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What is Wholesale Trade?

By W. Joyner
Updated May 16, 2024
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There are various steps involved in the process of moving merchandise from its point of creation or manufacture to the end-user. Wholesale trade, a transitional stage in the movement of products to the marketplace, is one of those steps. Wholesale trade involves selling goods to a business or individual, known as a retailer, who then sells the goods to consumers at an increased price.

Most merchandise is sold at the retail level. When an item is purchased off the shelf at a store, it usually is being bought at a retail price. The retail merchant provides the final step in the sales process of consumer goods. This is the step at which the product is placed in the hands of the individual who will be using it.

How the merchandise gets to the retailer is where wholesale trade comes into play. In a typical scenario, a manufacturer will produce a product and sell large quantities of it to a wholesale trade business. The wholesaler will then increase the price of the product in order to make a profit, then sell it to various clients, usually retail stores or outlets. Most wholesale firms have a large number of retail clients.

Wholesale businesses offer a vital service to the marketplace. Most small retailers are unable to buy in sufficient quantities to purchase directly from a manufacturer. They lack the necessary storage capacity as well. Purchasing from a wholesale firm allows small retailers to acquire the products they need for their stores in quantities that they are able to manage.

There is an additional tier of trade that often is involved in the movement of products as well. In some industries, a distributor is included in the sequence. A distributor is a business that exists between the manufacturer and wholesale trader. The distributor purchases products from the manufacturer in very large quantities. The products are then sold to wholesale trade firms, who then move the merchandise to their clients.

Historically, wholesale trade has been viewed as transactions involving the sale of merchandise that take place between businesses, without the involvement of a consumer. In some sectors, manufacturers are moving to the concept of selling directly to the end-user. This is particularly prevalent in the computer industry.

This type of sale is difficult to classify. Many people consider this to be a retail sale because the end-user is purchasing the product. Others argue that this should be considered wholesale trade because the manufacturer is selling the merchandise. The lines are likely to become even more blurred as these types of transactions increase and more companies get involved in selling directly to consumers.

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