Recently someone offered to sell us a collection of used jewelry they inherited. They did a great job of photographing the items and making a detailed list of the items with the retail value based on similar items that have recently sold on the internet (both eBay and our store). The seller’s total retail value for the group was within a few dollars of what I valued it at – approximately $3800. But then they asked us to pay them $3400 for the items. What?
I thought at first it was a typo in our email correspondence but then I realized that if a person has never been in business before, they might not know how the retail-wholesale business works.
In the case of used jewelry, for example, when someone has 15 items they want to sell and they offer the group to a store owner to buy……
- It is the seller that wants to sell.
- That merchant is not looking specifically for those 15 items.
- The merchant might see 2-3 items that he could sell relatively quickly but the rest would likely sit for quite a while, often years, waiting for the right buyer.
- The merchant would have to store and market the items (repair, clean, photograph, research, describe and list) and take payment for the items via credit card or PayPal (a substantial cost these days).
- It is the seller that wants to sell.
Therefore, the merchant needs to be able to purchase the lot at a price where he or she can make a profit.
I thought it might be helpful to describe how Retail and Wholesale work.
The Retail price is the price a consumer – that is you and I as shoppers – pay for something.
We pay Retail price when we buy everything from gas to zip lock bags to Navajo bracelets.
The Wholesale price is the price that a merchant pays to either a manufacturer, a Native American artist, a wholesale dealer, or a private seller for goods that the merchant then resells at retail price in a store. It might be in a brick and mortar store like Piggly Wiggly Grocery or at an internet store like horsekeeping.com.
To qualify for wholesale pricing usually a merchant must have a retail resale license and buy in quantity.
When Piggly Wiggly buys zip lock bags, they buy lots of bags, store the bags, sell some bags, lose some bags to damage, theft, and other factors. Piggy Wiggly has to have a place to store items, pays for electricity and heat, employees, insurance and countless other costs yet still be able to offer you the Zip Lock bags at a reasonable retail price. So Piggly Wiggly buys at a wholesale price in order to make a profit on the bags and stay in business.
How much they pay, or the wholesale discount they receive will vary depending on many factors but in general, wholesale discounts range from 40-70%. A 40% discount is a bare minimum a store owner would receive off the retail price. If the retail price is $100 and the merchant receives a 40% discount, he would pay $60 ($100- $40). But in some cases the seller (the manufacturer of the Zip Locks or a dealer) is so motivated to move their product that they might give as high as a 70% discount if the store owner, for example, buys a whole lot of bags and pays cash.
So if the retail price of a case of Zip Locks is $100, the store owner might pay a manufacturer or a dealer anywhere from $30 to $60 per case.
When a store owner buys an item at $10 and sells it for $20, it is called “keystoning” or doubling the price.
So bringing this home to us here at Horsekeeping LLC, today we looked at a group of 23 items, we saw:
1 watch cuff that needed a watch
2 necklaces that needed repair
2 rings that appeared to be made in Mexico
1 necklace that appeared to be made in Thailand.
So that left 17 items that appeared to be Native American made and saleable as is.
Of those 17 items, there were 5 pair of common inexpensive earrings and two small rings and one small wire bracelet, all of which take a lot of time to prepare and list for a small amount of profit.
So there were only 9 items that that really got our interest and those items would represent the lions share of our wholesale offer to the seller.
I hope this helps to explain the relationship between wholesale and retail.
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