Retail vs. Wholesale: Business Models Comparison

In a retail business model, usually, the company has direct access to final customers, which will consume a final version of the product/service, sold in units, and at higher margins. Where in a wholesale business model, instead, a company usually sells raw products in bulk to retailers and middlemen who sell directly to customers. In a hybrid model (like Costco) the wholesaler also sells to final customers.

Customer InterfaceSells products directly to individual consumers through physical stores, online platforms, or other channels.Sells products in bulk quantities to businesses, retailers, or other wholesalers rather than individual consumers.
Product PackagingTypically focuses on attractive, consumer-friendly packaging to appeal to individual buyers.Packaging is often designed for ease of handling and shipping, with less emphasis on individual appeal.
Pricing StrategyOften employs competitive pricing and promotions to attract individual consumers.Offers lower per-unit prices to businesses, allowing them to resell products at a profit.
Order QuantitiesSells products in smaller quantities suitable for individual consumption or use.Sells products in larger quantities, often requiring minimum order quantities for customers.
Customer RelationshipsBuilds individual relationships with consumers, providing customer support and addressing specific needs.Focuses on building long-term relationships with business customers, often through negotiated contracts and terms.
Marketing and AdvertisingEngages in consumer-oriented marketing and advertising campaigns to create brand awareness.Primarily targets businesses and retailers through B2B marketing and networking.
Inventory ManagementManages inventory based on consumer demand and fluctuations in consumer preferences.Typically maintains larger inventory volumes to meet the needs of business customers.
Sales ChannelsUtilizes various sales channels, including physical stores, e-commerce websites, and direct marketing.Primarily sells through dedicated B2B channels, trade shows, or through sales representatives.
Payment TermsOffers flexible payment terms for individual customers, including credit cards, installment plans, etc.Extends credit terms to business customers, often requiring credit checks and negotiations.
Location SelectionFocuses on retail store locations in areas with high foot traffic and proximity to consumers.Chooses warehouse and distribution center locations strategically to optimize logistics for bulk shipments.
Return PolicyTypically offers consumer-friendly return policies to accommodate individual buyer needs.Often has stricter return policies due to the wholesale nature of transactions.
Inventory TurnoverMay have faster inventory turnover due to smaller, more frequent consumer purchases.Inventory turnover rates may be slower due to larger order quantities and less frequent transactions.
Marketing ResearchConducts market research to understand consumer preferences and trends.Focuses on industry and market trends that affect the needs and demands of business customers.
Packaging CustomizationMay customize product packaging for holidays, events, or special occasions to attract consumers.Customization often caters to business requirements, such as private labeling or bulk packaging.
Pricing NegotiationTypically involves straightforward pricing for consumers with limited negotiation.Involves negotiation and price agreements tailored to the specific needs of business customers.
Sales VolumeSells products to a large number of individual consumers, resulting in higher sales volume per transaction.Sells larger quantities to fewer customers, often resulting in higher overall sales volume.
Market CompetitionCompetes with other retailers for individual consumers’ attention and loyalty.Competes with other wholesalers for business customers and contracts.
Seasonal DemandExperiences seasonal fluctuations in demand driven by consumer trends and holidays.May experience fluctuations in demand influenced by business cycles and industry needs.
Sales TacticsEmploys various sales tactics, including advertising, discounts, and loyalty programs, to attract individual buyers.Focuses on building strong relationships with business customers, providing tailored solutions.

Understanding the Retail Business Model

A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

The retail business model is straightforward. The company buys raw products in bulk, it either process, repackages, or sells them directly to final customers at a much higher margin than the bulk purchase. In addition, since the retailer goes direct to consumer, it doesn’t have to split the revenues with middlemen.

This gives the retailer high gross margins on its sales. In this way, the retailer can finance its operations, which are usually much more expensive.

In fact, the retailer has distribution risks associated with the fact that in order for the business to survive it must have a continuous flow of consumers. Since the retailer business usually sells lower-priced products and services to more people, rather than taking much larger orders, like the wholesaler.

Understanding the Wholesale Business Model

The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

In the wholesale business model, generally, the company sells in bulk, to fewer customers (usually retailers or middlemen) who deal with final customers. Therefore, the wholesaler has less marketing and distribution costs associated with having to attract a continuous stream of customers, and instead, most of the effort is skewed toward inventory, transportation, and distribution (intended as the deals with retailers).

Main differences between Retail and Wholesale

Let’s see the main differences between retailers and wholesalers:

Local and direct access to customers vs wider distribution capacity 

The retailer distribution is mostly local (unless of course, you set up an online retail shop). The wholesaler instead can cover larger territories by dealing with other retailers, locally, nationally, and internationally. Therefore, in general, the retailer is localized and operates within central locations in cities and towns, while the wholesaler is delocalized and usually operates outside central areas.

That’s because to the wholesaler what matters is the ability to stack more raw product per square foot. Where to the retailer matters more than the local market it can access, and the premium prices it can charge.

Thus, the wholesaler might opt for locations where there is more space and less expensive in terms of rental per square foot. The retailer might do the opposite choice. It might pick smaller locations, which gives it an advantage in terms of access to more consumers and the ability to charge a premium based on the location.

Higher gross margins vs higher net margins

The retailer usually enjoys higher margins, given the fact it can sell directly to customers. Therefore, transform a simple product (perhaps a bag of coffee) into a product served to customers and therefore with a very high gross markup. However, the retailer might also have much higher operational costs per unit given it has to focus more on location, and customer service to successfully operate the business (think of a restaurant in a city center with the incredible rent expenses it will run).

On the opposite side, the wholesaler might focus less on location and more on its ability to be closer to retailers/middlemen or the customers to whom it can sell the product in bulk. And on its ability to stack the inventory efficiently and organize transportation around it. Therefore, the wholesaler might enjoy lower gross margins (the product is sold in bulk and at a lower price per unit) but relatively lower operational costs and distribution risks (which are carried by the retailer).

Distribution risks vs logistical risks

The retailer does take on its shoulders the distribution risks, associated with the costs of running the overall business and making sure that a continuous stream of customers and repeat customers feed the business.

While the wholesaler also needs to worry about customers, it will also have much lower marketing costs associated with its business, and most costs skewed toward logistics. In short, the distribution risks for the wholesaler translate into its ability to efficiently structure its operations and logistics, rather than how to find customers, which is instead the main worry for the retailer.

Local competition vs national competition

In most cases, the retailer will need to understand as much as possible the local market, as this will be the lifeblood of the business. The wholesaler instead will need to worry about access to infrastructure, and to larger urban areas where many other retailers are available. From there, make sure to be competitive at the national and international level to quickly distribute the raw product.

Wholesale prices fluctuations vs logistics impact

Since the retailer usually does not control the supply chain it might also be exposed to price fluctuations which it can’t control. On the other hand, the wholesaler might have more control over the supply chain, and ascertain more purchasing power, given its larger size compared to retailers.

Thus, it might be more subject to logistic impact overall.

Costco and the Hybrid model (a Wholesaler selling directly to consumers)

With a substantial part of its business focused on selling merchandise at the low profit-margin, Costco also has about fifty million members that each year guarantee to the company over $2.8 billion in steady income at high-profit margins. Costco uses a single-step distribution strategy to sell its inventory.

There is a way in between wholesale and retail, and Costco’s business model represents it extremely well. While Costco is. wholesaler, which sells things in bulk, it does that directly to consumers. Therefore, Costco follows what we can define as a hybrid model (in between wholesale and retail) where it also enjoys a strong brand toward consumers.

Costco attracts consumers with things like good gas prices, and simple products, like the food court deal, with the iconic Costco hot dog and soda combo for just $1.50, to attract consumers to its wholesale stores and sell them things in bulk. Those are used as hooks and a marketing strategy.

This strategy is well known as the “loss leader strategy” where a product is not profitable, as long as ancillary, complementary products are sold at profit.

This might sound trivial, and yet by creating a moment for the family to share a food experience (something that you usually see in a retail shop), Costco creates the opportunity for a shopping experience for the whole family. This strategy has worked well since 1985.

Retail and the fashion industry

The fashion industry is also a very interesting example of how retail business models adapted over time and it offers a window into the future.

In fact, on the one side, we have slow fashion players who focus on selecting manufacturers and sell their products in flagship stores, usually located in very central locations within large urban areas, by focusing on their sustainable branding.

Slow fashion is a movement in contraposition with fast fashion. Where in fast fashion it’s all about speed from design to manufacturing and distribution, in slow fashion instead quality and sustainability of the supply chain are the key elements.

And on the other spectrum, you have fast-fashion players, who focus less on manufacturers’ selection and more on logistic optimization to speed up production and lower down the costs of the items sold. While still using retail spaces in central locations in large urban areas to distribute the product.

Fash fashion has been a phenomenon that became popular in the late 1990s, early 2000s, as players like Zara and H&M took over the fashion industry by leveraging on shorter and shorter design-manufacturing-distribution cycles. Reducing these cycles from months to a few weeks. With just-in-time logistics, flagship stores in iconic places in the largest cities in the world, these brands offered cheap, fashionable clothes and a wide variety of designs.

Over the years, new players like ASOS, have learned to further speed up the manufacturing process, and to reduce the retail space, to decrease prices, and yet have wider margins, as instead of selling in retail they distribute the product directly from sholesales to customers, in what is called ultra-fast fashion.

The Ultra Fashion business model is an evolution of fast fashion with a strong online twist. Indeed, where the fast-fashion retailer invests massively in logistics, warehousing, its costs are still skewed toward operating physical retail stores. While the ultra-fast fashion retailer mainly moves its operations online, thus focusing its cost centers toward logistics, warehousing, and a mobile-based digital presence.

And the most recent evolution of that, with players like SHEIN, which have brought the fast-fashion concept to the next level, by tapping on digital tends quickly developing on social media like TikTok, further reducing manufacturing time, and by tapping into a global distribution by using online retail.-

Thus, on the one hand, SHEIN fast-follows, surfs, and creates digital trends. And on the other hand, it reduces physical retail spaces, in favor of online retail spaces, further decreasing prices and still keeping margins and profitability. This is known as real-time retail.

SHEIN is an international B2C fast fashion eCommerce platform founded in 2008 by Chris Xu. The company improved on the ultra-fast fashion model by leveraging real-time retail, which quickly turned fashion trends in clothes’ collections through its strong digital presence and successful branding campaigns.
Real-time retail involves the instantaneous collection, analysis, and distribution of data to give consumers an integrated and personalized shopping experience. This represents a strong new trend, as a further evolution of fast fashion first (who turned the design into manufacturing in a few weeks), ultra-fast fashion later (which further shortened the cycle of design-manufacturing). Real-time retail turns fashion trends into clothes collection in a few days cycle or a maximum of one week.

Whether these retail models will be sustainable in the long run it’s hard to say.

Examples of Retail vs. Wholesale Scenarios:

  • Books:
    • Retail: A customer buys a single copy of a best-selling novel from a local bookstore.
    • Wholesale: A local bookstore orders 200 copies of a best-selling novel from a distributor or publisher.
  • Clothing:
    • Retail: A person purchases a dress from a brand’s flagship store.
    • Wholesale: A clothing store owner buys 500 dresses of different sizes from a clothing manufacturer to sell in their shop.
  • Electronics:
    • Retail: An individual buys a smartphone from an electronics store.
    • Wholesale: An electronics retailer orders 1,000 smartphones from a manufacturer for resale.
  • Groceries:
    • Retail: A family buys groceries for the week from a local supermarket.
    • Wholesale: A supermarket chain places an order for 10,000 cartons of milk from a dairy supplier.
  • Cars:
    • Retail: A customer purchases a car from a dealership for personal use.
    • Wholesale: A car dealership orders 50 cars of a new model from the manufacturer to sell to individual customers.
  • Furniture:
    • Retail: A couple buys a dining table set from a furniture showroom.
    • Wholesale: A furniture store orders 100 dining table sets from a furniture maker to display and sell in their store.
  • Cosmetics:
    • Retail: Someone buys a lipstick from a cosmetic store.
    • Wholesale: A cosmetic store chain orders 5,000 lipsticks of various shades from a cosmetic manufacturer.
  • Jewelry:
    • Retail: A man buys a diamond ring from a jewelry store to propose to his partner.
    • Wholesale: The jewelry store orders 200 diamond rings of various designs from a jewelry wholesaler.
  • Toys:
    • Retail: Parents buy a toy for their child’s birthday from a toy store.
    • Wholesale: A toy store chain orders 10,000 units of a popular toy from a toy manufacturer for the holiday season.
  • Sports Equipment:
    • Retail: An individual buys a tennis racket from a sports equipment store.
    • Wholesale: The sports equipment store orders 500 tennis rackets from a supplier to sell in their outlets.

Key Highlights:

Retail Business Model:

  • Direct-to-consumer approach (B2C) where the company sells processed/finished products directly to final customers.
  • Higher margins but also higher costs and distribution risks.
  • Retailers do not have to split revenues with middlemen, leading to higher gross margins on sales.
  • Retailers need a continuous flow of consumers as they typically sell lower-priced products to more people.

Wholesale Business Model:

  • Wholesalers sell products in bulk to retailers at discounted prices.
  • Retailers then sell the products to consumers at a higher price.
  • Wholesalers focus on fewer customers (retailers) and more on inventory, transportation, and distribution.
  • Wholesalers have less marketing costs but more logistical risks.

Main Differences between Retail and Wholesale:

  • Local and direct access to customers (Retail) vs wider distribution capacity (Wholesale).
  • Higher gross margins (Retail) vs higher net margins (Wholesale).
  • Distribution risks (Retail) vs logistical risks (Wholesale).
  • Local competition (Retail) vs national competition (Wholesale).
  • Wholesale price fluctuations (Retail) vs logistics impact (Wholesale).

Costco and the Hybrid Model:

  • Costco follows a hybrid model between wholesale and retail, selling in bulk to consumers directly.
  • Uses a “loss leader strategy” by offering low-profit-margin products to attract consumers and sell other items at profit.

Retail and Fashion Industry:

  • Fashion industry examples of slow fashion (focus on sustainable branding) and fast fashion (speed and low-cost).
  • Ultra-fast fashion reduces retail space, focuses on logistics, and sells directly to customers.
  • SHEIN is an example of real-time retail, turning fashion trends into collections quickly through digital presence and branding.

Connected Business Model Types And Frameworks

What’s A Business Model

An effective business model has to focus on two dimensions: the people dimension and the financial dimension. The people dimension will allow you to build a product or service that is 10X better than existing ones and a solid brand. The financial dimension will help you develop proper distribution channels by identifying the people that are willing to pay for your product or service and make it financially sustainable in the long run.

Business Model Innovation

Business model innovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.

Level of Digitalization

Digital and tech business models can be classified according to four levels of transformation into digitally-enabled, digitally-enhanced, tech or platform business models, and business platforms/ecosystems.

Digital Business Model

A digital business model might be defined as a model that leverages digital technologies to improve several aspects of an organization. From how the company acquires customers, to what product/service it provides. A digital business model is such when digital technology helps enhance its value proposition.

Tech Business Model

A tech business model is made of four main components: value model (value propositions, mission, vision), technological model (R&D management), distribution model (sales and marketing organizational structure), and financial model (revenue modeling, cost structure, profitability and cash generation/management). Those elements coming together can serve as the basis to build a solid tech business model.

AI Business Model


Blockchain Business Model

A Blockchain Business Model is made of four main components: Value Model (Core Philosophy, Core Value and Value Propositions for the key stakeholders), Blockchain Model (Protocol Rules, Network Shape and Applications Layer/Ecosystem), Distribution Model (the key channels amplifying the protocol and its communities), and the Economic Model (the dynamics through which protocol players make money). Those elements coming together can serve as the basis to build and analyze a solid Blockchain Business Model.

Asymmetric Business Models

In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.

Attention Merchant Business Model

In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Open-Core Business Model

While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.

Open Source Business Model

Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.

Freemium Business Model

The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Freeterprise Business Model

A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.

Marketplace Business Models

A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

B2B vs B2C Business Model

B2B, which stands for business-to-business, is a process for selling products or services to other businesses. On the other hand, a B2C sells directly to its consumers.

B2B2C Business Model

A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.

D2C Business Model

Direct-to-consumer (D2C) is a business model where companies sell their products directly to the consumer without the assistance of a third-party wholesaler or retailer. In this way, the company can cut through intermediaries and increase its margins. However, to be successful the direct-to-consumers company needs to build its own distribution, which in the short term can be more expensive. Yet in the long-term creates a competitive advantage.

C2C Business Model

The C2C business model describes a market environment where one customer purchases from another on a third-party platform that may also handle the transaction. Under the C2C model, both the seller and the buyer are considered consumers. Customer to customer (C2C) is, therefore, a business model where consumers buy and sell directly between themselves. Consumer-to-consumer has become a prevalent business model especially as the web helped disintermediate various industries.

Retail Business Model

A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

Wholesale Business Model

The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Crowdsourcing Business Model

The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.

Franchising Business Model

In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.

Brokerage Business Model

Businesses employing the brokerage business model make money via brokerage services. This means they are involved with the facilitation, negotiation, or arbitration of a transaction between a buyer and a seller. The brokerage business model involves a business connecting buyers with sellers to collect a commission on the resultant transaction. Therefore, acting as a middleman within a transaction.

Dropshipping Business Model

Dropshipping is a retail business model where the dropshipper externalizes the manufacturing and logistics and focuses only on distribution and customer acquisition. Therefore, the dropshipper collects final customers’ sales orders, sending them over to third-party suppliers, who ship directly to those customers. In this way, through dropshipping, it is possible to run a business without operational costs and logistics management.

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