Have you ever sold your clothing online via a secondhand outlet when you’re clearing out your closet? If you have, then you’ve contributed to wholesale clothing markets. Wholesale is a concept that has been part of the market for nearly as long as there has been commerce.
Wholesaling as a Business Model
Some people see wholesaling as a way to make money without having to manufacture goods on their own. For many people, the biggest problem with becoming a wholesaler is finding the space to store your product. However, there are many other important considerations before becoming a wholesaler. While at their core wholesalers are simply intermediaries for businesses or large-scale sellers to get discounts on items, they still must operate at a profit margin.
Discover what wholesaling is and how to start your own clothing wholesale business before you determine the next steps. In addition, be sure to do market research and check specific state and local laws that regulate wholesaling in your area.
What Is Wholesaling?
What exactly is wholesaling? The term describes the practice of selling merchandise in bulk to a retailer for resale. The retailer can then repackage the items for a higher price per item by selling them in smaller quantities. That means that items don’t come to a reseller in a ready-to-sell fashion. Instead, the packaging is left up to the individual seller.
So, how does that work? Why can prices change and customers don’t seem to mind? It all has to do with volume.
Consider jean shorts as an example. If you’re buying from Jane Doe Clothing Company, you can contact them directly and purchase a large number of items directly from the manufacturer. Because you’re taking the clothing straight from the source and at a much higher volume than an individual, your price goes down.
Why Is Wholesaling Cheaper?
Why is buying 100 items cheaper than buying a single item? There are no shelving costs, packaging costs or factory reset costs for you to absorb. Also, there is a guaranteed level of commitment from a wholesaler.
It is also essential to know that when you buy one item, it will still be cheaper than a wholesale purchase of 100. People generally only purchase high quantities to resell them.
Sometimes, wholesalers become the middlemen for companies by brokering deals between themselves and the retail business that will purchase goods for them. Typically, these agreements come in the form of exclusivity contracts that state that the clothing store will only utilize one specific wholesaler. This makes sense when dealing with single-source items such as batteries or zippers.
Importance of Wholesaling
Buying wholesale clothing for resale is an essential aspect of the retail ecosystem and can be seen as a step within the supply chain. This chain begins with raw materials and ends with a sale to the final customer or end user. Typically, wholesalers are not manufacturers. That means they do not make the goods that they sell, and instead, they make their money by distributing end products to consumers.
This doesn’t make a wholesaler an official distributor of any brand or a representative for a final product line. The wholesaler does not speak for any brand, and it does not guarantee the quality of a product or product support. In short, the wholesaler is only a representation of its company and not of the brands that it specifically purchases to sell. It may not know anything about the individual products that it is buying, and unlike regular brands, a wholesaler can sell competing products.
Small Business Wholesale Suppliers
It goes without saying that buying 1,000 of an item is more expensive than buying a single item regardless of how steep your discount may be for getting an item in bulk. But that doesn't mean you shouldn't shop around for your wholesale deals. Finding wholesale clothing to sell in, say, a boutique shop requires product sourcing. Sourcing describes the task of looking for the best price for value by volume. There are quite a few pros and cons to working as a wholesale supplier.
Consideration 1: Standardized Products
When you’re a wholesaler, you are buying from the source at an extremely large volume. Basically, you know what you are going to get when you deal with the manufacturer, and your customers (typically resellers/retailers) know what they are getting from you: a smaller volume at a better price than buying a single unit.
The downside of this is that you do no quality control as a wholesaler. You’re not an expert in the products that you buy and cannot offer any end-user support. That leaves you on the hook if the quality of the product goes down suddenly. It can also hurt your bottom line if your supply chain is rocked by unexpected rises in tariffs or taxes.
Consideration 2: Larger Orders
As a wholesaler, you aren’t making a large number of orders. Rather, you’re ordering an extremely large quantity of goods at one time. As a wholesaler, you should know what your customers are looking for in regard to the volume of the product and how long they go between orders.
The downside is that you have no control over when your customers actually order. As a new wholesaler, you may run into problems in having to scramble for products or find that you have too many of a given product on hand. This situation can be mitigated by judicious bookkeeping, but in the beginning, you may have to contend with an expensive learning curve.
You can also lower any financial impact by doing extensive market research. Knowing who else is wholesaling in your market, for example, can give you an idea of the market demand for your products. It can also let you know if there is too much or too little competition in certain aspects of your work.
Consideration 3: Fast Turnaround
Wholesaling can make a turnaround from cost to profit a swift one. This turnaround of your products can become akin to clockwork as you build your customer base. You can purchase from a manufacturer knowing that you are going to sell jean shorts to X number of retailers at Y price resulting in Z profit.
However, you can’t control trends. If you usually buy from a supplier that then stops manufacturing, you cannot provide that product to your customers and will have to go back to sourcing. You will need to be aware of and ahead of potential supply problems to lessen the financial impact the process has on you.
Keep in contact with your sources, even if you only buy from them once or twice a year. Regular check-ins can not only keep up a good rapport with your supplier but it will give you an idea of how the manufacturer is doing and its projected numbers.
Consideration 4: Less Control
Because you are selling items that have been made by someone else, you do not control the production in any way. This includes the production line, how the items are made or, in some instances, when they are made. Large-scale manufacturers may only run item batches once or twice a year, for example.
Learning to work with this lack of control could look different depending on your preferences and business style. One seller may choose to house large quantities of stock, while another could take orders throughout the year and only order to fill once or twice. If you are a seller who wants a great deal of control with your product line, you are likely to be very frustrated as a wholesaler.
Consideration 5: Established Products
You’re working with established product lines as a wholesaler. This means that you don’t have to advertise, deal with production challenges or handle the reputation of any single brand. In many ways, a wholesaler is a sort of silent partner. The general consumer doesn’t know about you, and you’re unimportant to their idea of a product.
There is one downside to trading in established products: public relations is not yours to control. If a brand makes a public relations blunder that is large enough to stop customer support, then your bottom line may be affected through canceled orders and lack of ordering.
In addition, you do not control the quality of the products. You may sign on to sell a particular brand and do so with great success for some time, but if the quality of materials or production skills fall, you will need to adjust your business model accordingly. For this reason, it is always a good idea to deal with multiple brands and product lines. If you don't and you face an issue with your main source of revenue, you will need to quickly find a replacement.
Legal Considerations for Wholesalers
Once you’ve weighed the pros and cons and completed your market research, you should then begin handling the legal process of becoming a clothing wholesaler. Your first step should be to procure an EIN, or employer identification number. This number is how the IRS tracks businesses for tax purposes. Without an EIN, you cannot obtain the licenses that your wholesale business will need to operate.
Because of where your position will be in the product line, you will have to have a specific license to operate in most states. Depending on what metrics the state uses to define a wholesaler, you will have to obey state-specific regulations.
In addition, it is advised that you speak with your attorney before setting up shop. Since you will be reselling products made by other manufacturers to retailers, you will not be directly responsible for the quality of the goods. You will need to be sure that your business is structured in such a way that you are protected from potential litigation in the event that something goes wrong with a product. For instance, if you are wholesaling sleepwear for children, there are laws regarding flame resistance that must be followed, and you will need to protect yourself from oversight on the part of the manufacturer.
Wholesale Licensing Basics
California, for example, requires any seller who makes at least three sales of wholesale products over a 12-month period to have a wholesale license. Typically, the license is worth the money that you pay for it, as it allows you to avoid paying any sales tax on your purchases.
Depending on the state, you must charge your retail customers a sales tax. Different states provide wholesaler licenses that can be called different names, and they may allow different functions. Some of these different functions act as a resale permit, seller’s permit or resale certificate.
It is also important to check on any state-specific legislation that covers doing business in the state. Certain states require a sales tax to be paid on wholesale clothing that you sell regardless of how it is obtained. That means that you will have to charge your retail customers sales tax to offset your obligations.