1. Wahba reports in the article that Gap is betting on the success of their new “black pants” line. They are preparing an entire ad campaign around it.

2. Ultimately, a retailer’s performance is driven in large part on the depth of the markdowns they ultimately have to take to clear out the inventory they stocked up on while making bets like this one on black pants.

So they are betting their company’s financial performance on fickle consumers deciding they want black pants. How do you do that? While I’m pretty confident people will want pants, what if they want gray? I don’t think ‘almost’ counts for much in fashion.

The report goes on to cite Needham & Co retail analyst Christine Chen who warned that Gap could be setting itself up for another round of price slashing if it finds itself saddled with merchandise it has trouble selling, but said some of the inventory increase was likely to make sure Gap did not run out of the black pants.

Given this, I can only imagine the army of analysts they have in planning looking at sales velocity and margins and planning markdowns throughout each season. The amount of effort that goes into making sure they squeeze the absolute maximum revenue out of the inventory in the stores is immense.

What is really interesting, then, is how little attention is paid to squeezing the last dollar out of whatever is left after the markdowns are over and there is still inventory left over. That is what gets liquidated as excess inventory, and typically, that just goes to one of a handful of liquidation companies with whom the retailer has done business for 20 years. Little to no negotiation happens, virtually no analysis is performed, and little attention is paid to it.

In fact, what you can recover in bulk liquidation actually creates an anchor that informs the decision of when to pull the product off the expensive retail floor and stop marking it down any further. The sooner you do this, the sooner you can get new product out there at full retail price to start the cycle again. So, if you can raise the prices in liquidation you raise that threshold, you get the old merchandise cleared out sooner and you get the new merchandise on the floor sooner and you end up with fewer markdowns and a higher blended gross margin.

The team at B-Stock Solutions has helped companies liquidate apparel, electronics, airplanes, buildings, land, scrap metal, tickets, Christmas lights, and many, many other things using our private marketplace technology and online auction expertise. While each of these commodities has its own profile in terms of the percent of original retail that can be recovered, what has been consistent across all of it is that we have been able to generate 20% – 50% more for the items than the sellers did using legacy liquidation methods.

Think about that! If someone went into the corporate office at Gap, Nordstrom or Sears and demonstrated a new planning tool for markdown management that resulted in a 20-50% improvement in sale prices by better timing markdowns while still meeting sales velocity targets it would be revolutionary. The next billion dollar idea! Of course, that is unlikely to ever happen because so much time, effort and money is spent optimizing that part of the business. It is already pretty efficient.

But liquidation is not. Just this week I spoke to another billion dollar retailer about their liquidation process. Like most others, they use a manual process of emailing out manifests and taking offers by phone, email and fax. Best offer by Friday gets it. I explained, as I always do, that we have replaced that same process dozens of times and *always* generate 20%-50% improvements AND it will take less effort AND we’ve done this with nearly $1 billion of sales AND we can run a risk-free pilot to prove it will work for them.

The response: “we’re pretty happy with our current system”.

I’m open to suggestions on how I shine a big, bright light on this remaining inefficiency in retail from anyone who has actually read this post all the way to this point.

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.

“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.

Still the most interesting trend to us is:

3. More logistics software companies will venture into managed services.

This trend is one of the founding principles of the B-Stock Solutions model.  At eBay, our model was primarily on the software side, providing the custom auction platform for our customers as well as driving additional buyers from the eBay marketplace.

However, while at eBay, we discovered that many of the companies we called on:

1) Did not want to invest in a money losing operation like liquidation
2) Had little or no experience or knowledge in liquidation beyond “what has always been done”

With that knowledge, when we left to start B-Stock Solutions, we knew that many of our customers needed and wanted extra help developing their liquidation strategies.  This realization led us to offer our turn-key solution which enables our customers to outsource their liquidation process to us – allowing them to concentrate solely on their core business.

With our senior team’s 20+ years of auction-marketplace management experience and knowledge of the liquidation business, we are able to bring efficiency to this inefficient process and thereby drive increased recovery rates on excess inventory.  This includes pricing optimization via auction strategy and marketplace management and the testing, measuring and iteration that goes along with it. In addition, increasing the number of buyers for your product while protecting your channel partners, and handling all of the administration work associated with your liquidation transactions are all parts of this outsourced service that most companies will never invest in directly.

A managed service liquidation solution is the future of the industry. Can you afford to still be in the past?