers are actually acting as middlemen, brokering deals between wholesale and retail businesses that require a variety of goods, or components of goods, that can be more efficiently obtained from a single source.

Key Takeaway

  • Wholesaling is the business of distributing goods in bulk to other businesses that repackage them in smaller quantities for sale directly to consumers.
  • Wholesaling is one step in the supply chain that starts with a supplier of raw materials and ends with a sale to an end user.
  • Wholesalers are not usually manufacturers. Their business is distributing the end products.

Most wholesalers do not manufacture the goods they sell. They buy them from the source and concentrate on the business of sales and delivery.

A wholesaler should not be confused with an "official distributor" for a brand's product line. The wholesaler does not generally offer product support, may not be connected directly to the company from which it purchases products, and may even have limited familiarity with the products. Moreover, unlike distributors, many wholesalers sell competing products.

Where Wholesaling Fits into the Supply Chain

Wholesaling is one step in the supply chain, which also includes suppliers of raw materials, manufacturers of finished goods, and retailers to end users. Retailers purchase goods from wholesalers and then sell them at a high enough price to cover their costs and generate profits.

In banking, wholesaling refers to financial services provided to large institutional clients rather than individual retail customers.

Supply chain management (SCM) was developed in the 1980s to address the need to maximize efficiency in the business processes involved in moving goods from the original suppliers to end users.

Wholesaling in Banking and Finance

In banking, the term wholesaling refers to financial services provided to large institutional clients such as real estate developers, pension funds, and large corporate clients rather than individual retail customers.

In the financial services industry, a wholesaler can also be a sponsor of a mutual fund or act as an underwriter in a new issue.

An asset management company, which creates and manages mutual funds, employs a mutual fund wholesaler, also known as a mutual fund representative, to sell the product to resellers. Typically, the wholesaler is a salesperson.

In this case, the wholesaler distributes access to mutual funds to companies that wish to make them available to investors. For example, a company that has a 401(k) plan may meet with wholesalers before choosing the asset management company, such as Fidelity Investments or Vanguard Investments, that will offer its products to the company's employees. Mutual fund wholesalers are compensated from the fees of the mutuals fund they sell.