THE WHOLESALE TRADE
THE WHOLESALE TRADE
In the early years of the century there were well-defined distribution channels for most types of consumer goods and in these the wholesaler played a dominant role. Although in some trades the situation has changed radically, wholesale distribution still performs a vital function for certain classes of merchandise.
The wholesaler often has been the object of criticism down the years on the grounds that he takes a profit from the goods he handles yet he does not make them, nor does he serve them to the public. The justification for his existence, however, lies in his performance of three essential functions:
1. He buys in bulk.
2. He bears risk.
3. He breaks bulk.
Where neither manufacturer nor retailer is in a position to assume these three responsibilities, the wholesaler provides a unique and necessary service to the community. It is when, as the result of changes in manufacturing, financial and social conditions, the producer or the retailer is prepared to undertake these responsibilities, that the need for the wholesaler is called into question.
Let us examine these three vital functions:
1. Bulk Buying. Because he buys goods in bulk, the wholesaler relieves the manufacturer of the cost of making a large number of small deliveries. Thus the cost of delivery for the manufacturer is reduced to a minimum. He requires a comparatively small sales force only in order to sell his product to a limited number of wholesale houses.
2. Risk Bearing. If it were not for the existence of the wholesaler, the manufacturer would have to hold larger stocks of his products. He would have to tie up capital in financing these stocks and would incur increased costs due to the need for greater storage space. The greatest risk in stock holding, however, is the possibility of deterioration in the value of the merchandise before it is sold. When the wholesaler buys goods in bulk and holds them in stock to meet a future demand, he relieves the manufacturer of this risk, which can be very real in markets which fluctuate widely, where the merchandise is perishable or where it is vulnerable to sudden changes in fashion.
3. Breaking Bulk. By breaking bulk the wholesaler is able to offer a wide variety of goods in small quantities to the retailer. Where a retailer carries a large selection of merchandise he has a greater need of the wholesaler's services. His overhead costs would be increased enormously if he had to buy virtually every item of his stock direct from the manufacturers. He would have to see far too many salesmen, engage in a vast amount of correspondence and would be overburdened by the detailed accountancy involved.
The unit cost of delivery incurred by a manufacturer compelled to make a large number of small deliveries to hundreds or thousands of retail outlets can be extremely high. For the wholesaler, who delivers an assortment of items to the retailer, the unit cost of delivery is obviously much smaller.
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