Excess Inventory Liquidation’s Bad Rap

The Dirty Little Secret that Isn’t a Secret
The term “liquidation” has developed a very negative connotation in business. It is instantly associated with failure. It may have resulted from a product being introduced with a design flaw or technical issue that results in high return rates. Perhaps a merchant or planner failed to accurately project the level of demand for a new product and overbought creating excess inventory and overstocks. Alternatively, a company that runs out of cash might be forced into an asset liquidation. While there are many reasons for engaging in different types of liquidation, none of them are viewed positively.

It is really hard to think of a positive use of the term in business, and as a result, many large retailers and manufacturers don’t want to admit they have a problem that requires use of liquidation services. With a reluctance to even acknowledge the problem, it is no surprise that these companies are not thinking about investing in this area to bring similar efficiency to it that they demand in other areas of their supply chain.

The real “secret” is that this is no secret. Everybody knows! Have you shopped on Amazon or eBay lately? Why do you think those new-in-the-box Nikes from last season are 70% off?

Outsourcing Can Bring Efficiency With Minimal Investment
The traditional approach to liquidation is to sell to 2 or 3 big liquidators. You send them a list, they send you back an offer and then you start negotiating down from your asking price. Alternatively, some companies care so little about liquidation that they don’t even bother negotiating. Rather, they establish a contract that says Mr. Liquidator will take everything at ‘x’ cents on the dollar. In exchange for a grotesquely low price, the liquidator agrees to take huge quantities of everything the seller wants to move…any time, no questions asked. It is a nice symbiotic relationship that, in the absence of any better option, works pretty well for both parties. It also precludes the thousands of smaller liquidators and brokers who would like to buy this merchandise from participating.

Whoever has been “stuck” with managing the liquidation function at the retailer likes knowing he/she has a reliable outlet to keep the shelves clear and, more often then not, believes they need these 2-3 liquidators more than the liquidators need them. This is where the biggest misconception occurs and causes even the most innovative companies in the world to manage this function the same way it was managed 50 years ago. The truth is, there are tens-of-thousands of buyers who would love to buy almost any company’s excess inventory. What has been lacking are the tools to manage a very large buyer base interested in unique lot configurations of various products of uncertain value without dedicating lots of resources to the effort.

B-Stock Provides the Tools and Services
What B-Stock Solutions does is provide the necessary tools and services to allow companies to do this. By creating an ability to sell to a more fragmented buyer market, we reduce the power of the big liquidator in the company/big liquidator relationship. Once we have built up the buyer base to critical mass for a client, every bit of inventory sold is certain to go to the buyer with the highest willingness to pay at any particular point in time. Our clients typically enjoy 20-40% higher recovery rates by virtue of this broader customer base and the auction mechanism we employ.

More importantly, the marketplace can absorb all of the company’s excess inventory because there is so much buying power (or absorption capacity) among the larger number of buyers. No longer must a company worry about their ability to move excess inventory on demand. They find they can sell anything they want in 3-5 days and realize great prices by letting buyers bid prices up, rather than negotiate them down. So the company gets to enjoy improved velocity AND recovery rates simultaneously.

Liquidation as a Strategic Asset
Having established the capability to move ample volume at adequate velocity and improved recovery rates, company’s can then factor these improvements into their planning. Since liquidation is typically a money-losing endeavor, if these losses can be substantially reduced the merchant can have more degrees of freedom in their buying to ensure they maximize sales at full retail. Similarly, with returns often making up a large portion of what gets liquidated, a company can offer a more liberal return policy when it knows its recovery value on what comes back is substantially higher.

On the other hand, some companies may have no interest in investing these additional dollars into improving their business service to customers. That’s fine…they can just enjoy the additional dollars dropping straight to the bottom line. They can really add up.

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Report: 10,000 retail stores could close by year-end

Interesting take on the state of the retail industry by Grant Thornton CARS national managing principal Marti Kopacz. Marti makes a great point that I could not agree with more strongly:

“Although there’s high risk in the retail industry, now is the time for companies to fine-tune their business and take advantage of new opportunities,” he said. “The winners will be the disciplined companies investing the time, effort and resources to reexamine their strategies and position themselves for growth.”

Inventory is the enemy of the retailer. Successful merchants in these tough times will be forward-thinking and creative in there use of new and innovative solutions, like B-Stock Solutions’ services, for managing their inventory levels and liquidation recovery rates.

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