Cash and Carry wholesale system has risen to international fame over the last few years. With established businesses opting out of the standard wholesale system in a bid to perform better in the market, its yet to reach its peak of popularity.
We’re aware of how as a devoted business striving to make an impact on the market, you wish to stay at the top of your game as well!
Hence, in our endeavor to assist you through this process, we’ve provided a comprehensive overview of this form of trade and the way the cash and carry wholesalers operate to maximize your profits.
What is Cash and Carry?
Cash and Carry trade serves as a kind of operation that thrives in the wholesale sector. It’s an arbitrage strategy deployed by cash and carry wholesalers. An arbitrage strategy simply represents concurrent purchase and sale of the same asset in varied markets.
This entails purchasing the underlying asset of a futures contract — a contract where assets are purchased on prices agreed upon by the parties prior to payment and delivery follows later at a specified time — in the spot market for the period of the arbitrage.
Cash and carry wholesalers deploy this strategy to gain from the momentary and minute differences in similar assets’ or financial instruments’ listed price in different markets.
The significance of this strategy lies in the fact that wholesalers will succeed in gaining from it till the purchase price of the asset, along with the cost of carry (involves storage, insurance etc), is lower than the amount received by selling the futures contract before expiry.
To sum it up, the essence of cash and carry trade is exploiting the mispricing there is, between the underlying derivative and its subsequent derivative.
Market and pricing discrepancies, hence, pave the way for arbitrage and this strategy, which together, they eventually resolve to earn a profit.
Now the way this form of trade works is rather straightforward.
- Two securities, that are mispriced in relation to each other, are picked out by an investor. This brings forth an arbitrage possibility.
- Following a general rule of thumb, the investor then purchases the spot security or asset and sell the asset’s futures contract. The spot security is held until the futures contract reaches expiry, post which the spot security is delivered by the investor.
- Cash and carry wholesalers can gain from the transaction only if the purchase price of the spot asset, along with the cost of carry, is less than the price at which the futures contract was sold at first.
Let’s elaborate on this with an example!
Let’s assume that an asset’s current purchase price is $50, while the one-month futures contract is valued at $55.
The carrying cost that entails financing, storage, insurance etc, for this particular asset amounts to $3. On grounds of this, cash and carry wholesalers would purchase (also called opening a long position) the asset at the amount it’s priced at — $50.
Subsequently, the wholesaler would sell (open a short position) the one-month futures contract at $55. The cost to purchase and carry or hold the asset amounts to $53, however, the investor has reserved the sale at $55.
They would hence hold on to the asset (carry) until the futures contract expires, and deliver it post that, gaining an arbitrage profit of $2 from the transaction.
What is cash and carry warehouse?
Simply put, a cash and carry warehouse is a large store that houses a massive range of goods, which are usually purchased by other businesses in bulk at pretty economical prices.
A cash and carry store stands in contrast to the typical retail outlets that intend to serve end-consumers. Instead, a cash and carry store targets professional and registered customers, ie. hotels, traders and other business clients and professionals.
A cash and carry wholesale warehouse usually operates on two bases — self-service or based on samples. While the self-service basis entails pretty much what the name implies, the sample basis involves customers choosing from specimen articles. They either use a manual or a computerized ordering system, however, don’t serve themselves.
The customers and cash and carry warehouse hosts involve businesses like retailers, caterers, institutional buyers and other professional users. They settle the invoice in cash there and then and transport the items themselves.
There are considerable distinctions between the regular wholesale system and cash and carry wholesale system. In this system, instead of credit, the payment is made on the spot and the customers arrange for the transportation of goods themselves and assume the entire risk.
Can anyone shop at cash and carry?
This is a doubt that lingers in everyone’s mind!
Simply put, legitimate businesses are authorised to make purchases from a cash and carry stores. Cash and Carry chains are business-to-business suppliers and only bona fide wholesale traders and businesses, who have a sales tax certificate to their credit, are eligible to shop from them. End-consumers and the regular public don’t have the access to purchase.
However, there are benefits for end-consumers in this deal as well! Cash and Carry outlets make large quantities of goods available to retailers at a great bargain, hence, retailers as well, price these goods accordingly — making them inexpensive for the customers.
Characteristics of a Cash and Carry Wholesaler
- Cash and Carry wholesalers are business-to-business suppliers who render purchase access to authorised business clients.
- They function like the standard service wholesalers, except they provide goods on a cash-only basis and the option to purchase on credit isn’t available.
- They fill up their inventories with goods bought directly from the manufacturers — a characteristic that lets them keep their prices relatively low.
- These wholesalers double up as middlemen between the manufacturers and retailers. However, in contrast to the standard wholesale system, cash and carry wholesalers simply sell goods to their clients, who then pay them in cash on the spot and make necessary arrangements for transportation and assume every risk. Hence, unlike other wholesalers, they aren’t responsible for any after-sale commitment and delivery of the goods.
- This prevents the interference of middlemen who usually carry out the after sale and delivery functions, thus making the entire process more efficient and cost effective.
- They execute substantial research and services across regions and varied client groups, and come up with a wide-ranging catalogue that serves the interests of clients ranging from varied retailers to hotels to institutional clients.
- Cash and Carry wholesalers thrive on the arbitrage strategy that they deploy to exploit the variations in prices of similar assets.
- They work in warehouses with minute display and with a staff that’s quite low in number in comparison to the standard wholesale system.
- They are every small and medium business’ ideal go-to option for wholesale supplies.
- They supply a broad range of products that range from cosmetics to toys to accessories etc, but food and drinks are what these wholesalers sell the most.
- They typically function from massive warehouses that usually aren’t situated in the city center or hotspot. This location strategy is what that allows them to price their products at competitive and cheap prices.
- The wholesalers operate on self-service and sample basis. Customers usually walk around the premises and choose from a variety of products. The option to shop online is also something that’s now being made available to potential clients.
- Apart from their standard functions, they often also execute functions to add value, such as launching promotions.
Now that you are familiar with the ins and outs of cash and carry, does it feel like the ideal way to go about restocking your inventory?
Well, you’re on the right track as we, at Nimbus Wholesale, provide the best cash and carry services.
Visit our wholesale warehouse Denver at 4825 Broadway, Denver, CO 80216, United States or check out our online shop.