Posts Tagged ‘secondary market’

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.

During January and February, reverse supply chains are maxed out.  Volume can be three or four times greater than during the sunny days of summer.  Many reverse logistics operations get backed up because they cannot ship enough to create the space needed to process more inbound product.  The bottleneck in shipping is usually driven by two primary drivers.  One driver is waiting for shipping authorization and arrangements to another warehouse, like the vendor, or another return center, or back to the factory where the product will be reworked.  The second cause for clogging up a returns facility is waiting for the secondary market buyer to pick up the goods.

Shipping product within a company’s supply chain or to another facility waiting to extend the process, can be slowed down during peak months.  However, while this issue can significantly impact the returns facility,  with focus and discipline, you can get the goods flowing.  To control this, the return center simply tracks outbound shipments waiting for authorization daily and agressively follows up on both the larger shipments and those that are behind in providing authorization or making transportation arrangements.

The second cause of return center inventory ballooning is often caused by the secondary market.  The secondary market buyer, otherwise know as the company that bought your salvage, will often buy goods and then delay making transportation arrangements.  Some asset recovery buyers will go out of their way to avoid picking up goods, that in many cases, they have paid for weeks earlier.  Why?  Because it is the first quarter and their sales have dropped off just like the rest of the retail world.

Remember, the secondary market is driven by two things: Cash and customer demand.  In January and February, salvage buyers are flush with cash and they want the great goods coming from the return center but there is NO demand.

Salvage buyers typically have limited storage and sell product either directly to the consumer or one level above the consumer.  A slow down in consumer demand has a direct impact on salvage buyer’s cash flow and holding capacity.  Salvage buyers have to balance the need for inventory in March and April with the steady drop of cash during the first quarter.  Combined with the fact that most salvage buyers don’t actually pay for goods until they pick them up, salvage buyers will leave product they’ve “purchased” in your return center as long as you will let them get away with it.

There are two thing that can be done to ensure this doesn’t cause you a problem.  First, in the salvage buyer’s terms and conditions, you should specify that product is to be picked up within a specific time limit after they have been notified.  A good general rule of thumb is five business days.  If the buyer doesn’t pick the good up, you have the right to put them back on the market and/or charge them a holding fee.  If you charge a penalty, make sure you have the controls in place to ensure you collect the fee before they are allowed to pick up the goods.

The second thing you should do is to build in a disciplined process where outbound salvage goods are aged and tracked by lot and buyer.  There should be one person responsible for updating the list everyday and one person should call the salvage buyers that are behind in pickup, everyday.  It is best that the person calling the salvage buyer is part of the group that is responsible for selling the goods.  This will give the caller leverage to get the salvage buyer to act.  As in most things, the squeaky wheel gets the oil.  This is an area where disciplined follow through will really pay off.

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!