General Question

LostInParadise's avatar

Do retail businesses fail more frequently than wholesale?

Asked by LostInParadise (30427points) 1 month ago

There are plenty of examples of retail businesses going under: Toys R Us, Sears, Borders, Chi-Chis, Blockbuster Videos, Comp USA. We may be more aware of retail businesses failing because they are so visible in shopping malls, while other businesses can hide in industrial parks. Can you think of any major non-retail business that has recently gone out of business? I know GE has had problems recently.

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6 Answers

JLeslie's avatar

I don’t know the frequency, but there is an argument being made that wholesalers (middlemen) are less and less necessary, but I don’t think they will ever completely disappear.

Some of it is because there are more businesses that are vertically integrated. They manufacture and sell at retail. Warby Parker is an example of this. I guess maybe Tesla is too. Some companies even have their own logistics, like Amazon has it’s own delivery service.

A company like Costco is considered to be a wholesaler even though they also sell to end consumers. They are retailers in my opinion. I’m not sure exactly how they are classified.

So much more money can made selling directly to the consumer per unit, but the reach of wholesalers, distributors, jobbers, and selling through platforms like Amazon, makes the profit through market share or sheer quantity sold makes the middleman still very attractive for businesses.

Edit: I would think GE is a manufacturer? Maybe I don’t understand their total business. I don’t know everything they do.

HP's avatar

It stands to reason that since retailers substantially outnumber their wholesale counterparts, what should you expect the numbers to reflect? How many hot dog stands or carts would you imagine exist for every hot dog distributor? Which of the 2 categories is more likely to be the risky startup enterprise or at greatest risk of failure for any variety of reasons? It’s the retailers, the entrepreneurs who confront the volatile risks as varied and innumerable as their individual dreams.

elbanditoroso's avatar

Retailers are often (not always) small businesses with lower cash flow and less cushion to fall back on if sales are slow.

So it stands to reason.

Smashley's avatar

In every way the answer is that wholesalers are more stable.

All but the most prescient retailers go to where the people already are. This can mean high rents, taxes, and labor costs, and fast changes in each. Earning power is usually increased by higher square footages, but with high overheads, even a small decrease in traffic can erase all your profit. A retailer is at the whim of market forces of the neighborhood; for a distributor, those risks are distributed.

Wholesalers will be necessary as long as small business exists, which might not be that long.

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