Wholesale Trade
Overview
The wholesale trade industry is a large and diverse sector of the economy, employing more than 7 million people and sells nearly $3 trillion in raw materials and manufactured products. The industry is highly fragmented, consisting of a few large companies and numerous small firms. The products that wholesalers distribute to their customers are supplied by other firms in the manufacturing, mining, agricultural, and wholesale sectors of the economy. Wholesale industry consists of three categories: (1) merchant wholesales; (2) manufacturer’s sales branches and sales offices; and (3) agents, brokers, and commission merchants. The largest of the three—merchant wholesalers—sell goods to retailers and directly to industrial, commercial, farm, and other end users. Merchant wholesalers are distinguished from other types of wholesalers in that they actually take title to the goods. In addition, they may sort, assemble, grade, and store goods. Increasingly important as a business strategy to wholesalers are "value-added" services such as packaging and labeling.
Other wholesale transactions involve agents or brokers, who sell supplier-owned products primarily to retailers and other wholesalers for a commission or fee; and manufacturers’ sales branches and offices, which sell the parent manufacturer’s products mainly to retailers and industrial users. According to the most recent (1992) Census of Wholesale Trade, sales by manufacturers’ sales branches and agents accounted for approximately 40 percent of all sales by wholesalers. With the exception of motor vehicles and parts, agents and brokers and manufacturers’ sales branches represent only a minor portion of total sales for each of the major wholesale product lines.
Trends for National Wholesale Trade
Industry
Merchant wholesaling firms account for nearly 85 percent of all wholesaling firms and constitute the dominant wholesale distribution channel for each of the major product lines carried by wholesalers: bulk commodities, capital goods, and all consumer goods, except motor vehicles and parts. Sales by merchant wholesalers reached $2.67 trillion in 1998, up by 6.8 percent from the 1997 total of $2.50 trillion. After adjusting for inflation, the year-to-year gain was an impressive 6.2 percent. During the last three years, "real" sales of merchant wholesalers have increased 13.3 percent.
Annual Real Sales of U.S. Merchant Wholesalers, 1987-1998
(in
billions of 1998 dollars)
Source: U.S. Census Bureau
For more detail of above graphic
In recent years, wholesalers have faced increased competition from alternative distribution channels, including direct manufacturer-to-retail arrangements, mail order and catalog sales, and direct sales from the manufacturer to industrial user. According to industry specialists, about one-fourth of all merchandise are now being distributed through these alternative channels. As a result, all three major types of wholesalers have lost sales.
Merchant wholesalers have been challenged by the changing mix of products they have carried over the last ten years. Sales of consumer goods account for an increasing portion of all sales by merchant wholesalers, rising from 52 percent in 1987 to 56 percent in 1998. This implies that merchant wholesalers are becoming more dependent on product lines that are increasingly being distributed through alternative channels and represent a shrinking market for wholesalers.
Structural changes in distributive channels are forcing wholesalers to re-examine and readjust their strategies for maintaining a competitive edge, including reorienting their services and product mix. Historically, wholesalers were known for the products and brands they carried and the basic services they provided. This competitive edge, however, has been blunted by a similarity of quality among brands and insufficiency of basic services (e.g., in-stock inventory, small order handling, credit terms, and product training for both employees and customers). In response to these changes, wholesalers are adopting an aggressive program to improve and expand value-added services (such as relabeling, repackaging, next-day delivery, and applying bar codes) and utilizing available technologies to improve productivity, reliability, and service quality.
Current Status of Wholesaling in Washington
In 1998, the total employment of the Washington wholesale trade industry was 148,200. Thus far in the 1990s, wholesale trade employment has been growing slightly faster than total nonfarm employment in the state. Wholesale trade employment as a percent of total state non-agricultural employment has remained roughly at 6 percent since 1960. Much of the wholesale employment growth has occurred in durable goods (e.g., motor vehicles and parts, lumber and construction materials, metals, furniture, electrical goods, hardware, and machinery).
Wage and Salary Employment in Washington Wholesaling Sector,
1981-1998
Source: Washington Employment Security Department
For more detail of above graphic
Most wholesale trade firms are small, with an average firm size of 11 employees. Indeed, 90 percent of the 15,450 wholesale trade establishments have less than 20 employees.
Annual Employment Change in Washington Wholesale Trade and Total
State Nonfarm, 1982-1998
Source: Washington Employment Security Department
For more detail of above graphic
Washington Establishments in Wholesale Trade, 1981-1998
Source: Washington Employment Security Department
For more detail of above graphic
Size of Establishments of Washington Wholesale Trade Industry,
1998
Source: Washington Employment Security Department
For more detail of above graphic
Unlike retail trade, wholesale trade workers enjoy higher wages than the statewide average. In 1998, annual covered wages for wholesale trade workers averaged $39,140 compared to the statewide average of $33,922 (durable goods workers average annual payroll was $42,402; nondurable goods workers, $34,807). Real wage growth (i.e., controlling for inflation) has been modest for the Washington wholesale trade worker. Between 1981 and 1998, average annual real wages for wholesale trade workers increased by 0.9 percent. Durable wholesale workers’ average annual real wages increased by 1.2 percent; whereas, nondurable workers’ real wages increased modestly by 0.6 percent.
Table 1
Real Average Wages for Washington Wholesale Trade Workers,
1981-1998 (1998 dollars)
Sources: Washington Employment Security Department,
U.S. Bureau of Economic Analysis
| Sector | 1981 |
1983 |
1985 |
1987 |
1989 |
1991 |
1993 |
1995 |
1997 |
1998 |
| Durable goods | ||||||||||
$35,450 |
$34,339 |
$33,642 |
$33,923 |
$34,436 |
$35,259 |
$36,108 |
$37,118 |
$39,877 |
$42,402 |
|
| Nondurable goods | ||||||||||
$31,609 |
$30,028 |
$30,209 |
$29,486 |
$28,974 |
$30,292 |
$30,592 |
$31,227 |
$33,021 |
$34,807 |
|
| Total Wholesale | ||||||||||
$33,838 |
$32,403 |
$32,105 |
$31,873 |
$31,968 |
$32,998 |
$33,585 |
$34,442 |
$36,858 |
$39,140 |
|
| Total Retail trade | ||||||||||
$16,764 |
$16,274 |
$15,601 |
$15,233 |
$15,264 |
$15,672 |
$15,886 |
$16,163 |
$16,915 |
$17,908 |
|
| Total Services | ||||||||||
$22,525 |
$21,216 |
$20,583 |
$21,493 |
$21,592 |
$23,948 |
$24,908 |
$26,490 |
$30,653 |
$35,244 |
|
| Total Nonfarm | ||||||||||
$28,783 |
$27,789 |
$27,313 |
$27,304 |
$27,167 |
$27,928 |
$28,575 |
$29,046 |
$31,504 |
$33,922 |
|
Hourly Wages of Wholesale Trade and Total State Nonfarm
Employees, 1997
Source: Washington Employment Security Department
For more detail of above graphic
The labor force in the wholesale trade sector is dominated by operatives and laborers. Common wholesale trade occupations within this group are drivers, sorters and graders, stock handlers and industrial truck drivers, and hand packers. Sales and clerical occupations are also important in wholesale trade.
Table 2
Occupational Profile of All Wholesale Trade Workers in
Washington,
1998 and 2008
Source: Washington Employment Security Department
Estimated 1998 |
Projected 2008 |
|||
| Wholesale Trade, SIC 50/51 | Estimated Employment |
Percent of Total Employment |
Projected Employment |
Percent of Total Employment |
| Sales & related occupations | 40,046 |
25.9% |
45,229 |
26.5% |
| Clerical & administrative support | 36,103 |
23.3% |
37,842 |
22.2% |
| Service occupations | 1,589 |
1.0% |
1,542 |
0.9% |
| Agriculture, forestry & fishing | 3,612 |
2.3% |
3,620 |
2.1% |
| Production, operating & maintenance | 11,273 |
7.3% |
12,343 |
7.2% |
| Operators, helpers & laborers | 30,515 |
19.7% |
34,426 |
20.2% |
| Undefined occupations | 9,178 |
5.9% |
10,088 |
5.9% |
| TOTAL | 154,703 |
100.0% |
170,821 |
100.0% |
Contribution of Wholesaling to the
Washington Economy
Distributive services like wholesaling are often labeled "local-serving" in their operations. Generally, they are located close to final customers or to manufacturing suppliers. Prior studies have found that a significant portion of the state’s wholesale are sold afar rather than locally, implying that growth in wholesale trade need not be derived from growth in local goods production. One set of studies looks at the proportion of a state’s wholesale trade employment. The observation that a state’s employment concentrates in a particular wholesale trade sector (that is, that there is surplus labor employed in handling wholesale goods), suggests that the state handles more than it needs and therefore exports the surplus. The most commonly used measure for wholesale trade export has been a simple index of employment concentration that looks at an industry’s share of total employment in state. This share is put into index form by dividing the wholesale trade’s share of total state employment with the industry’s share of total national employment. An index number greater than 1.0 suggests that the state produces a surplus in the wholesale trade good which is exported elsewhere. Accordingly, an index number of 1.0 would indicate little or no external trade, while an index number of less than 1.0 would suggest that the state imports the wholesale good. For wholesale trade, the index of employment concentration indicates that several wholesale trade goods are important export sectors in Washington.
Index of Specialization of Washington Wholesale Trade, Selected
Sectors, 1998
Sources: U.S. Bureau of Labor Statistics &
Washington Employment Security Department
For more detail of above graphic
A recent U.S. Department of Commerce study found that wholesalers play an important export role; nearly one-tenth of all wholesalers are involved in exporting. Wholesalers demonstrate their competitiveness by establishing and maintaining a position in foreign markets and by delivering the products and services where needed, at the right time and at a reasonable price. In Washington State, wholesalers are increasingly involved in export markets. According to the recent study, Foreign Exports and the Washington State Economy, wholesalers are an important player in the state’s foreign commerce. In 1995, Washington wholesalers accounted for exports valued at $906 million, roughly 1.5 percent of their total sales.
Outlook
Alternative channels of distribution will continue to siphon off sales of particular wholesale trade lines. The pace is dependent upon the sales trends of discount stores, warehouse clubs, and other major retailers, who are heavily involved in strategic alliances and other methods of implementing alternative distribution channels. Employment growth will be modest given continued productivity and management improvements. Technological advances and business improvements such as computerization, sophisticated inventory controls, and more efficient systems of distribution and delivery are increasing adopted by wholesale trade operations. Wholesale trade employment in Washington is expected to grow at an average annual rate of 1.6 percent for the first decade (2000-2010) of the next century, slightly below the projected annual growth rate (1.7 percent) of the total nonfarm employment in the state. After the year 2010, wholesale trade employment is predicted to grow modestly at an annual rate of 0.9 percent, still lower than the 1.1 percent rate forecast for total Washington nonfarm employment.
Washington Wholesale Trade Wage & Salary Employment
Forecast,
2000-2020
Sources: Washington Office of Financial Management,
Washington Employment Security Department
