If you want to operate a retail business, you need to get your products from somewhere. In most cases, that means you’ll be buying from a wholesaler – but that’s not a hard-and-fast rule. There are several different ways to source products for resale, and the wholesale avenue is just one of them.
So, does a retail business need to get its products from wholesalers? The answer to that question is “no” – but as you’re about to learn, there are some very valid reasons why you’d want to do that rather than looking for an alternative product source.
A Good Wholesaler Ensures Product Authenticity
Without a doubt, authenticity is one of the most important concerns when you buy products for resale. Counterfeit products exist in almost every industry, and you definitely don’t want to get saddled with them. Fake goods could fail early or might not even work as advertised, and you’re certainly not going to get warranty service on them. If you’re caught selling counterfeit products, your business could suffer irreparable reputational harm – and good luck suing an anonymous factory in China for damages.
Suppose, for instance, that you’re launching a vape shop. Trusted wholesalers like Shefa Distribution obtain their products only from the original manufacturers and authorized distributors, which ensures that their products are entirely authentic. A good wholesaler will always guarantee the authenticity of its products.
Wholesalers Typically Have Better Prices
Although there are plenty of ways to source products for a retail business, most of them will charge more than a wholesaler would. That’s because of how the wholesale model works. They source their products from the manufacturers, many of which are overseas. They pay the freight charges and absorb the risk inherent in international transport, and they obviously want to earn money for their trouble.
Wholesaler markups are reasonable, though, which leaves plenty of room for you to earn a profit when you resell those items. The reason why the markups are low is because wholesalers minimize their overhead by managing a few large customer accounts instead of many small ones.
Wholesalers Allow You to Buy Without Sales Tax
To create an account with a wholesaler, you’ll be required to provide your reseller license and tax ID to confirm that you’re buying products for resale. You won’t need to pay sales tax on the transaction because your customers will pay it when they buy those items. Although there are many other avenues for product sourcing as a reseller, buying from a wholesaler is generally the only way for you to avoid paying sales tax. There are some exceptions, though, which we’ll discuss in the next section.
What Are the Alternatives to Wholesalers?
Although wholesalers will always be the most common sources of products for retailers, buying from a wholesaler isn’t your only option. If you want to diversify your product offerings – or you’re simply not ready to place the large order that a wholesaler will require – here are some alternatives that you can consider.
- Estate Sales: When individuals pass away, their assets are often sold so the proceeds can be pooled and distributed among their beneficiaries. An estate sale can potentially be a good avenue for finding collectibles and other valuable items that can be resold through a store or auction website. Bear in mind, though, that these events will often be attended by many other people who have the same idea as you.
- Storage Locker Auctions: Any city with more than a few thousand people will have at least one self-storage facility. There could be dozens of facilities in your immediate area, and they collectively have thousands of storage lockers. When a customer stops paying for a storage locker, the facility auctions the locker’s contents to recoup its costs. At a storage locker auction, you’ll be allowed to see what’s behind the door but generally won’t be allowed to open any boxes. If you have an eye for value, though, attending storage auctions can potentially be a way to become quite wealthy.
- Liquidations: When stores go out of business, they typically hold liquidation sales in which they clear out their remaining products at extremely low prices. Buying items from a business that’s liquidating its inventory can potentially be a great way to obtain products for resale. If you have a bit of money to invest, though, keep an eye out for local businesses that look like they might be closing. If you make a reasonable offer to buy out their remaining inventory, you can potentially get a leg up on your competitors.
- Manufacturers: Another way to obtain products for resale is by buying them directly from the factories that make them. This may cost less than buying from a wholesaler, but it also has significant potential downsides. You’re absorbing the risk inherent in overseas freight, and you also need to exercise diligence in ensuring product authenticity. When you buy from wholesalers, they absorb those risks.
- Any Retail Store: Do you have a local office supply store or other retailer that sometimes puts products on a clearance rack at crazy prices? There’s nothing preventing you from buying those items if you think you can sell them for more. Bear in mind, though, that you’ll probably have to pay sales tax on the transaction. We’ll discuss that next.
Will I Pay Sales Tax if I Don’t Buy from a Wholesaler?
In many of the cases described above, you’re a retail customer and will need to pay the applicable sales tax on your purchase. That could potentially eat into your profits, and it also essentially means that sales tax will be paid twice on the same item. Some states, however, have tax policies specifically designed to prevent this kind of situation. Your state may allow you to request a refund on the tax you’ve paid.
Before you pay the tax on your purchase, though, you should ask the seller if they’ll accept your reseller license. In some cases, businesses are set up to waive the sales tax when selling to resellers.
