In Start Your Own Wholesale Distribution Business, the staff at Entrepreneur Press and writer Bridget McCrea explain how to start and run a successful wholesale distribution business. In this edited excerpt, the authors discuss the factors you need to take into consideration when deciding where to locate your new wholesale distribution business.
When it comes to distribution, the old adage “location, location, location” holds true in some cases but certainly doesn’t apply across the board. And while it's quite possible to start a small wholesale distribution business from just about anywhere, entrepreneurs who want to grow and prosper must at least be situated near transportation centers, especially if they plan to utilize shipping methods other than local delivery. Several other factors also come into play, so read on to learn exactly what steps you’ll need to take to secure the right location for your company.
Wholesale distributorships usually don't require high-traffic or high-visibility locations, but those that aren’t homebased would be wise to find commercial space somewhere in the industrial section of town. Distributors should seek out areas that are rich in industry and close to transportation centers—especially if they're going to be shipping outside a 50-mile radius of their locations (this is the “normal” delivery area for most distributors, though the radius varies by company).
According to industry expert Adam Fein of Pembroke Consulting, desirable locations also vary by the type of product being distributed. “If you’re an industrial distributor, for example, you’ll want to be set up where the U.S. industrial base is, typically in the Midwestern states like Ohio, Michigan, Missouri, etc.,” Fein advises. “Generally, however, wholesale distribution companies tend to locate where land isn't too expensive and where they can buy or rent affordable warehouse space for the storage of inventory.”
Naturally, not every distributor needs a 40,000-square-foot warehouse situated in a major industrial park. In fact, location may not be a critical issue for the small wholesale distributorship that customers rarely visit. However, any distributor who plans to sell “over the counter” to customers—or have a walk-in showroom of some sort—would be wise to put some thought into his or her location. If your company is a construction supply distributor that serves building or electrical contractors, for example, your location should be accessible to those customers as they go about their daily routines. The location of your business should be decided based on both accessibility and visibility (for the customer) and affordability (for the company itself).
Be sure to check out your county or city zoning laws before getting into a lease or purchasing a building—you don’t want to find out too late that the location wasn’t zoned for your type of business.
Study your target market, and make sure your location of choice fully meets your clients’ needs. For some companies, that means setting up shop in a high-foot traffic area. For others, it means positioning their locations near public transportation. It can take time to find the perfect location for your business, so get an early start and don’t give up.
Mike Smeaton of the Safety Market Group, a buying group of 50 independent safety equipment distributors in Brooksville, Florida, says a new distributor’s location is best determined by available, affordable warehouse space that has adequate logistic support (such as UPS and FedEx) and available skilled employees. “Most wholesale distributors aren't retail-oriented," Smeaton says, "so foot traffic isn't as important as square footage cost.”
One other thing to keep in mind: Because you’ll most likely be delivering products to your customers as opposed to having them come to you (though some distributors do have walk-up counters and storefronts), the average customer won’t really care about where that product is stored. For this reason, using your basement, garage or spare bedroom as a starting point in business can make perfect sense, as long as you're situated near transportation hubs where products can be shipped and received on a frequent basis.
Of course, what you're selling will also determine if you can start from home. For instance, while a garage could certainly warehouse a jewelry or gift business, if you’re selling heavy equipment, you’ll probably need more “official” space for your operations.
Lease, Rent or Buy?
If you decide to set up your company in a commercial location, you’ll have three choices: lease space, rent space, or buy the building. For the most part, your decision will be between leasing and buying because, quite frankly, the owners will want you to occupy the space for at least a few years (renting is more of a short-term option). This can pose a problem for you in the very early stages, namely because you're never quite sure how quickly your business will—or, in some cases, will not—grow.
Don Mikovch, president of Alexandria, Virginia-based Borvin Beverage, recommends that all new wholesale distributors lease space whenever possible. “After all, you just need a flat-floor warehouse," he explains. "It’s not like a meat-processing plant, where they have to have equipment like pulleys installed in the ceiling in order to operate properly.”
Other distributors may feel differently. If the capital is available, for example, it may be smarter to go ahead and purchase the facilities. Don’t forget to factor future value into your decision. For instance, if you want to be near a planned shopping center or close to a place where two highways meet, you may realize that those areas can become much more valuable and that rents might eventually go up. However, if you own the building from the outset, then you don’t have to worry about it, and it becomes an asset for your business.
These days, location is becoming less of an issue for entrepreneurs looking to start a business. As the Internet has broken down barriers between large and small companies, and as professional voice mail services, marketing materials and other tools formerly for highly capitalized firms become easy to acquire on a small budget, it’s easier than ever to start a business from a spare bedroom. The average wholesale distribution firm can be started anywhere, as long as there are manufacturers to buy from and customers to sell to.