Posts Tagged ‘liquidation’

Last week at the Reverse Logistics Association conference in Bentonville Arkansas, there was much discussion about the future of vendor return agreements.  These are agreements between retailers and manufacturers that will govern returns privileges and related fees.   So what can manufacturers expect in the future.  In a word: “Simplicity”.  Retailers are dealing with more and more vendors with more complex returns requests.  With the push toward sustainability, more regulations coming, and the continued growth in off shore manufacturing with no domestic facilities, the need for simplicity is understandable.

So what will the future options be?  Manufacturers will be given two choices:

1. The retailer will ship returns to them.
2. Retailers will dispose of returns as they wish and pass on any additional costs that are incurred.

Fees for these two options will vary depending on the choices made and the retailers will expect the same amount of credit for the goods themselves from the vendor regardless of the choice made.  Manufacturers should consider the variables and options involved carefully.

If a manufacturer goes with the second option and retailers will  dispose of the goods as they wish, which gives the retailer the option to liquidate the product, keeping all the proceeds; or dispose of the product and charge additional disposal fees if incurred.  Like many things, the devil is in the details and both retailers and manufacturers should carefully variables and associated charges.  If both retailers and manufacturers work together, they both could find opportunities to reduce handling, transportation and disposal costs.   For example,  if a manufacturer is going to dispose of the returned goods when they receive them, they might want to work with the retailer to dispose of the goods at their returns facilities and save the extra leg of transportation and handling.

If accountability is a concern, manufacturers should work with their retail partner to negotiate a damage or swell allowance.  How these allowances will be set and confirmed should be clarified and agreed to but again, additional transportation and handling can be avoided.

When negotiating return agreements with retailers, the manufacturers should keep the following points in mind:

If you want to have the product sent back, leverage a return authorizations and condition requirements in order to get a lower consolidation fee.

If returned goods are liquidated by the manufacturer, work with your liquidation partners to coordinate shipping returned goods directly from the retailer to the liquidator, saving two legs of transportation and additional handling.

If you are going to allow retailer to do what they want it the product, ensure agreement is made on fees and related liability.

If you are going to negotiate a swell allowance or a similar off invoice credit, get agreement on how the allowance is going to be calculated, how it will be verified, and how often it will be adjusted.

One thing that will not change is the need for manufacturers to have an exit strategy for their goods.  Thinking through an “exit strategy” for merchandise is an important concept for every manufacturer, regardless of what they sell or to whom they sell it.  Developing a well thought out exit strategy for returned goods will significantly impact  retail customer satisfaction.  Developing an exit strategy for both customer returns and recalled goods will make a manufacturer easier to do business with, help avoid additional liabilities, and will ensure they maximize the value of goods in their reverse logistics pipeline.

In today’s podcast Curtis Greve explains the basics of the secondary market and liquidation.  According to Dr. Dale Rogers, the secondary market accounts for over 2.25% of GDP.  The secondary market is much bigger than most think and a great opportunity for many companies looking to develop additional sources of revenue and working to reduce their carbon footprint.

With imports growing, economic pressures increasing, and shareholder demands for more sustainable business practices continuing to build, developing liquidation capabilities is an effort that is well worth any executive’s time and attention.

The Reverse Logistics Podcast

Your host is Curtis Greve.

As we near black Friday, supply chain managers across the globe are trying to catch their breath. For the most part, the biggest bulk of the importing and manufacturing for this year is completed. Retail distribution is working to the fill the retail stock rooms and but even their work is starting to tail off.

The next big event for many supply chains is to process returns and stale goods left over from the Christmas season. (Yes Mr. President, that’s CHRISTMAS).

Today, half of all goods returned after the Christmas season ends up being sold on the secondary market for a percentage of the “original retail” price. Interesting, there are three terms used for the secondary market; Asset Recovery, Salvage, and Liquidation.

As with most things, Google does a great job of defining these terms. If you Google Asset Recovery, the first page is full of companies that specialize in retrieval, repairing and selling “end of life” computer equipment. These are the guys who will take away the old PC’s when your lease is up or you are buying new computer equipment. They will ensure the data is cleansed and you will get some type of revenue from the resale of the refurbished unit or parts harvesting.

If you Google Salvage, you get a completely different set of providers in an entirely different industry. This search shows specialist in auto salvage of parts and buildings. Specialized in every way but clearly different from the Asset Recovery guys.

Then there is Liquidation. If you Google Liquidators you find a variety of companies that sell close out merchandise to both the B2B market and the B2C market. They buy in bulk and typically their products have never been sold to a consumer. They may be from last season, they may be ugly, or they may have been refurbished or re-manufactured to repair some flaw that prevented the primary market from buying them, but you can get a great deal.

The one thing every asset recovery seller, salvager, and liquidator has in common is that they have goods they sell below normal market values. Each has an niche and each will expect to make about 25% over the total cost of goods, transportation and processing.

One last thing. For the supply chain managers out there who have a corner of their facility that is holding damage product, now is the time to sell to your liquidators or salvage buyers of choice. Prices on the secondary market are best in September, October and November. If you wait until the first quarter of the year, you won’t get near the recovery value. Remember, the secondary market is ruled by the law of supply and demand.

The Sustainable Supply Chain Management Podcast is hosted by Dr. Dale Rogers and Curtis Greve. This podcast is focused on sustainable supply chain management issues and best practices.

Podcast #4 – Asset Recovery

Join Curtis Greve and Dr. Dale Rogers as they discuss basics of Asset Recovery in their fourth podcast. Whether you call it Asset Recovery, Liquidation, or Salvage Sales, it is an opportunity to increased profits for manufacturer and retailers alike.

Successful manufacturers such as Nike, Dell, HP, Adidas, Foxconn, and leading retailers such as Walmart, Kohl’s, Canadian Tire and Target successfully integrated a Strategic Asset Recovery Strategy into their Sustainable Supply Chain Management Strategy. This approach enables these companies to maximize the value of obsolete inventory while removing slow moving or dead inventory from the primary stream of commerce.  A Strategic Asset Recovery Strategy will increase customer satisfaction and increase profits.

If you took a good look at the average retailer’s inventory, you would find that roughly 6% of total sales gets returned by consumers. During my 20+ years in the business, I can tell you that half of all returns are not defective at all. They were returned for some excuse that was really a variation of buyer’s remorse.

Most retailers return half of all returns to the manufacturer and sell the other half on the secondary market. Some refer to this product as salvage, some call it liquidation, some call it asset recovery, but they all call it profitable.

Selling goods on the secondary market can literally turn trash into cash.

What many don’t realize is that there is a lot more product that is never sold to the consumers that is sold on the secondary market. This inventory comes from seasonal product that didn’t sell, over buys that can’t be returned, and product that is recalled by the maker or the retailer.  If you shop at a Marshalls, TJ Max, or Big Lots Odd Lots you know exactly what kind of stuff I’m talking about.

Regardless of why the product goes to the secondary market, there is a formula that salvage buyers use to figure out what they will pay for the product. That formula works like this:

(Retail X 75% X %Yield) / 2 – Transportation = Salvage Buyer Bid

There are some important variables involved but for the most part salvage buyers work on a 50% margin, assuming a certain amount (% Yield) of product that can be sold for roughly 75% of a brand new item.  From that, they subtract transportation, which is usually paid for by the salvage buyer, which leaves the amount the salvage buyer will pay for the returned or recalled product.

However, this the land of supply and demand. Depending on the situation, bids could fluctuate significantly. Other factors also impact demand and the price paid on the secondary market. A good example would be iPods. A year ago refurbished iPods were being sold on the secondary market for $100. Then Apple dropped the price of new iPods to $100 and the inventory that was in high demand had to be sold at a loss.

The secondary market is not for rookies. There is a wide network of really smart people who buy and sell product just like the guys on Wall Street buy and sell stocks. If you want to jump in the market, hire an expert, just like you would if you wanted to buy stock. Underestimate these pro’s at your peril.

Whether you are looking to get into the liquidation business or if you are thinking of turning your trash into cash, now you have an idea of how the secondary market works. Here’s to bigger profits and turning trash to cash!