How to Start a Wholesale Distribution Business Buy low, sell high: A background in sales and a keen eye for

popular merchandise are the keys to success as a wholesale distributor. So you want to start a wholesale distributorship. Whether you're currently a white-collar professional, a manager worried about being downsized, or bored with your current ob, this may be the right business for you. !uch li"e the merchant traders of the #$th century, you'll be trading goods for profit. %nd while the romantic notion of standing on a doc" in the dead of night haggling o&er a tea shipment may be a bit far-fetched, the modern-day wholesale distributor e&ol&ed from those hardy traders who bought and sold goods hundreds of years ago. The Distributor's Role %s you probably "now, manufacturers produce products and retailers sell them to end users. % can of motor oil, for e'ample, is manufactured and pac"aged, then sold to automobile owners through retail outlets and(or repair shops. )n between, howe&er, there are a few "ey operators-also "nown as distributors-that ser&e to mo&e the product from manufacturer to mar"et. Some are retail distributors, the "ind that sell directly to consumers *end users+. ,thers are "nown as merchant wholesale distributors- they buy products from the manufacturer or other source, then mo&e them from their warehouses to companies that either want to resell the products to end users or use them in their own operations. .hree types of operations can perform the functions of wholesale trade/ wholesale distributors- manufacturers' sales branches and offices- and agents, bro"ers and commission agents. %s a wholesale distributor, you will probably run an independently owned and operated firm that buys and sells products of which you ha&e ta"en ownership. 0enerally, such operations are run from one or more warehouses where in&entory goods are recei&ed and later shipped to customers. 1ut simply, as the owner of a wholesale distributorship, you will be buying goods to sell at a profit, much li"e a retailer would. .he only difference is that you'll be wor"ing in a businessto-business realm by selling to retail companies and other wholesale firms li"e your own, and not to the buying public. .his is, howe&er, somewhat of a traditional definition. 2or e'ample, companies li"e Sam's 3lub and B4's Warehouse ha&e been using warehouse membership clubs, where consumers are able to buy at what appear to be wholesale prices, for some time now, thus blurring the lines. Howe&er, the traditional wholesale distributor is still the one who buys 5from the source5 and sells to a reseller. 0etting )nto the 0ame .oday, total 6.S. wholesale distributor sales are appro'imately 78.9 trillion. Since #:$;, wholesale distributors' share of 6.S. pri&ate industry gross domestic product *0D1+ has remained steady at ; percent, with segments ranging from grocery and food-ser&ice distributors *which ma"e up #8 percent of the total, or 7<9<.; billion in re&enues+ to furniture and home furnishings wholesalers *comprising 9 percent of the total, or 7<$.; billion in re&enues+. .hat's a big chun" of change, and one that you can tap into. .he field of wholesale distribution is a true buying and selling game-one that re=uires good negotiation s"ills, a nose for sniffing out the ne't 5hot5 item in your particular category, and

"een salesmanship. .he idea is to buy the product at a low price, then ma"e a profit by tac"ing on a dollar amount that still ma"es the deal attracti&e to your customer. >'perts agree that to succeed in the wholesale distribution business, an indi&idual should possess a &aried ob bac"ground. !ost e'perts? feel a sales bac"ground is necessary, as are the 5people s"ills5 that go with being an outside salesperson that hits the streets and(or pic"s up the phone and goes on a cold-calling spree to search for new customers. )n addition to sales s"ills, the owner of a new wholesale distribution company will need the operational s"ills necessary for running such a company. 2or e'ample, finance and business management s"ills and e'perience are necessary, as is the ability to handle the 5bac" end5 *those acti&ities that go on behind the scenes, li"e warehouse setup and organization, shipping and recei&ing, customer ser&ice, etc.+. ,f course, these bac"-end functions can also be handled by employees with e'perience in these areas if your budget allows. 5,perating &ery efficiently and turning your in&entory o&er =uic"ly are the "eys to ma"ing money,5 says %dam 2ein, president of 1embro"e 3onsulting )nc., a 1hiladelphia strategic consulting firm. 5)t's a ser&ice business that deals with business customers, as opposed to general consumers. .he startup entrepreneur must be able to understand customer needs and learn how to ser&e them well.5 %ccording to 2ein, hundreds of new wholesale distribution businesses are started e&ery year, typically by e'-salespeople from larger distributors who brea" out on their own with a few clients in tow. 5Whether they can grow the firm and really become a long-term entity is the much more difficult guess,5 says 2ein. 5Success in wholesale distribution in&ol&es mo&ing from a customer ser&ice(sales orientation to the operational process of managing a &ery comple' business.5 Setting 6p Shop When it comes to setting up shop, your needs will &ary according to what type of product you choose to specialize in. Someone could concei&ably run a successful wholesale distribution business from their basement, but storage needs would e&entually hamper the company's success. 5)f you're running a distribution company from home, then you're much more of a bro"er than a distributor,5 says 2ein, noting that while a distributor ta"es title and legal ownership of the products, a bro"er simply facilitates the transfer of products. 5Howe&er, through the use of the internet, there are some &ery interesting alternati&es to becoming a distributor @who ta"esA physical possession of the product.5 %ccording to 2ein, wholesale distribution companies are fre=uently started in areas where land is not too e'pensi&e and where buying or renting warehouse space is affordable. 50enerally, wholesale distributors are not located in downtown shopping areas, but off the beaten path,5 says 2ein. 5)f, for e'ample, you're ser&ing building or electrical contractors, you'll need to choose a location in close pro'imity to them in order to be accessible as they go about their obs.5 State of the )ndustry 6pon opening the doors of your wholesale distribution business, you will certainly find yourself in good company. .o date, there are appro'imately 8BB,BBB distributors in the 6nited States, representing 78.9 trillion in annual re&enues. Wholesale distribution

contributes ; percent to the &alue of the nation's pri&ate industry 0D1, and most distribution channels are still highly fragmented and comprise many small, pri&ately held companies. 5!y research shows that there are only 9,BBB distributors in the 6nited States with re&enues greater than 7#BB million,5 comments 2ein. %nd that's not all/ >&ery year, 6.S. retail cash registers and online merchants ring up about 78.C trillion in sales, and of that, about a =uarter comes from general merchandise, apparel and furniture sales *0%2+. .his is a positi&e for wholesale distributors, who rely hea&ily on retailers as customers. .o measure the scope of 0%2, try to imagine e&ery consumer item sold, then remo&e the cars, building materials and food. .he rest, including computers, clothing, sports e=uipment and other items, fall into the 0%2 total. Such goods come directly from manufacturers or through wholesalers and bro"ers. .hen they are sold in department, high-&olume and specialty stores-all of which will ma"e up your client base once you open the doors of your wholesale distribution firm. %ll this is good news for the startup entrepreneur loo"ing to launch a wholesale distribution company. Howe&er, there are a few dangers that you should be aware of. 2or starters, consolidation is rampant in this industry. Some sectors are contracting more =uic"ly than others. 2or e'ample, pharmaceutical wholesaling has consolidated more than ust about any other sector, according to 2ein. Since #:;D, mergers and ac=uisitions ha&e reduced the number of 6.S. companies in that sector from 9BB to about DB. %nd the largest four companies control more than $B percent of the distribution mar"et. .o combat the consolidation trend, many independent distributors are turning to the specialty mar"et. 5!any entrepreneurs are finding success by pic"ing up the golden crumbs that are left on the table by the national companies,5 2ein says. 5%s distribution has e&ol&ed from a local to a regional to a national business, the national companies @can't or don't want toA costeffecti&ely ser&ice certain types of customers. ,ften, small customers get left behind or are ust not @profitableA for the large distributors to ser&e.5