Retail Industry Problems: 10 Reasons Wholesalers Fail

How to Ensure That You Don't!

Whether you are considering starting your own wholesale retail store or have already established one, this list of the top ten reasons for failure — and what you can do to avoid them — will help you keep your business on the path to success.

Retail Industry Problems

Aside from the usual economic ebb and flow of buying seasons, some of the factors that affect retail sales include:

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Employee preparing mobile phones
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Entrepreneurs are often visionaries, which is great for creating a company. However, after the initial challenge of opening a store, many company founders look toward the next big step. Without clear direction and involvement from the company leader(s), a wholesale retail store can soon go off course. Like anything else, a company requires careful maintenance of day to day operations to remain at peak performance.

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Natural and man-made disasters often deal death-blows to companies, such as floods or fires. While it’s difficult to avoid such disasters, company management can ensure the business carries adequate disaster insurance and a plan is in place for emergency scenarios.

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Access to Capital

In business, finances are a often a paradox — it takes money to make money. While some companies are able to start-up with little capital, they often reach a point where they need additional financing to continue operations. Without those funds available, they are unable to meet their day-to-day expenses. 

Securing access to capital before the company needs it is often the difference between success and insolvency.

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High overhead costs (and failure to keep expenditures lean) can have a detrimental effect to a new or struggling wholesale business. Some common overhead costs include: 

  • Rent
  • Supplies and goods
  • Utility bills
  • Insurance
  • Interest
  • Advertising 
  • Accounting fees,
  • Legal fees
  • Labor burden
  • Repairs
  • Telephone bills
  • Travel expenditures, and
  • Utilities
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Poor Sales

Sales, of course, are the lifeline of any business and without it, the business soon flounders. Some causes of poor sales, such as disasters are out of the hands of company leadership. However, many reasons for poor sales can be directly traced to management. For instance, if changes in customer preferences and the market in general are ignored, sales will suffer. While there is no way to guarantee sales, managers can be proactive and responsive to sales trends.

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Management/Leadership Problems

Of the 10 reasons listed here, this reason is the only one that is completely in the hands of the company’s owner(s). While many people are great entrepreneurs — able to start a company from just an idea — these same people sometimes aren’t ready for the management issues they face as the company matures. Without prior experience or simply because of incompetence, many wholesale retail store owners are the very reason their company eventually fails. Of course, with more experience and the ability to spot and address problems before they get out of hand, business owners are more likely to avoid these challenges.

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Economic Factors

The economy is cyclical, which means it periodically goes through low times. Wholesalers who are unprepared for those times of economic recession are often caught off-guard financially. While the economy isn’t something an individual company can change, business owners can prepare for those difficult times through scenario training and financial planning.

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Overexpansion is similar to the issue of excessive overhead. While it may make sense in moderation, too much too quickly can often bankrupt a business. Supply problems, logistic challenges, staffing issues, and financing concerns are potential obstacles in expanding. Without adequate preparation and strategy, the attempt to capture more of the market can quickly turn into a matter of survival.

The important idea within this top 10 list is that all these reasons for a wholesale retail store’s failure can be avoided. With adequate preparedness, as well as balancing the short-term challenges against the long-term needs of the company, you can successfully navigate these obstacles and achieve the full potential of your own wholesale company.

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Customer Problems

Customer problems can range from your primary buyer being unhappy with your products (customer service issues) to customers going out of business without paying for a major shipment first. Like fraud and disasters, companies don’t have much control over their customers. 

Preventive planning is the key. Maintaining clear lines of communication, reviewing customer profiles, and being quick to address customer concerns are all excellent ways to keep a minor problem from turning into a major disaster.

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Fraud — by customers, employees, vendors, or partners — is an unfortunate part of any industry. While there is a degree of due diligence a wholesaler can perform, no one is able to avoid fraud altogether. Similar to disaster planning, the best course of action is to have adequate insurance as well as policies (such as a check and balance system) in place to avoid fraud and be ready to address it when it happens.