What is the future of wholesale – the way of the dinosaurs or giants of the future?
Since the advent of digital commerce in the 1990s, the demise of the wholesale industry has been predicted many times. Why do we need a multi-tier distribution model when manufacturers can now sell directly via the Web, and new online platforms bring vendors and customers together?
If one takes a look on the German wholesale industry, one can clearly tell that the sector has responded to the changes in various sectors, adapting its offerings to meet the emerging needs of the respective markets and customers. While it is true that competition is getting tougher, the sector also remains remarkably stable. In 2015, there were approximately 157,000 wholesale companies in Germany, employing around 1.92 million people and generating sales of some EUR 1.13 trillion. In the same year, more wholesale companies were founded than went out of business (source: Creditsafe). Despite stagnant sales, there was a rise in employment and a new record was forecast for 2016 (source: BGA).
On the downside, there has been a negative trend in wholesale pricing for a number of years, with market players increasing their productivity to compensate for stagnant sales. Throughout that time, both the general investment climate and EBIT margins have remained relatively stable.
However, this stability is becoming increasingly fragile as digital transformation continues to erode traditional business models. These changes, including the emergence of new online platforms, are not only challenging wholesale companies, they are also threatening their traditional trade and retail customers in many sectors. Increasingly, consumers are buying products and services online rather than from local retailers or providers—usually for reasons of both price and convenience. With their lower pricing, logistical expertise, and easy access to increasingly tech-savvy customers, online platforms are now becoming serious competitors to traditional wholesale companies.
It remains to be seen how the mostly mid-sized wholesale sector will respond to these changes in market conditions and consumer behavior. The key elements in that response will include digitalization of the product range as well as clearer market positioning—whether as a price leader, service-oriented provider, multi-specialist, or niche player. Having a strong profile in a clearly defined market space will be crucial to future success.
But might the doomsayers be right? Are there really genuine alternatives to the traditional wholesale industry? Can manufacturers and new digital platforms really provide the same services, as is often claimed? Are these online providers willing or even able to take on all the traditional roles of a wholesale company, such as providing credit to retailers and the trades? Are they prepared to accept the type of risk that the construction wholesale sector took on in 2015, for example, when it was owed around EUR 589 million in unpaid invoices (source: BDB)? Can these new players really provide personalized assistance and services or implement customized processes throughout the supply chain from industry to retail and the trades?
In a market crowded with many buyers and sellers, the wholesale industry specializes in reducing transaction costs for all involved parties across a wide range of task areas. It seeks out and matches supply and demand, creating real added value for all participants. Thanks to its extensive market knowledge, it is able to combine products with processes and services to help its customers become more competitive. It is in this role that wholesalers will continue to serve as an essential link and facilitator between manufacturers, retailers, and the trades.
If you want to know more about opportunities of a truly digitized wholesale industry, download our new whitepaper, “Digitalization of the Wholesale Industry. Challenges – Opportunities – Strategies.”