2198: [Part 1] Why Buying Wholesale Can Be Misleading by Steve Chou on Competitive Advantage

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[00:00:58] This is Optimal Work Daily. Why buying wholesale can be misleading. Part 1. By Steve Chou of MyWifeQuitHerJob.com. A good number of phone calls we get for our e-commerce business are from customers asking for wholesale pricing on our products. And because we have no desire to be in the wholesale business, my default answer is always no. Instead, I offer them attractive discounts if they purchase above a certain quantity threshold.

[00:01:24] Now, what's funny is that when customers hear the word no wholesale, they almost always hang up without asking for pricing. What these customers don't realize is that the discounts we offer are competitive with many of the wholesalers in the U.S., and these customers are missing out. Do they think that wholesale is synonymous with lowest price? Here's the thing. Most new shop owners believe that buying wholesale magically means that they are getting the lowest price possible.

[00:01:49] Most shop owners think that obtaining wholesale pricing means that they can make at least a 50% margin when they list their products for sale. The truth is that the term wholesale is just a bunch of BS. Admittedly, though, the word implies major discount, which is why most people fall into the wholesale trap. Here's the reality. Wholesale pricing does not guarantee a certain margin, and it's based on an arbitrary MSRP, or manufacturer's suggested retail price, which is often bogus.

[00:02:19] Here are some things to keep in mind if you are looking to buy wholesale. You will not be the only one selling that product. If you are able to find your wholesaler easily, chances are that a bunch of other people have as well. Even if you receive attractive pricing for the products you want to sell compared to the manufacturer's suggested retail price, MSRP, the low barriers to entry will lead to severe pricing pressure in the marketplace. This phenomenon is especially prevalent on Amazon,

[00:02:47] where you potentially have hundreds of sellers trying to sell the exact same wholesale item. Even if you manage to find a wholesale product that is underserved on Amazon, it's only a matter of time until other sellers find the same distributor and start competing against you. Once that happens, it will quickly become a race to the bottom in terms of price. Even if your manufacturer offers map pricing, or minimum advertised price, at best, you will achieve price parity selling an identical product with very little added value.

[00:03:16] In addition, your prices for wholesale purchases will be tiered based on quantity. As a result, if you are a beginner, you will be competing against larger volume players who have more favorable pricing. Wholesale prices aren't always the lowest. When my wife and I were shopping for vendors for our online store, every single person we talked to claimed to be a wholesaler. But the price ranges were all across the board. Believe it or not, some of these wholesalers had prices that were more expensive than if I just went to Walmart.

[00:03:45] How can that be the case? Shouldn't wholesalers offer the most competitive prices? The fact is, there are many retailers out there who offer only a few products, buy an extreme bulk, and focus on volume. In many cases, wholesalers, at least in the U.S., are just small businesses that don't have the capital to purchase large enough quantities to get the best pricing across the board, and or import their goods from China, do a little quality control, and mark up the item 100%.

[00:04:13] Several years ago, my wife and I attended the annual San Francisco Gift Fair held at the Moscone Center. It's no longer called this. And as with most wholesale trade shows in the U.S., the majority of vendors offered a suggested retail price, which was roughly two times the wholesale price. Now, normally, trade shows like the SF Gift Fair are a great place to meet vendors because hundreds of companies congregate under the same roof for several days. But what we found was that the MSRP prices were outrageous.

[00:04:43] The problem with shopping at a trade show is that unless you have some context for the pricing of the goods you're buying, you will have no idea whether the wholesale prices you are getting are the absolute lowest. After all, the retail price is usually just a bogus number that you can't really expect to charge. Now, there were several vendors at this show that sold the same or similar products that we offer in our online store, but the wholesale pricing that they were giving us was a good two to three times higher than what we could get directly from our vendors in Asia.

[00:05:12] In some extreme cases, the markup was upwards of 8 to 10x. But if you looked at their retail pricing, it didn't appear to be a bad deal. That is why you have to be extra careful and do your homework before making a bulk purchase. The reality is that anyone out there can call themselves a wholesaler as long as they do the paperwork. There aren't any guidelines or certifications required, so the term wholesale can mean a huge range of prices. Amazon has changed the wholesale game.

[00:05:40] Today, Amazon is the most shopped-on e-commerce platform on the planet. In fact, at the time of this writing, 49% of retail customers start their product searches on Amazon. 49%. In the past, you could get away with selling other people's products online at higher prices because there was no single dominant platform. Back in the day, consumers relied on comparison shopping engines or Google to get the best price, which was a much more tedious affair. But today, you can simply go on Amazon

[00:06:09] and instantly compare multiple identical products and get the best price. As more and more people start selling the same wholesale product, the price can drop almost immediately. One of my friends had a wholesale product that sold well for many years until a rash of new sellers started listing the exact same item on Amazon. Within a single month, the price had dropped so significantly that he was stuck with the entire warehouse of unsellable inventory. Because half of all consumers start their shopping on Amazon,

[00:06:38] there's much less incentive for a manufacturer to sell you their products wholesale unless you run a brick-and-mortar establishment. After all, why should they sell their products to you at wholesale prices when they can sell on Amazon and make double the margin? To be continued. You just listened to part one of the post titled Why Buying Wholesale Can Be Misleading by Steve Chu of MyWifeQuitHerJob.com Observe.

[00:07:07] The North American Dad. 50s. Great polo collection. He enters his vehicle information on Carvana An offer appears in minutes. Remarkable. He squints, reads it again, smiles and says, Dang, that's a good offer. The highest form of approval. No haggling. No hassle. No one called him boss. He's still on the couch. Astonishing. Sell your car today on Carvana.com. Pickup fees may apply.

[00:07:37] Pink Panther is here. Coach and Spotify are teaming up to bring music and style together and they want you to be part of it. Grab your friends and head to the Tabby Tour, hitting cities around the country with live performances from special artists, exclusive experiences, and personalized products. And discover custom playlists on Spotify, booked just for you based on who you are and how you listen. Live your story with Coach. Learn more at coach.com. And thanks as always to Steve, one of our regular authors here.

[00:08:07] When his wife became pregnant and she planned to stay home with the baby, they knew that they'd need to find more income. So they started a little online store called Bumblebee Linens. Well, in just one year, they were able to replace his wife's salary of $100,000 per year and they started My Wife Quit Her Job to document it all. But he didn't stop there. He started the My Wife Quit Her Job podcast and even held his very first e-commerce conference called the Seller Summit. So there is obviously quite a lot you can learn from Steve and his wife

[00:08:35] and you can visit them at mywifequitherjob.com. But that's it for today. I thank you so much for joining me and I will, of course, be right back here with you tomorrow where we're going to finish up this post from Steve and where your optimal life awaits.