Probably you can’t circle the planet, but your products can! And what better way than wholesaling your products in Dubai, a city bursting at the seams with tourists and expats around the year! The best part about being in a wholesale business is – you, in most cases, are the next in the supply chain, buying (or importing) directly from manufacturers and producers and selling in mass to retailers! And you already can feel, the pleasure of seeing your products go in bulk is incomparable!
Why Dubai for wholesale business?
The word “Dubai” conjures images of the twinkling skyscrapers, opulent hotels, sunny beaches, massive ports, jumbo malls, dunes of sands, glittering gold shops, driverless trains, squeaky-clean roads, crime-free streets, and hot cars! But the emirate is way more than aesthetic and safety pleasure! Despite lacking in some of the most essential things for a living, such as water and agricultural produces, the Middle-Eastern Shangri-La has set itself apart as one of the most sumptuous business hubs in the world. A mixed bag of expats from around 200 nations living in harmony, the peace-loving city is a big noise in the world of investors and their likes. Big small business of all types takes place alongside sun-seeking tourism. There is no dearth of businesses in Dubai retailing or wholesaling their products and commodities. And it is easy to see why! With a Dubai-based wholesale business, you can enjoy a smorgasbord of benefits such as 100% foreign ownership of your business, full repatriation of profits and earnings, no foreign-exchange control, tax and duty-free business jurisdiction – the whole shooting match. True, but what tops the cake is legions of retailers and consumers. Thanks to the UAE’s 90% expat population! So, you’re sure to hit the ball out of the park if you are intending to start a wholesale business in Dubai.
What is a wholesaling?
Wholesaling is the practice of buying something in a large amount from manufacturers or from distributors, and then selling it further in bulk to retailers for monetary benefits. Simply put, wholesale is bulk buying and selling. And as the goods are purchased in large volume, the price per unit is much less, which is how wholesalers make profits. You can wholesale as a distributor, importer, exporter, jobber or even manufacturer. Wholesalers can even be retailers who buy the manufactured items from various factories and engage in mass selling of them at a discounted price, to different retailers or customers. Furthermore, there are various ways of wholesaling a product/s. For instance, you can open bricks and mortar stores, visit craft fairs and boot sales depending on your wares, you can sell your items online like Amazon, or you can also go all-out and adopt the 3-in-1 model
Benefits of doing a wholesale business in Dubai
Rapid infrastructural advancements, rise in expat and tourist population and myriad other changes in laws and regulations for good have made Dubai a cynosure in entrepreneurial circles. There are plenty of reasons why Dubai’s a treat for the senses of wholesale business persons! The advantageous geographic location of the emirate is one of them. Sitting gracefully on the crossroads of world trade, Dubai is a prominent shipping hub, with about 2 billion consumers within the vicinity of six or so hours from the city and its 30 (give or take) free zones. This means reaching the global markets is – as easy as pie. With a free zone-licenced wholesale company, you can enjoy a wide range of benefits, including affordable business setup packages, restriction-free currency exchange, modern commercial space in a community of similar businesses, in-house business formation assistance, etc. In addition to above-mentioned perks.
Pros & Cons of being a wholesaler
Unlike retailers who don’t hesitate to keep profit margins of 100% or even 1000% (as per the product type), wholesalers can’t keep huge markup (usually not more than 15-20%). However, as they sell in bulk, the small profits across a very large number of products sold pile up in a wink. The more you buy the more you save, thanks to bulk buying discounts but remember you need more space to accommodate the stock! You check the supplies before you sell them and can add thank you notes, or seasonal greetings. You’re more in control of the whole process. And the best part is you can quickly and easily stay on top of your stock levels. Furthermore, if the wholesaled products are tailor-made such as school uniforms, then the sourcing gives you full control over the outcome of your product, and you can make significant profits by being the only provider of those unique products. Therefore, if you have a warehouse, sufficient capital, a willing manufacturer and no middlemen, you can make huge profits. Let’s look at some of the other advantages of starting a wholesale business in Dubai along with a few disadvantages.
Disadvantages of Wholesale Business
Advantages of Wholesale Business
Low markups (usually around 15-20%)
Bulk selling makes up for low markups
Profit margins are lower than manufacturer sourcing
The profit margin is higher than drop-shipping as there are no middlemen involved
You have to find quality suppliers by attending trade shows, expos or exhibitions in Dubai. If you are procuring the products from manufacturers directly, you have to show them that your company has a going concern
Once found, suppliers are for long-term. Switching suppliers is easy as well
Possibility of bad debts and retailers. The credit cycle can stretch causing a lack of working capital at times. Accounts receivable (A/R) can represent up to 40% of a company’s assets which can be a serious financial and operational threat to an enterprise
There are ways to prevent or deal with the bad debt issues such as Trade credit insurance, a tool used to reduce or eliminate the risk of non-payment of commercial debt. Simply put, in the event of payment failure from client’s side, the insurance company makes good on the obligation
Renting a warehouse to store the goods is mandatory
The size of your order can be decreased or increased depending on demand
Wholesalers have to have enough capital, and a willing manufacturer for bulk buying
Usually, the credit period is short in this business model ranging from a few days to months.
Huge competition in market as retailers will turn to wholesalers who give better discount per unit
Possibility of gaining monopoly if it is custom-made sourcing aka DIY-sourcing
Challenges for wholesalers and ways to tackle them
The business of wholesale is buoyant, without a doubt, but no business is free from difficulties. As a future wholesaler, you should know what hiccups could come your way and how to deal with them. Ahead, we will see some of the bumps you might stumble upon during your journey as a wholesaler.
Credit extension: There are situations when you realise only by extending credit limits, stretching repayment terms or being less restrictive with rules about personal guarantees can give you a competitive advantage for both domestic and international sales opportunities. But businesses are not done with a generous heart! Then what to do? Opting for trade credit insurance can be really helpful in these kinds of situations.
Thin profits margins: There are wholesalers who keep very thin margins, which can severely hurt the flow of cash in the event of any unwanted change in expenses. Say, if a company keeping a 5% profit margin incurs a bad debt of $75,000 then it has to generate a sales revenue of $1,500,000 in addition to the regular sales to achieve break even. You might not want to take this kind of risk on alone, particularly when markups are getting affected by increasing and uncertain prices.
Cash flow problems: The major chunk of wholesalers’ working capital is tied up in inventory and receivables because of which cash flow becomes the major concern for them. Two of the best ways to steer clear of cash flow issues later is slashing the Day Sales Outstanding (DSO) today and shortening the credit-to-cash cycle (the average number of days a company takes to convert credit sales into cash). A credit insurance policy can work like a charm in reducing DSO, as it improves credit decisions on the front-end and ensures that money owed from slow payments and customers in default gets paid.
Lenders: A company’s borrowing capacity gets affected by trade credit insurance, therefore getting leverage with lenders is a smart step you want to take. Receivables act as a significant collateral for a bank to loan you, and insuring them increases your ability to borrow more. With their largest assets guaranteed, wholesalers can prop up working capital availability and use additional funding in growing the business. Companies with a history of strong liquidity also need more working capital these days due to the inflation and extended delivery times in the wake of COVID-19 pandemic.
Expenses: Leaner the credit department, the better it is for you as a wholesaler. And this can be achieved by performing credit analysis. By gauging and analysing your customers’ creditworthiness, not only you will be able to minimise unnecessary expenses, but also shift your teams’ focus on developing customer relationships and growing the business. New sales opportunities means new customers that can add unforeseen risks. With external analysts having your back, your credit team feels empowered and gains confidence to say yes to customers that make sense and be more heedful when caution is justified.
Things to consider before starting as a wholesaler in Dubai
Pros and Cons both of wholesale business: You should weigh both the benefits and downsides of starting and running your wholesale business in Dubai, UAE
Suppliers: It’s a task within itself finding your suppliers. Trade shows are like little hidden gems to find “the ones”
Market: You must know your market before launching the wholesale business
Shipping: Depends on you whether you would like to charge your customers for the postage or offer free delivery. If you’re offering the latter, then you’ll need to absorb that cost somewhere.
Pricing: Prices should be reflective and fair. They have tons of options to turn to otherwise.
Payment options for customers: Different customers want to pay differently.
Customer Service: They are paying not just for your product but for a promise that the product will reach them timely, as described and that it will do exactly what it said on the tin.
Easy way to incorporate your wholesale business in Dubai: Working with one of the most experienced business formation specialists such as Adam Global Dubai business setup advisors can make the journey an easy breeze.
Other associated costs: There are likely to be more costs (overheads, packing, staff etc)
Bulk buying becomes mandatory: You often have to order large quantities and upkeep the inventory until it is sold
The storage space must be appropriate: You’ll be holding your own stock. Therefore, you need safe conditions to keep your inventory
Risks: There is a certain amount of risk, you buy the product with no guarantee you’ll sell it
The process of starting a wholesale business in Dubai or getting a wholesale business licence in Dubai?
You will find tons of wholesale trading businesses and retailing companies operating in Dubai. Statistics say the wholesale and retail trade contribute more than 25% to the emirates’ entire GDP. Around USD $55 billion (highest ever) is expected to come to the UAE from wholesale and retail trade. So, if you are wondering to set up a wholesale trading business in Dubai, the city will not disappoint you! From food items, electronic devices, clothing, jewellery and accessories to vehicle parts and whatsit doohickey, there are tons of products in Dubai you can wholesale depending on your interest. No matter what commodity you choose to trade, you have to get a Dubai retail and wholesale trading licence from the authority in charge of the jurisdiction you choose. Here are the common steps that will take you to your wholesale trade licence in Dubai:
1. Shortlist the business activity or trade licence category
The journey to your Dubai-based wholesale business starts with selecting the type of business activity that falls into the category of wholesale & retail trade licence.
2. Determine a trade name in line with your business type and the UAE law
Provide at least three names that are appropriate for your business and comply with the UAE trade name guidelines. The chosen names must be available and not be offensive or potentially blasphemous in any way. In addition, the proposed brand name can’t be acronyms of your own name. For instance, Abdul Salam Damda Trading Company LLC would be acceptable, but A.S.D. Trading Company LLC won’t be.
3. Decide the business location that checks all the boxes
Depending on your requirements, business goals and benefits you want to avail in Dubai, figure out first which economic zone or business jurisdiction suits you – whether mainland or free zone. And then rent out adequate commercial space in the chosen jurisdiction to operate your wholesale business in Dubai, considering the type and size of the items you want to trade in bulk. With the wholesale business model, you’ll be needing a warehouse to unload the mountains of your purchases, as well as office space next to it to function smoothly. You might want to choose a business site in the heart of Dubai, linking to the airport and the seaport and local retail businesses who would be interested in buying wholesale from you.
4. Complete the paperwork and submit with the trade licence application
Now comes the documentation part. This is done in two phases. One set of documents is submitted to attain initial approval from the relevant authority, and the second set is presented when applying for the wholesale trade licence. You might need to obtain special approvals from external authorities as well, depending on the desired business activity. If you are not sure about the documents or external approvals, you can get in touch with one of the best business advisors such as Adam Global.
5. Pay the fees, collect the licence and perform the post-business setup tasks
Upon submission of all the paperwork along with the duly filled-in application form, a payment voucher is generated. You have to pay the fee within the specified time period and collect the licence when approved. The process of obtaining a licence to start a wholesale trading business in Dubai takes 5-10 working days if there is no discrepancy in the paperwork. By working with one of the experienced wholesale business formation specialists in Dubai, you neither have to worry about the paperwork nor unnecessary admin errors. Once your wholesale trade licence is with you, you can get going with other important tasks to become a full-fledged wholesale business entity, such as opening a corporate account in a UAE bank, buying a business insurance, hiring employees, applying for visas and so on.
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