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Businesses engaged in the wholesale trade have an intermediate place in the distribution chain, between producers and consumers of goods. They purchase and resell goods, such as the output of agriculture, mining, or manufacturing, generally without making any substantial changes to the goods. Some of the purchasers of the goods are retailers or other wholesalers. (The term jobbers is sometimes used for wholesalers who specifically serve retailers.) Other purchasers use goods such as industrial machinery or medical instruments to produce goods or provide services. Still other purchasers are processors who transform raw or semi-processed materials into goods of greater commercial value.
Wholesalers operate out of offices or warehouses. The warehouses are temporary storage facilities; unlike a retail store, they are not designed to display merchandise and do not encourage walk-in traffic. Wholesalers do not advertise to the general public. They contact their customers by telephone, sales workers, industry-specific advertising, or electronic media. They tend to create long-term relationships with purchasers, becoming regular suppliers with strong ties.
Wholesalers earn their revenue by charging buyers slightly more than they have paid sellers. Buyers are willing to pay this markup because wholesalers serve as a single point of contact where goods are available from multiple producers. For example, a food market needing eggs, milk, fruit, vegetables, and meat can buy from one wholesaler rather than identifying, negotiating prices, paying, and arranging shipping with the countless different farms that produce these agricultural goods. Wholesalers also relieve purchasers of the burden of warehousing goods that are not needed immediately.
In 2012, wholesalers made $6.7 trillion in sales. These sales are divided into durable goods ($3.1 trillion in sales) and nondurable goods ($3.6 trillion). These two sectors make up the largest shares of the industry, accounting for 3.1 million employees and 235,193 business establishments (durable) and 2.1 million employees and 124,944 establishments (nondurable). There is also a third sector, wholesale electronic markets and agents and brokers, that consists of businesses primarily engaged in bringing buyers and sellers together to make deals. Although this sector supports 51,793 business establishments, it accounts for only 314,000 employees. It functions without a large workforce because it is engaged only in deal-making and therefore does not need workers for warehousing, trucking, and other functions of the two sectors that take possession of goods. Many of these establishments do not even rely primarily on human workers for deal-making, using electronic resources instead.
The Census Bureau issues monthly reports with two key figures on the status of the wholesale industry: sales and inventory. The ratio of inventory to sales (I/S), especially for durable goods, is often examined as a measure of the health of the economy because during recessions, those who buy from wholesalers curtail their purchases and wholesalers' inventories pile up. Because retailers generally place orders in advance of the shipping date, it takes months or years for their purchase cutbacks to become evident as wholesalers' excess inventory. As a result, the I/S ratio usually reaches its peak well after the recession has started, and it is considered a lagging indicator of economic health. For example, the I/S ratio for durable goods was 0.110 for 2007, the year the Great Recession began, and the ratio did not peak (at 0.123) until 2009.
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