Definition: A merchant is a person or firm whose profit is obtained from buying and selling goods to others. The broader term embraces any legal entity whose main business activity is to buy and sell products. However, the word most commonly applies to wholesalers and people trading from one country to another.
What Does Merchant Mean?
Merchants purchase goods to manufacturers or suppliers and sell to firms or to final consumers. They are part of the distribution chain and can make profit only if there is an attractive difference between the purchasing price and the selling price. The difference has to cover for operating costs such as office rent, employees, trucks and warehouses, if needed. Merchants exist because of market conditions that obstacle direct interaction between the merchant’s suppliers and customers.
In this regard, marketing and sales competences are critical to develop a successful business. Wholesale merchants sell to retailers and tend to deal large volumes. When trading internationally, they have to fulfill import and export procedures. Retail merchants commonly have a store or simply use online platforms to sell to final consumers. Thanks to the available technological tools, merchants can reduce operating costs and expand their markets by employing e-commerce platforms.
Wines and Liquors Co. is a large merchant specialized in imported wine. This company purchases large quantities of middle-price wine brands from Chile and Argentina and sell them to Latin American wholesalers. This merchant has ten regular suppliers and more than 50 customers in ten different countries. One of its clients thought the price of the wine was too high and therefore decided to import those products directly from manufacturers.
This client was not an importer but a wholesaler whose main competitive advantage was to distribute efficiently to a network of 100 retailers. After experiencing some difficulties this client realized that he could not import large quantities and therefore the cost reduction would not be very significant. In addition, all import procedures were complex and therefore required additional expensive personnel. Finally, the firm decided to keep Wines and Liquors as its supplier.