Nestore's blog

Wholesale retail definition and issues

Wholesale is the sale of goods through various vendors, multi-brand retailers, outlets, or corners . Conversely, retail is the direct sale of individual items to the end customer . This is done either through own stores or an e-shop.

These are therefore two distribution methods that are completely opposed: the structure of the business model, logistics, storage, prices, image, retail and real estate exposure, staff, etc.

Let's try to sort out preconceived ideas from real strategic choices.

For the rest of the article, let's first take a stand: you have a product and it's good!

Developing your brand through retail or wholesale?

When we question its distribution model, we ask ourselves the question of the development of the brand.

Developing your brand means opening up new horizons; in terms of customer types, geographical areas, distribution formats, etc. In this respect, and because the allocation of resources and capital is a challenge and a constraint for all brands, the wholesale business takes on the mantle of a superhero: an opportunity to reach all markets, from the city center to the outskirts, from France to the world, with little or no staff in stores, little or no investment or capex.

Rapid growth, increased awareness of your brand and products , and by extension, the appetite of other distributors to have you in their catalog!

However, growing fast and far means moving away from its base , making the barycenter less representative of the whole set of points. And in less mathematical terms, it means losing responsiveness .

Being in direct contact with the end customer, on the contrary, allows you to better understand trends and anticipate them . Total control "from well to pump" as Rockefeller said. From production to the eyes of your customers. This proximity of the entire chain allows for tenfold responsiveness .

Salespeople are also your first source of information (before your checkout!!!!). The salesperson is in direct contact with customers, he knows the reasons for purchase or not-purchase, impressions, enlightening verbatims on everything that constitutes your brand, from the material to the price, including the color or the name. Trust him and ask him! Store this information and process it in your CRM .

On the one hand, speed and the abolition of borders; on the other, control and adaptability. Your development is therefore structurally impacted by the model you choose.

The question of the business model

Where there's a model, there's a business model. Here too, wholesale and retail are fundamentally opposed.

"Justice, good heavens [...], my money was stolen. What happened to it? Where to run, where not to run?" If Harpagon's success is global but more lasting than Hollister's, it above all raises the question of running in vain.

The retail business relies on very high investments and operating costs . Opening a store of one's own involves acquiring a business, paying rent, fitting out the premises, and hiring a sales force for a limited sales volume. It is therefore a long-term, balance sheet commitment, which requires financing capacity and therefore a solid and stable history. The complete opposite of the wholesale business where only stocks require funds . In the same way, sales volumes are in favor of wholesale, which allows you to reach much larger volumes of customers.

On the other hand, the margin structure is diametrically opposed. Multi-brand distributors or retailers buy at much lower prices or even through drop-shipping. Furthermore, this does not guarantee that inventory will be removed from the brand's balance sheet. Conversely, the retailer generates much more comfortable margins and can adjust its prices .

What impact on customer experience?

Because yes, in the end, and at the risk of breaking open windows, the person who buys is the end customer, and the image they have of the brand is essential.

And here again, we are going to contrast two concepts: notoriety and loyalty.

Making your brand known to as many people as possible ensures brand awareness and, consequently, sales. But you need to go beyond this awareness to engage customers and build a community.

When you entrust your product to a distributor, you also entrust them with the responsibility of conveying your brand's image and identity to the consumer/end user. You must also align the marketing, which often remains your responsibility, with the in-store brand expression that your multi-brand retailers will promote and differentiate yourself to stand out from the crowd.

The retailer has the possibility of targeting a tailor-made clientele , that is to say of adapting marketing and brand image to a very identified clientele and particularly likely to be interested; of training its sales force with a perfect knowledge of the spirit and codes of the brand. But this clientele is limited to the environment of its own stores.

It is therefore necessary to take into account the personality of the management team and the mentality of the teams, the identity of the brand, the target and the way of reaching it to agree on the most appropriate strategy.

Wholesale or retail, do you really have to choose?

Of course, there's nothing stopping you from doing both. On the one hand, optimizing your customer contact and market fit, and on the other, growing rapidly through wholesale business, drawing on these retail lessons.

However, the best of both worlds never comes without a trade-off: putting your own products in competition , the pricing issue and identifying which costs are borne by which products can be major difficulties for brands.

Retailers can make room in their stores (off-site or online) for products that share their DNA, values, and profitability model. This is an opportunity to expand their range to retain customers and make their space more profitable. They then become wholesalers for other brands!

There is therefore a possible compatibility of the two models in which the leading brand takes other players in its wake and plays the role of locomotive.

Finally, brands can opt for mixed models (showrooming, flagship) associated with distributors to bring the exclusive brand image to life without cutting themselves off from the weight of distributors.

How to choose between wholesale and retail?

Many groups that had historically opted for wholesale (cosmetics, for example) have now made DTC (direct to consumer) a development priority because customer contact has become king. But it is also because they have built a strong reputation over years of wholesale that allows them to try the experience today. This is not proving easy given the grumbling of traditional distributors (Sephora, Marionnaud, etc.) and the structural changes that this implies (change in corporate culture, new professions, etc.).

Companies like Veja are now opting for in-house distribution. Since 2008, 20% of multi-brand stores have disappeared.

They will structure precise databases allowing them to have a better knowledge of the end customer, and to be able to serve them better.

But recent shocks and the exponential rise in customer acquisition costs could reshuffle the cards.

How to integrate wholesale into your strategy?

There are several implementation strategies. All involve integrating and dedicating a team to be present on the ground, alongside your resellers. The challenge, as you can see, is to maintain a value proposition that is faithful to your brand identity and conveys your DNA.

Internal recruitment

You can decide to build your own sales team. This team, trained in your brand DNA, will be responsible for training and managing teams directly at your resellers.

Commercial agency or independent sales representatives

You can also choose to outsource the management of reseller teams by using salespeople external to your business. You can either entrust them with the development of your wholesale strategy in its entirety, or use their services on an ad hoc basis (depending on your seasonality, for example).

Trade fairs and press relations

Finally, you can choose to establish yourself within a network of specialized distributors (pharmacies, delicatessens, etc.). A good way to gain visibility in this case is to trigger positive word of mouth, to develop your presence at BtoB trade shows to introduce, test and convert potential resellers or to rely on press relations to reassure resellers in your category.

Wholesale vs. retail example: watch brands

Eight major players stand out (Rolex, Richemont, Swatch Group, LVMH, Patek Philippe, Bulgari, Chopard and Gucci) who control more than 90% of the luxury watch industry.

Swatch Group and Richemont alone own 27 of the most prestigious watch brands (18 at Swatch Group, 9 at Richemont): Breguet, Blancpain, Omega, Jaquet Droz for Swatch Group; Cartier, Piaget, IWC, Jaeger-LeCoultre, Vacheron Constantin and Baume & Mercier for Richemont.

The distribution and retail of watches are still largely carried out by third parties today, both in Switzerland and abroad.

Brand consolidation is beginning to change things, as the means at their disposal are different. After initially integrating and concentrating their production, watchmaking groups are reportedly coveting the comfortable margins of distribution. Swatch Group, the world's leading watchmaking group, thus "depends" on a network of approximately 40,000 independent points of sale worldwide to sell its watches and provide part of the after-sales service.

Watchmaking groups are increasingly seeking to integrate as far as possible into the distribution chain to reach the end consumer. This is why, in recent years, we have seen brands increasingly opening exclusive boutiques, either under their own name or in partnership with retailers. Since 2006, we have seen Audemars Piguet open an exclusive boutique in Paris, and Vacheron Constantin in Moscow. During the same period, IWC opened a store in Zurich.

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