Retail or resell: which one should you choose for your business? Both models have their unique advantages and challenges, making the right choice crucial for your success.
Quick Overview:
Retail:
– Source: Directly from manufacturers or wholesalers.
– Buyers: Direct consumers.
– Pros: Higher profit margins, direct customer relationships, brand control.
– Cons: Higher operating costs, inventory risks.
Resell:
– Source: From other retailers.
– Buyers: Consumers, often under different branding.
– Pros: Lower initial investment, flexibility, variety of products.
– Cons: Lower profit margins, dependency on suppliers.
For aspiring e-commerce entrepreneurs, understanding the distinctions between retail or resell is essential for making informed business decisions.
I’m Will Mitchell, co-founder of StartupBros, and I’ve spent over 20 years helping entrepreneurs steer the complexities of e-commerce. Whether it’s starting from scratch or optimizing an existing business model, I’ve helped countless individuals decide between retail or resell strategies.
Now, let’s dive deeper to help you determine which approach suits your goals best.
Basic retail or resell glossary:
– amazon fba arbitrage
– getting started selling retail arbitrage on amazon
What is Retail?
Retail is the business of selling products directly to consumers. Retailers operate at the end of the supply chain, making goods accessible to the public. This can be done through physical stores or online platforms, or a combination of both.
Retailers and Their Role
Retailers purchase products from manufacturers or wholesalers and then resell them to consumers at a profit. They are crucial in the supply chain, bridging the gap between producers and consumers. Retailers ensure that products are available where and when customers need them.
Supply Chain in Retail
The retail supply chain typically involves:
- Manufacturers: Companies that produce goods.
- Wholesalers: Middlemen who buy products in bulk from manufacturers and sell them to retailers.
- Retailers: Businesses that purchase goods from wholesalers or directly from manufacturers to sell to the public.
Physical Stores vs. Online Stores
Physical stores offer a tangible shopping experience where customers can see, touch, and try products before purchasing. Examples include department stores like Macy’s and grocery stores like Walmart.
Online stores, on the other hand, provide convenience and often a wider range of products. They allow customers to shop from anywhere at any time. Examples include e-commerce giants like Amazon and niche online retailers.
Economic Impact
Retailers play a vital role in the economy. They:
- Drive Consumer Sales: By making products accessible, retailers stimulate demand and drive sales.
- Support Local Economies: Retail stores provide jobs and contribute to the local economy.
- Create Jobs: From store clerks to managers, retailers offer various employment opportunities.
Job Creation and Local Economy
Retailers are significant employers. According to the National Retail Federation, retail is the largest private-sector employer in the U.S., with 1 in 4 Americans working in retail. This job creation supports local economies and provides livelihoods for millions.
Retailers’ Success Factors
To succeed, retailers must:
- Understand Consumer Behavior: Knowing what customers want and when they want it is crucial.
- Manage Inventory: Keeping the right amount of stock to meet demand without overstocking.
- Provide Excellent Customer Service: Friendly, attentive, and knowledgeable staff can make a significant difference.
- Adapt to Market Changes: Flexibility to adjust product offerings based on trends and customer feedback.
In summary, retail involves purchasing goods from manufacturers or wholesalers and selling them to consumers, either through physical stores or online platforms. Retailers are essential for driving sales, supporting local economies, and creating jobs. Understanding consumer behavior and effective inventory management are key to retail success.
Next, we’ll dig into the resell model, exploring its unique aspects and how it differs from retail.
What is Resell?
Reselling is the business of buying products at a discounted rate and selling them at a markup. Unlike retailers, resellers often act as middlemen, connecting suppliers to end customers without necessarily owning the products.
Resellers and Their Role
Resellers purchase goods from retailers, manufacturers, wholesalers, or other suppliers. They then resell these products to their customers at a higher price. This model allows resellers to enter the market with lower investment and without the need to hold large inventories.
The Middleman Advantage
Resellers play a crucial role in the supply chain by acting as intermediaries. They:
- Source Products: Find and purchase items from various suppliers.
- Negotiate Prices: Secure products at discounted rates to allow for profitable markups.
- Market Products: Use online platforms to reach a broad audience.
- Manage Customer Relationships: Provide customer support and handle transactions.
Discounted Rate and Markup
Resellers thrive on the difference between the purchase price and the selling price. By buying in bulk or sourcing from clearance sales, they obtain products at lower costs. They then mark up the prices to sell to their customers, making a profit.
Supplier Relationships
Building strong relationships with reliable suppliers is crucial for resellers. This ensures a steady supply of products and favorable terms. Whether sourcing from local retailers or international manufacturers, effective negotiation and trust are key.
Online Sales
Most resellers operate online, leveraging platforms like Amazon, eBay, and Etsy. This allows them to reach a larger audience without the overhead costs of a physical store.
Arbitrage resellers, for example, buy discounted items from physical or online stores and resell them at higher prices on marketplaces. According to Jungle Scout, many resellers turn a profit within six months, with some starting their businesses with less than $500.
Small Business Opportunities
Reselling offers a viable entry point for small business owners and entrepreneurs. It requires minimal investment compared to traditional retail and provides flexibility in terms of product variety and business scale.
For instance, resellers can start by selling products they no longer use, a practice known as retail arbitrage, before expanding to bulk buying and dropshipping.
Bulk Buying
By purchasing in bulk, resellers can further reduce costs and increase profit margins. Wholesale resellers buy large quantities directly from brands or distributors and sell them at retail prices. This model ensures a steady supply of inventory and often comes with the benefit of invoices that verify product authenticity.
According to StartupBros, wholesale reselling offers more security and consistent pricing, making it a stable option for long-term business growth.
In summary, reselling involves purchasing products at discounted rates and selling them at a markup. Resellers act as middlemen, connecting suppliers to customers, primarily through online sales. This model offers low investment opportunities, flexibility, and the potential for profitable small businesses.
Next, we’ll explore the key differences between retail and resell, highlighting their unique aspects and advantages.
Retail or Resell: Key Differences
Understanding the key differences between retail and resell can help you decide which business model aligns best with your goals. Let’s break down the distinctions in terms of product source, buyers, profit margins, type of products, physical store presence, ownership, and direct links.
Product Source
Retailers typically source their products directly from wholesalers and manufacturers. This direct relationship often allows retailers to negotiate better prices and ensure a consistent supply of inventory. For example, a clothing retailer might source its garments directly from a manufacturer, ensuring quality and brand consistency.
Resellers, on the other hand, obtain their products from various sources, including other retailers, wholesalers, and sometimes directly from manufacturers. They often purchase items at discounted rates, such as clearance sales or bulk buying from wholesalers, to resell at a markup.
Buyers
The primary target market for retailers is individual consumers. Retailers focus on selling products directly to end-users, whether through brick-and-mortar stores or online platforms.
Resellers cater to a broader audience, including both consumers and other businesses. This flexibility allows resellers to tap into various market segments, making their business model versatile.
Profit Margins
Retailers generally enjoy higher profit margins per product because they often buy directly from manufacturers at lower costs. However, they also face higher operating costs due to expenses like rent, staff wages, and utilities.
Resellers might have lower profit margins per item since they often purchase from other retailers or wholesalers. However, they can achieve higher overall profits by buying in bulk and minimizing overhead costs. For instance, resellers operating online save on expenses associated with running a physical store.
Type of Products
Retailers usually specialize in specific items or product categories. This focus allows them to build a strong brand identity and cater to a niche market. For example, a sports retailer might exclusively sell athletic gear and apparel.
Resellers often offer a wider variety of products from different suppliers. This diversity can attract a broader customer base, providing more options and increasing the potential for sales. For instance, a reseller might sell electronics, clothing, and home goods all in one online store.
Physical Store
Retailers often operate both brick-and-mortar stores and online shops. This physical presence allows for direct interaction with customers, which can improve customer relationships and build brand loyalty. However, it also comes with higher costs such as rent and salaries.
Resellers usually focus on online sales and rarely have a physical store. This online-centric model reduces overhead costs and allows resellers to reach a global audience. Platforms like Amazon and eBay are popular choices for resellers to market their products.
Ownership
Retail businesses can be owned by private individuals or large corporations. This model often requires a significant investment to cover the costs of inventory, store setup, and staffing.
Reselling offers more flexibility in terms of ownership. Many resellers are small business owners or self-employed individuals. This model requires lower initial investment, making it accessible for entrepreneurs with limited capital.
Direct Links
Retailers often have direct links with manufacturers and distributors. This connection ensures a reliable supply chain and the ability to negotiate favorable terms. Retailers also interact directly with customers, providing personalized service and immediate feedback.
Resellers are linked with various players in the trade cycle, including other retailers, wholesalers, and manufacturers. While they may not have direct relationships with manufacturers, their role as middlemen allows them to steer different sources and find the best deals.
In summary, retailers and resellers operate differently in terms of product sourcing, target markets, profit margins, product variety, physical presence, ownership, and direct links. Understanding these key differences can help you choose the right business model for your needs.
Next, we’ll dig into the pros and cons of retail, highlighting the advantages and challenges of this business model.
Pros and Cons of Retail
Pros
1. Higher Profit Margins
Retailers often enjoy higher profit margins per product. By purchasing directly from manufacturers or wholesalers, they can secure lower costs, allowing for a higher markup when selling to consumers. This direct relationship can be a significant advantage, especially for high-demand products.
2. Direct Customer Relationships
Retailers have the opportunity to build strong, direct relationships with their customers. This direct interaction can lead to better customer service, personalized shopping experiences, and increased brand loyalty. For example, a local boutique can offer personalized styling advice, creating a loyal customer base.
3. Brand Control
Operating a retail store allows for complete control over the brand image and customer experience. Retailers can design their stores, curate product selections, and create marketing campaigns that reflect their brand values. This control helps in building a consistent and recognizable brand identity.
4. Physical Presence
A physical store allows retailers to engage with customers face-to-face. This personal interaction can improve the shopping experience and build trust. For instance, department stores like Macy’s or niche retailers like Bass Pro Shop offer immersive shopping experiences that online stores can’t replicate.
Cons
1. Higher Operating Costs
Running a physical retail store comes with significant operating costs. Rent, utilities, staff wages, and other expenses can add up quickly. These costs can eat into profit margins, making it crucial for retailers to maintain a steady flow of customers and sales.
2. Inventory Risks
Managing inventory can be challenging for retailers. Overstocking can lead to unsold products, while understocking can result in missed sales opportunities. Retailers must accurately predict demand to minimize these risks. For example, seasonal items can be particularly tricky to manage.
3. Physical Store Management
Operating a physical store requires ongoing management and maintenance. From ensuring the store is clean and inviting to handling customer complaints, the day-to-day operations can be demanding. This management burden can be a significant drawback for those looking for a more flexible business model.
In summary, retail offers higher profit margins, direct customer relationships, and brand control, but it also comes with higher operating costs, inventory risks, and the need for physical store management. Next, we’ll explore the pros and cons of resell, providing insights into the advantages and challenges of this alternative business model.
Pros and Cons of Resell
Pros
1. Lower Investment
Reselling requires significantly less initial investment compared to retail. Since resellers often purchase products in bulk or at discounted rates, the upfront costs are lower. This makes it an attractive option for individuals or small businesses with limited capital. For example, someone can start a reselling business from their home with minimal overhead.
2. Flexibility
Reselling offers a high degree of flexibility. Resellers can operate from virtually anywhere, often focusing on online sales. This means you can manage your business from home, a coffee shop, or even while traveling. The flexibility extends to working hours, allowing for a better work-life balance.
Resellers can offer a wide variety of products from different suppliers. Unlike retailers who may specialize in specific categories, resellers can diversify their inventory. This variety can attract a broader customer base. For instance, a reseller can sell anything from electronics to fashion items, maximizing their market reach.
4. Online Focus
Most resellers primarily operate online, which eliminates the need for a physical storefront. This reduces costs related to rent, utilities, and staff wages. Platforms like eBay, Amazon, and Shopify make it easy to set up an online store and reach a global audience.
5. Bulk Buying and Markup
Resellers often buy products in bulk, which allows them to negotiate better prices with suppliers. They can then sell these products at a markup, generating profit. The ability to buy in bulk and sell at a higher price is a key advantage. For example, purchasing 100 units of a popular item at a discount and reselling them individually can yield significant profits.
Cons
1. Lower Profit Margins
While resellers can make a profit through markups, their profit margins per product are generally lower than those of retailers. This is because they often buy from other retailers or distributors, who have already added their own markups. Thus, resellers need to sell in higher volumes to achieve substantial profits.
2. Dependency on Suppliers
Resellers rely heavily on their suppliers for inventory. Any disruption in the supply chain can directly affect their business. For instance, if a supplier runs out of stock or increases prices, the reseller’s ability to meet customer demand and maintain profitability can be compromised.
3. Less Brand Control
Resellers have limited control over the branding and presentation of the products they sell. Unlike retailers, who can curate their brand image and customer experience, resellers are often at the mercy of the brands they carry. This can make it challenging to build a unique brand identity and foster customer loyalty.
In summary, reselling offers lower investment, flexibility, and a variety of products, but it also comes with lower profit margins, dependency on suppliers, and less brand control. Next, we’ll explore which approach might be right for you, depending on your business goals, investment capacity, and other factors.
Retail or Resell: Which is Right for You?
Choosing between retail or resell depends on various factors. Here’s a breakdown to help you decide which approach aligns best with your business goals and circumstances.
Business Goals
Retail: If your goal is to build a strong brand and have direct control over the customer experience, retail might be the better option. Retailers can create a unique shopping environment, whether online or in a physical store, to attract and retain customers.
Resell: If your aim is to start quickly with minimal investment and capitalize on flexibility, reselling could be more suitable. Resellers can swiftly adapt to market trends by offering a variety of products without the need for a large upfront investment.
Investment Capacity
Retail: Retailing typically requires a higher initial investment. You’ll need to budget for purchasing inventory, renting space (if you opt for a physical store), and hiring staff. However, the potential for higher profit margins can justify these costs.
Resell: Reselling is generally more accessible for those with limited capital. You can start small, buying products in bulk at discounted rates and selling them online. This approach minimizes overhead costs, making it easier to scale up as your business grows.
Target Market
Retail: Retailers often target individual consumers, focusing on specific demographics or niches. For example, a boutique clothing store might cater to fashion-forward young adults, while a tech store might appeal to gadget enthusiasts.
Resell: Resellers can target a broader audience, including other businesses, organizations, and individual consumers. This flexibility allows resellers to pivot quickly based on market demand and trends.
Product Type
Retail: Retailers usually specialize in specific product categories, such as clothing, electronics, or home goods. This specialization allows for a more curated shopping experience and can help build brand loyalty.
Resell: Resellers often offer a wide range of products from different suppliers. This variety can attract a diverse customer base and reduce the risk associated with relying on a single product category.
Operational Preferences
Retail: Running a retail business involves managing inventory, dealing with suppliers, and possibly overseeing a physical store. If you enjoy hands-on operations and direct customer interactions, retail might be a good fit.
Resell: Reselling offers more operational flexibility. You can manage your business from virtually anywhere, focusing primarily on online sales. This approach is ideal if you prefer a more mobile and less hands-on business model.
Risk Tolerance
Retail: Retailing generally involves higher financial risk due to the significant initial investment and ongoing operating costs. However, the potential for higher profit margins can offset these risks if managed well.
Resell: Reselling carries lower financial risk, making it an attractive option for those with a lower risk tolerance. The ability to start with minimal investment and scale gradually reduces the potential for significant financial loss.
In summary, whether you choose retail or resell depends on your business goals, investment capacity, target market, product type, operational preferences, and risk tolerance. Consider these factors carefully to determine which approach aligns best with your vision and resources.
Frequently Asked Questions about Retail or Resell
What is the difference between retail and resell?
Retailers buy products directly from manufacturers or distributors and sell them to consumers. They often have physical stores or online shops. Retailers focus on creating a unique shopping experience and building direct relationships with consumers. Think of a local boutique or a big chain like Walmart.
Resellers, on the other hand, purchase products from retailers or wholesalers and then sell them at a markup. They act as middlemen and often operate online. Resellers can quickly adapt to market trends by offering a variety of products without the need for a large upfront investment. For instance, someone buying clearance items from Target and selling them on eBay is a reseller.
What does retail mean for sneakers?
In the sneaker world, retail refers to the original price set by the manufacturer or authorized retailers. For example, the Nike Air Jordan 5 Retro “University Blue” might have a retail price of $225. This is the price you pay if you buy directly from Nike or an authorized store.
Sneaker culture often sees popular models selling out quickly at retail. This high demand creates a secondary market where resellers sell these sneakers at a higher price. According to Reuters, the resale value of some Jordan shoes has been slipping, showing how dynamic and trend-sensitive the sneaker market can be.
What does paying retail mean?
Paying retail means buying a product at its original price from a retailer, without any discounts. For example, if you buy a pair of sneakers for $225 directly from Nike, you are paying retail.
In broader terms, retail payments refer to transactions between businesses and individual consumers. These transactions can happen in physical stores, online, or through direct sales. They are different from consumer transactions involving second-hand goods or resold items.
When it comes to salary and tax payments, retail has no direct connection. However, the retail industry does impact the economy by providing jobs and generating tax revenue. For instance, the National Retail Federation notes that retail is the largest private employer in the U.S., with 1 in 4 Americans working in retail.
In summary, understanding the nuances between retail or resell is crucial for making informed business decisions. Whether you’re a budding entrepreneur or a seasoned business owner, knowing these differences can help you choose the best approach for your goals.
Conclusion
Deciding between retail or resell can significantly impact your business strategy and success. Understanding the key differences and benefits of each model is essential for making informed decisions.
Retail involves buying products directly from manufacturers or wholesalers and selling them to consumers. This approach allows for higher profit margins, direct customer relationships, and complete control over your brand. However, it also comes with higher operating costs and inventory management challenges.
Resell, on the other hand, involves purchasing products from retailers or wholesalers and selling them at a markup. This model offers lower investment, flexibility, and a variety of products without the need for a physical store. The downside is lower profit margins and a dependency on suppliers.
Choosing the right model depends on your business goals, investment capacity, target market, and operational preferences.
At StartupBros, we specialize in helping entrepreneurs steer these decisions. Our e-commerce training and support can guide you through the process of launching your first product, whether you choose retail or resell. We provide expert guidance from experienced entrepreneurs to ensure you have the tools and knowledge needed for success.
If you’re ready to dive into e-commerce and need help deciding between retail or resell, check out our comprehensive guide on Amazon retail arbitrage. Let us help you take the first step towards building a profitable online business.
