How Manufacturers Use Online Retail to Sell Directly to Consumers
Pros and cons for buying from manufacturers vs. wholesalers
In the world of retail, relationships between wholesalers, manufacturers, and customers are shifting. For decades, most manufacturers did not sell directly to customers. Wholesalers served as middlemen by purchasing items in bulk from the makers and sell them to consumers at a higher rate.
With the rise of online retail, however, the way customers shop is changing. Those changes are also impacting the relationships between manufacturers and wholesalers.
Why Didn't Manufacturers Sell Directly to Customers?
For many manufacturers, working with wholesalers was traditionally the only way to get their products in front of customers. Wholesalers provided the manpower, infrastructure, and retail space that the manufacturers couldn't afford on their own.
However, with the rise of the internet and small businesses leveraging websites, the distribution business model is evolving. Manufacturers are increasingly skipping wholesalers and selling products directly to consumers.
Traditional wholesalers and retailers, such as big-box stores, brick and mortar shops, and malls are now presented with new competition from manufacturers, who often sell at prices distributors can't match without losing money.
Pros of Buying Directly From Manufacturers
In the old model, manufacturers made only small profits compared to wholesalers' profit margins. Companies needed interest from wholesalers in order to be viewed as a legitimate company.
Manufacturers needed the validation of an established retailer to get in front of customers and make sales. But the ability to sell directly to consumers comes with benefits for both manufacturers and consumers:
- Manufacturers can connect directly with people who want their goods.
- Manufacturers can increase their profits.
- Customers have access to specific items to meet their needs/interests, not just what is available in stores.
- Prices decrease because manufacturers can save on retail space costs and wholesaler fees.
- There is a greater market for specialty products that would not be profitable for wholesalers to stock.
The rise of manufacturers selling directly online is changing how customers shop and do business. When manufacturers take advantage of online selling, getting a special item or garment can be done from the comfort of a couch, making it more difficult for traditional wholesalers and retailers to attract customers.
Pros of Buying Directly From Wholesalers
For wholesalers, the industry is changing. However, there are ways for distributors to adapt to this new environment while still offering benefits to customers that manufacturers cannot.
- Higher profit margins allow retailers to offer sales, discounts, free shipping, or free returns.
- One-stop shopping, such as big-box stores, is more convenient for customers than buying from multiple websites.
- Larger staff can handle faster shipping times and bigger orders.
- A larger variety of similar products in stock allows for comparison shopping.
- Customers can make purchases online and pick-up or return in stores.
- Customers who like seeing, feeling, or testing products are able to buy in-store.
Many manufacturers don't have the staff, or the desire, to handle internet sales or direct sales. They don't have space or the expertise to sell directly to customers. This allows wholesalers to offer a level of convenience to customers that can keep them in business and making profits.
How Wholesalers Can Adapt to Online Retail
By shifting to selling to online sellers or by managing sales on their own websites, wholesalers can remain in business as they adapt to the changing retail climate.
Wholesalers can make this shift by:
- Setting up an Amazon or eBay account.
- Establishing exclusive agreements with major sites and big-box retailers.
- Creating and managing their own online store.
- Serving as an intermediary for browsing similar specialty products sold by different manufacturers.
- Working as a foreign distributor for manufacturers in other countries who want to get their products into a new market.
No matter how large a wholesaler or where it is located, there is a solution that can provide convenience to customers, create strong business relationships with manufacturers and other retailers, and maintain profits in the changing landscape of online retail.
New York University: Stern School of Business. "The Emerging Landscape for Retail E-Commerce." Accessed Jan. 10, 2020.
Penn State University. "Retail and Wholesale Trade E-Commerce: What the Numbers Really Mean." Accessed Jan. 10, 2020.
Harvard University. "How E-Commerce Improves the Brick and Mortar Shopping Experience: Explaining the Post-2002 Slowdown." Accessed Jan. 10, 2020.