Wholesale vs. wholesale retail: which one is in better shape?

Wholesale and retail are the two basic links in the supply chain. Wholesale trading involves the sale of goods in large quantities, usually to traders who then sell them to retailers or final consumers. Retail trade, on the other hand, involves selling goods in small quantities directly to end consumers. Both trade sectors are important parts of the economy, but there have been some differences in their development in recent years, especially after the coronavirus pandemic. Which commercial link is currently in better shape and coped better with the crisis?

Wholesale and retail trade – what are they?

Wholesale and retail trade are interconnected and constitute the two main branches of broadly understood trade. Understanding the differences between them is not difficult.

Wholesale trade takes place when products are sold on a larger scale and in larger quantities. The parties to the transaction are usually entrepreneurs: producers, wholesalers, retailers or stores. Prices of products sold wholesale are usually lower than retail prices, which is due to the larger volume of goods purchased. Entrepreneurs who sell products on a larger scale are manufacturers or wholesalers. They usually specialize in a specific product field (e.g. food wholesalers, automotive wholesalers) and can trade on a large scale, selling products not only throughout the country, but even all over the world. Wholesale trade usually involves higher transaction amounts and extensive logistics - especially when exporting products abroad.

In turn, retail is a type of trade in which products are sold on a smaller scale - usually in pieces or individual packages. Retail customers are individual consumers, and retailers (entities selling retail goods) are places that adapt products to the needs of individual customers - these may be stores, discount stores, hypermarkets and even marketplaces. Retail prices of products are higher than wholesale prices due to the need to cover store operating costs and the need to make a profit. Retailers may offer one selected type of product (e.g. greengrocer, clothing store, butcher's shop) or offer highly diversified products of various types - such a situation is most often encountered in hypermarkets, where in one store you can purchase, among others: food products, office supplies, electronics and clothing.

In short, wholesale trade aims to provide goods in larger quantities to other entrepreneurs, while retail trade focuses on selling products in smaller quantities to individual customers. Both types of trade are crucial to the proper functioning of the supply chain and the economy as a whole.

Which type of trading is in better shape?

As we have already mentioned, both types of trade are important parts of the economy, but in recent years there have been some differences in their development. Is wholesale trade in better shape than retail trade? It may be difficult to clearly determine which of them is in better condition, especially since they are related both to each other and closely to the entire economy. There are different opinions among analysts - some point to the dominance of wholesale trade, others say that retail trade is currently in a better condition. Let's look at the reasoning behind these hypotheses.

Arguments that wholesale trade is in better shape:

• Increase in order volume: In recent years, there has been an increase in the volume of orders placed by wholesalers. This is due to, among others, the increase in globalization, which leads to increased trade between companies from different countries.
• Increase in product complexity: As technology advances, products are becoming more complex. The production of such products requires specialized knowledge and skills that wholesalers usually do not have. Therefore, manufacturing companies increasingly cooperate with wholesalers that help them distribute products to end customers.
• Increased competition in retail: There has been an increase in competition in retail in recent years. This is due to, among others, the development of e-commerce, which allows retailers to reach a wider range of customers. Therefore, wholesalers have more and more opportunities to sell their products to retailers.

Arguments that retail is in better shape:

• Increase in consumption: There has been an increase in consumption in recent years, leading to an increase in demand for retail products.
• The Rise of E-Commerce: E-commerce is becoming more and more popular among consumers. Therefore, retailers have the opportunity to reach a wider group of customers without having to incur the high costs associated with maintaining stationary stores.
• Diversity of consumer preferences: In recent years, there has been an increase in the diversity of consumer preferences. Therefore, retailers have the opportunity to offer a wide range of products and services that meet the various needs of customers.

The pandemic and lockdown are a test of trade's endurance

Trade, as well as its individual branches, are closely related to what is happening with the economy and around it. One of the most difficult global experiences for the economy in recent years was the coronavirus pandemic and the resulting reduction in the economic activity of societies around the world. Many industries recorded significant declines and faced difficulties in functioning. Which branch of trade coped better with the difficulties of the COVID-19 pandemic and the associated isolation?

According to analysts of the Polish Economic Institute, wholesale trade remained in better condition after the pandemic - it showed greater resistance to the pandemic crisis than retail trade. Among the factors influencing the good condition of wholesale trade, analysts point out the possibility of selling wholesale products to companies from other sectors of the economy (e.g. hotels, restaurants). Manufacturers and wholesalers, to a much lesser extent than retail companies, also felt the barrier of employment costs - this is due to the greater possibilities of automating and mechanizing commercial processes.

In June 2021, shortly after the start of "unfreezing the economy", the general economic climate indicator for wholesale trade was noticeably more favorable (plus 9.7 points) than for retail trade (plus 0.6 points).

Summary

Now, however, in 2023, the situation of both types of trade has changed, and retail trade has started to make up for the losses caused by the pandemic. It cannot be denied that both forms of trade have their strengths and weaknesses. Wholesale trade is undoubtedly more stable and less susceptible to economic fluctuations. Recently, an increase in the importance of wholesale trade and intensification of international transactions has been observed. Retail trade, on the other hand, is more dynamic and has greater growth potential. Phenomena that are beneficial for both types of trade are undoubtedly the increase in consumption, as well as new business channels, such as online stores and e-commerce: the Internet is a space in which both wholesalers and retailers can conduct their business. Although online shopping seems to be a common thing, entrepreneurs are only just starting to develop their remote trading capabilities. And this may bring interesting (from a statistical point of view) results in the coming years and months.