Wholesale and Commission Trades
September 2007
Introduction
The wholesale and commission trade (except of motor vehicles and motorcycles) is a fairly low profile economic activity but is a large and diverse sector of the economy playing a vital intermediary role both within the supply chain and between manufacturers and the marketplace and is becoming ever more sophisticated in the range and value of the services it provides. The industry embraces all purchasing and temporary storage activities relating to both raw materials and goods which are to be resold, generally in large quantities, to retailers or other wholesalers, to manufacturers and others for further processing or to professional users, including craftsmen. Wholesalers frequently physically assemble, sort and grade goods in large lots, break bulk, repack and redistribute in smaller lots. In performing this task, wholesalers fulfil three important roles in the economy. They provide businesses a nearby source of goods made by many different manufacturers; they provide manufacturers with a manageable number of customers, whilst allowing their products to reach a large number of users; and they allow manufacturers, businesses, institutions, retailers and governments to devote minimal time and resources to transactions.
There are three main types of wholesale company:
- Wholesale merchants, the largest group, who buy and sell merchandise on their own account – that is, they take title to the goods they sell. Generally operating from warehouse or office locations, they distribute from their warehoused stocks or arrange for the shipment of goods directly from the supplier to the client. Increasingly, such companies are also providing added value services such as marketing and support, packaging and labelling, product training, credit facilities, etc.
- Wholesale agents, brokers and commission agents, who buy and sell merchandise owned by others on a fee or commission basis. They do not take title to the goods they buy or sell and they generally operate at or from an office location. This group includes business-to-business electronic markets that use the Internet or Electronic Data Exchange to facilitate wholesale trade.
- Manufacturers' sales branches and sales offices, which market and sell the parent manufacturer's products mainly to retailers and industrial users, usually co-ordinating distribution without handling stock themselves.
Employment
In Lancashire the wholesale and commission trade activities comprise more than 2,940 separate establishments and have an employee workforce of about 25,500 people. This represents some 4.3% of all Lancashire employees, a share on a par with the Great Britain average. Unlike the retail trades, employment within wholesaling is still dominated by male employees who comprise two-thirds of the total workforce and 85% of all jobs remain full-time (Table 1). These are characteristics more typical of manufacturing than of service industries.
| Employment Status | Employees | |
| No. | % | |
| Male full-time workers | 16,600 | 62.7 |
| Male part-time workers | 1,100 | 4.0 |
| Female full-time workers | 6,000 | 22.5 |
| Female part-time workers | 2,900 | 10.8 |
| Male workers | 17,700 | 66.7 |
| Female workers | 8,800 | 33.3 |
| Full-time workers | 22,600 | 85.2 |
| Part-time workers | 3,900 | 14.8 |
| Total | 26,500 | 100.0 |
| Source ONS - Annual Business Inquiry | ||
The industry is widely dispersed across the sub-region but well over a third of jobs are based in the Central Lancashire area, notably in Preston, South Ribble and West Lancashire districts, presumably reflecting the area's accessible location astride the main transport routes (Figure 1). Within local districts the importance of wholesaling as a source of jobs ranges from a share of 7.5% in South Ribble and 6.7% in Rossendale to just 2.6% in Lancaster and 2% in Fylde.
With a statistically "average" company size of less than 9 employees the sector is highly fragmented, consisting of a few large companies and numerous small firms, many family-owned. More than two-thirds of all establishments employ fewer than 5 people and 97% employ fewer than 50 people accounting for 62% of the sector's workforce (Table 2). Establishments employing more than 100 people account for nearly a quarter of the employee workforce. The majority of the small independent firms serve craft and professional users; that section of the trade serving medium-sized and larger businesses is much more concentrated. Some wholesalers offer a small range of items, perhaps all made by one manufacturer; others offer thousands of items produced by scores or even hundreds of different manufacturers. Some operate in very specialised markets, others provide for a large range of industrial and commercial markets.
| Employee Size Band | Establishments | Employees | ||
| No. | % | No. | % | |
| 1-4 | 2,033 | 67.7 | 4,100 | 15.6 |
| 5-10 | 491 | 16.4 | 3,700 | 13.8 |
| 11-24 | 277 | 9.2 | 4,500 | 17.1 |
| 25-49 | 117 | 3.9 | 4,100 | 15.6 |
| 50-99 | 55 | 1.8 | 3,800 | 14.2 |
| 100 and over | 28 | 0.9 | 6,300 | 23.6 |
| Total | 3,001 | 100.0 | 25,600 | 100.0 |
| Source ONS - Annual Business Inquiry | ||||
Wholesalers in Lancashire cover an enormous range of products and services. Just a few examples of such businesses include Askew Group Ltd and The Holt Jackson Book Company, suppliers of books to libraries, based in Preston and Lytham St Annes respectively; Bako North Western, bakery products ingredient suppliers; Corus UK, Blackburn suppliers of strip, long, plate and tubular steel products; Flowtech, Skelmersdale-based catalogue distributors of fluid power and industrial products; James Hall & Co., Spar distribution for the north of England from its Preston base; Halsall International Ltd, Fleetwood toy and giftware manufacturer and distributor; Lynteck Group of Nelson, distribution of electronic security systems; Micro Peripherals Ltd, Accrington-based distribution of IT and technology products; Sharrocks Fresh Produce, Preston wholesalers and distributors to supermarkets and caterers; and Unichem, wholesaler of pharmaceutical, medical and healthcare products in South Ribble.
The industry encompasses a huge range of individual activities serving all manner of other sectors. At the broad level the largest local components are the wholesale of household goods (from textiles, footwear and clothing to electrical appliances, housewares and furniture, etc.), which accounts for some 27% of wholesale jobs; the wholesale of non-agricultural intermediate products (like fuels, wood, metals, construction materials, chemicals and waste and scrap) comprising 22% of jobs; and the wholesale of food, beverages and tobacco (of which non-specialised wholesaling is the largest element) making up 19% of jobs. Wholesaling on a fee or contract basis provides for less than 5% of the total employee jobs.
Employment Trends
Wholesaling was a fairly stable sector in employment terms over early post-war years with job numbers hovering between 13-15,000. Sustained growth over the 1970s created about 3,000 net new jobs with another spurt in the mid- to late 1980s (Figure 3). Job levels peaked in 1989, contracted over the recession but subsequently resumed their upward momentum. Between 1991 and 20045in excess of 6,100 additional wholesale-related jobs (+31%) were created in Lancashire.
Recent patterns of local employment change in wholesaling have been modest. Between 1998 and 2005 about 1,400 net new jobs have been added (+5.8%), whilst the number of establishments has fallen slightly (by about 140 or -4.5%), suggesting a degree of consolidation. The strongest gains over this period have been in the wholesale of machinery, equipment and supplies, particularly in the wholesale of electronic parts and equipment; in the wholesale of non-specialised food and drink; in hardware and plumbing supplies and in "other" (including furniture) household goods. On the downside, job numbers have fallen in some previously buoyant sectors like the wholesale of textiles and of clothing and footwear and in metals and construction materials. Most specialised product activities of the food and drink wholesale market also witnessed some job reduction, presumably reflecting the growing strength of the multiple supermarkets and their development of internal supply chains dealing directly with suppliers and manufacturers. The main exception to this trend was the wholesale of meat and meat products, presumably reflecting in part some "bounce-back" as confidence has returned to the meat industry following its earlier troubles with BSE.
| Wholesale Sector | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 |
| Wholesale fee/contract | 900 | 1,000 | 1,000 | 1,000 | 1,000 | 1,000 | 1,300 | 1,100 |
| Agriculture and raw materials | 600 | 500 | 600 | 600 | 600 | 600 | 700 | 500 |
| Food, drink and tobacco | 4,700 | 4,400 | 5,000 | 4,900 | 4,700 | 4,700 | 4,900 | 4,900 |
| Household goods | 6,800 | 7,200 | 6,800 | 6,900 | 7,100 | 7,200 | 7,000 | 7,000 |
| Intermediate products | 5,300 | 4,900 | 4,800 | 5,300 | 5,900 | 5,800 | 5,500 | 5,600 |
| Machinery and equipment | 3,700 | 3,800 | 3,700 | 3,900 | 4,200 | 4,200 | 4,400 | 4,600 |
| Other wholesale | 2,100 | 2,000 | 2,200 | 2,200 | 2,000 | 2,100 | 1,900 | 1,900 |
| Total wholesale | 24,100 | 23,800 | 23,900 | 24,800 | 25,600 | 25,500 | 25,600 | 25,500 |
| Source ONS - Annual Employment Survey/Annual Business Inquiry | ||||||||
General Characteristics
Nationally the wholesale and commission trades sector is of considerable economic importance being comprised of nearly 110,600 separate enterprises and employing 1.2m people. In 2005 it achieved total turnover of nearly £505bn and generated nearly £60bn in gross value added. The distribution of consumer goods to retailers is an important element of the industry but the wholesaling of industrial materials and equipment and machinery accounts for more than a half of the industry's turnover. The key factors determining wholesale industry effectiveness are economies of scale, links with other industrial sectors and the ability to meet customer demands such as price, service, convenience and product quality. To prosper, wholesale firms must offer the most valued mix of functions at a lower cost than their suppliers (manufacturers) or their customers (retailers) can achieve themselves.
The industry has traditionally had fairly low entry barriers and until recently the numbers of wholesaling businesses in the County have been on a general upward trend. Considerable investment has taken place in strategically located warehousing on new industrial sites served by good transport links.
The traditional role of the wholesale sector as intermediaries or "middle men" in supplying warehousing and distribution services is still a strong and important one but is changing rapidly with the development of new technology and logistics management to handle just-in-time arrangements and the increasingly close relationships in many sectors towards closer supplier/customer relationships. Warehouses are evolving from holding facilities into dynamic operations designed to move products to their destinations as quickly and efficiently as possible. In food and drink and certain types of consumer goods wholesaling in particular, most of the large retailers now have their own buying and central distribution operations. Manufacturers and retailers are adopting Internet solutions, including networked supply-chain management systems and Web-based market places, to integrate their procurement, production, logistics and accountancy processes. Such direct supply chain co-operation in the distribution process between producers and retailers is posing a threat to traditional wholesalers who are becoming more dependent on a diminishing core of independent retailers. At the same time, the volume of goods sourced directly from overseas has increased markedly with the benefits of trade liberalisation and globalisation, which means that wholesalers have increasingly become importers of goods.
As well as direct manufacturer-to-retailer arrangements, wholesalers are also facing greater competition from other distribution channels including mail order and catalogue sales as well as direct sales from the manufacturer to industrial users. Such structural changes in distribution channels and the more capital-intensive nature of the industry are forcing many wholesalers to re-examine and re-adjust their strategies for maintaining a competitive edge. In some cases such competition and resulting pressure to lower operating costs is continuing to encourage distributors to merge with or to acquire other firms in a steady process of consolidation. Wholesalers are also tending to enlarge their role in marketing such as advertising and promotion, finishing or semi-finishing and their logistical functions are diversifying to include stock management or procurement for third parties, installation, maintenance and after sales service. In line with these changes, skill requirements are changing and are becoming more technically demanding. Increased competition and structural changes are likely to mean fewer and larger but more sophisticated and "added value" directed companies though there is still likely to be a large tail of smaller niche and specialist wholesalers.
For further details, please contact:
Peter Kivell
Tel 01772 534157
Email Peter.Kivell@lancashire.gov.uk