Here is the text of the article:
Every business organization that is engaged in manufacturing, trading or dealing with salable products holds inventories in one form another. Inventory is held in the form of raw materials or in the form of salable goods. Since every unit of inventoried item has an economic value and is itemized in the books of account of the company, inventory can be considered to be an asset of the company.

Inventory Management is a critical function performed by planners to balance the inventory holding so as to ensure that optimum inventory levels are maintained. Any excess inventory will result in incremental costs of maintaining inventory and affects the financials of the company as it blocks working capital. Under inventory on the other hand can seriously hamper the market share. Any customer order that is not fulfilled due to a stock out is not at all a good sign. Therefore the responsibility of striking a fine balance in holding lean inventory calls for smart planning and continuous monitoring of the inventory levels coupled with quick decision-making.

Due to the above factors all organizations generally tend to avoid holding inventories except at certain times.

Inventory Buildup Can be a Sign of Hidden Problems
It has been noticed that inventory build up in process and manufacturing industries is often a sign of hidden problems, which lie underneath and are not visible at the surface level. In other words one can say that to cover up inefficiencies in the internal systems, people build up inventories as safety stocks.

Stock build up can occur as a solution to cover up supplier inefficiencies. If the vendors are not reliable and the flow of raw materials cannot be ensured, there results a trend to hold buffer inventories in the form of raw materials or semi manufactured Work in Process inventories.

In other cases inventory build up can happen due to bad quality. The inventory cost increase and resultant inventory storage cost can be attributed to cost of quality. If the production is not consistent with quality, the goods produced will get rejected leading to an increase in rejected inventory. Secondly, to make up for the loss due to quality rejection, one would have to increase production and hold finished goods inventory.

In other cases production delays can lead to build up of inventories too. Production delays can be attributed to varied reasons such as bad design of the product, production layout inefficiencies, production stoppage due to breakdowns, Lengthy process times etc. Besides these causes, there could be many other problems related to people and management resulting in slackness on the shop floor, which can add to inventory holding at various stages.

Such inventory build-ups not only block the working capital and increase un necessary cost of maintaining and storing the inventories, but also hide the problems which can cause serious threat to the business. Management should be watchful to identify any such inventory buildups and investigate into the root cause and solve such problems.

An inventory build up at the raw material side as well as the finished goods side gives cause for worry to the finance controllers. Any non moving inventory is a cause for concern because it not only blocks up the funds of the organization but the incremental cost of holding the inventory keeps increasing over a period of time and effect the bottom line figures.

More importantly inventory over a period of time is susceptible to loss, theft, pilferage and shrinkage. It can also become obsolete and deteriorate over a period of time if not used within the shelf life.

Hence inventory levels are always on the radar of not only finance controllers, but of the top management as well.

The original article can be found here.

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.

We also launched a few tool accessories lots including Milwaukee Roman Ogee bits, half round bits and matched rail and stile bit sets.

Lastly, we have a truckload…yes, 26 pallets, 4,992 units, of Mr. Clean Autodry Car Wash devices. Brand new! Who can’t use those?

Check it out…get registered..and bid!

Register now to get approved to bid!

We are thrilled to have her on board with us.

Given that most returned product cannot be resold in the store, it often ends up in liquidation. The fact that B-Stock Solutions has been able to increase recovery rates on unsorted, raw returns by as much as 100% suggests that the companies out there that are still using liquidators the ‘old fashioned way’ are leaving substantial value on the table.

Posted: Apr 26, 2010 09:52 AM by Will Ashworth
Here is the text of the article:

According to the National Retail Federation, customers returned merchandise valued at $185.5 billion in 2009, approximately 8% of total sales. Of those returns, 8% or $14.8 billion were considered fraudulent in nature. While this is a huge amount, investors might want to consider how much retailers stand to lose in future revenue by mishandling returns. The 2007 NRF report Customer Returns in the Retail Industry concluded, “broad policy-based returns initiatives can adversely impact good customers, not just abusers, and consumer satisfaction suffers as a result.” How certain are you that your retail stock’s return policies and the people managing those returns aren’t killing future sales?

Customer Service Continues to Suffer
Every interaction with a customer is an opportunity for retailers to cement the relationship, including returns and exchanges. No one knows this better than Bruce Temkin, the head of customer experience research at Forrester Research (Nasdaq:FORR). He’s spent the last 13 years researching and writing about the customer experience. If anyone knows customer service, it’s him. He wrote a particularly interesting blog post last year about an insurance company that will go nameless. Essentially he switched companies after 17 years because his existing insurer treated him so poorly. His last words were “Try not to turn good customers into detractors.” That’s what can happen when retailers spend less time helping customers return items then they do selling them in the first place.

Danish customer experience consultant Telefaction suggests that 90% of unhappy customers never buy again from a firm that’s given them poor service and that it costs businesses between three and 10 times less to keep an existing customer than finding new ones. If this is the case, why do retailers seem so oblivious to the situation? (Read more on retailers in 3 Hot Home Furnishing Stocks.)

Financial Consequences
In the 2007 report on customer returns referenced above, home centers like Home Depot (NYSE:HD) and Lowe’s (NYSE:LOW) experienced a 9% return rate that year. Retailers generally reduce both gross sales and cost of goods sold to account for its historical return rate. Thus, the number you see on the revenue line in the 10-K is net revenue after returns and sales taxes. Therefore, it’s a bit of guesswork generating a gross sales number. For the sake of this discussion, I’ll leave out sales taxes and focus on returns.

In 2009, Home Depot and Lowe’s net revenues were $66.2 billion and $47.2 billion respectively. Grossing them up by 9% (the average for home centers in 2007), Home Depot’s returns for argument sake were $6.6 billion and Lowe’s $4.7 billion. Now imagine that just 20% of these returns and/or exchanges went badly in one fashion or another. That’s $2.2 billion in merchandise. If half of these customers choose to stay away permanently (not the 90% mentioned previously), you’re talking about a billion dollars in potential lost sales each year indefinitely. It’s a lot of money to throw away due to poor execution.

Return Policies That Work
Zappos.com was bought by Amazon.com (Nasdaq:AMZN) in 2009. Part of the allure for the world’s biggest online retailer was Zappos’ incredible customer service. Nobody does it better, and returns play a big part in its fabulous reputation. It accepts returns 365 days a year providing free two-way shipping. The result: the company’s best customers return the most products. They also spend the most money resulting in higher profits. It makes me wonder why bricks-and-mortar retailers don’t do the same.

While it’s true that internet-only retailers don’t have the problem of fraudulent returns due to shoplifting, it is also true that the percentage of returns because of fraud generally runs between 6-8% annually with some small deviations. This is acknowledged by the NRF in its annual report on customer returns. Would it not make sense then to introduce a severely relaxed return policy that treats customers as adults? I believe the result would be greater customer satisfaction and ultimately higher revenues. Two examples of companies that do this are Macy’s (NYSE:M) and Kohl’s (NYSE:KSS). Both maintain generous return policies despite the fact the recession has slowed sales. Long-term, this under-appreciated component of customer service could pay dividends. (Read more in Retailers Getting A Bit Too Big For Their Britches.)

Bottom Line
If you currently own stock in a retailer or are thinking about investing in one, it’s important to understand that how a company handles its returns is equally as important as how it handles its sales. To me, it’s a lot like dropping the football at the other team’s five-yard line on a surefire kickoff return for a touchdown. The first 95 yards don’t mean much if you don’t make it into the end zone.

By Will Ashworth

You can find the interview here. http://bit.ly/bcx26k

If you like what you hear REGISTER now and we’ll alert you to new marketplace opportunities as we launch them.

Here is the text of the article:

———————————————
(Source: High Point Enterprise) by High Point Enterprise, N.C.

Apr. 19–HIGH POINT — There’s one factor that furniture industry veteran and analyst Jerry Epperson says should push buyers to purchase new inventory at the High Point Market — a buildup of stale inventory.

“The consumer has seen everything you have, and they’re tired of it,” he told a crowd of marketgoers at an educational seminar Sunday morning.

Epperson, a furniture industry analyst with Mann, Armistead & Epperson Ltd., publishes the monthly Furnishings Digest Newsletter out of Richmond, Va. He said at the seminar the state of the furniture industry was best determined by the performance of the mattress and bedding sector.

“The bedding sector is the purest indicator of the health of our business because there is no inventory cushion that you’ve got to work through like most furniture categories,” he said. “The good news is that in October of 2009, (bedding) showed a modest gain.”

While mattress sales were down 10 percent for 2009, the newsletter has documented percent gains in the sector every month since October. February saw a 12 percent gain.

“The mattress sector is the best indicator we have of what’s to come,” he said.

Given the somewhat good news, he said retailers should be ready to replace at least 35 percent of their merchandise, which will give consumers a reason to come back to their stores again.

Exhibitors at the High Point Market partially agreed with Epperson’s view but said they still sensed a hesitancy from buyers to place new, large orders.

“If the economy was vibrant, I think the answer would be yes, retailers would be ready,” said Simon Hilton, marketing manager with Fauld Town & Country Furniture. “I just don’t know that it’s there yet.”

Meredith Younger Spell, a spokesperson for Thomasville-based Younger Furniture, agreed with Epperson, adding that retailers needed new color and designs in stores to attract consumers.

“It’s not just that things have been getting stale,” she said. “I think retailers need more color. People have been telling us they need more color to bring change to their floors.”

Epperson also told retailers at the seminar that they needed to find a way to connect with Generation Y shoppers, those born between 1977 and 1994.

“That’s where the growth is going to be,” he said. “They (Generation Y) don’t have time to shop like baby boomers do. They’re only thinking about where they’re going to be in the next five years or so. You’ve got to find a way to reach them.”

For buyers of excess inventory who are interested in hearing more about how B-Stock Solutions can help you, listen to my recent interview on eBay Radio.

Then, get registered with us so we can let you know when we have new buying opportunities that might be interesting for you. It’s free to sign up!

“Big Problem for Palm: Growing Unsold Inventory” | John Paczkowski | Digital Daily | AllThingsD