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Creating Value from Returns – Through Liquidation

Creating Value from Returns – Through Liquidation

by Howard Rosenberg, CEO and co-founder, B-Stock

Reverse Logistics Magazine, Edition 89

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In an effort to drive customer loyalty, retailers are stepping up their game when it comes to the ease of returning items: special ‘returns’ entrances, pop up kiosks at the mall for items purchased online, year-long deadlines, third-party apps, and label-free returns are among the options. But a happy return for the customer is a logistical nightmare for the retailer, and one that’s costing billions of dollars in efficiency: in 2017 the value of retail returns amounted to around $400 billion; that’s a 53 percent increase from 2015.

As these return options continue to drive a culture of risk-free impulse buying and over purchasing, retailers and manufacturers must adopt newer, more-efficient reverse logistics programs for how to deal with the merchandise once it’s returned to the kiosk/store/warehouse. For example, there are SaaS inventory management solutions that – based on data – determine the best channel for an item once it returns to the warehouse (re-shelve, refurbish, liquidate, scrap). This automated process allows retailers to quickly process, reroute, and track merchandise, boosting efficiency.

Interestingly, more and more returned inventory – regardless of condition – is now being slated directly for liquidation. This is true for nine of the top 10 U.S. retailers and due primarily to 1) the cost associated with processing items back on shelf (consider this: it costs twice as much to process an online return it does to sell it) and 2) newer technology-based liquidation methods available that produce much higher recovery rates for the merchandise. For example: instead of relying on one or two liquidators to purchase inventory at a rock bottom price, liquidation merchandise is sold through an online auction platform directly to thousands of business buyers across the globe.

Leveraging the secondary market
The most surefire way to increase the monetary value of returns slated for liquidation is to develop or leverage a large buyer network and have these buyers compete for the inventory via an online auction platform. (Just as online marketplaces have improved the sales process of A-stock, so have they revolutionized the way retailers approach the sale of their returned and overstock inventory, also known as B-stock). More buyers means increased competition, which drives prices up.

A robust secondary market exists for just about every product regardless of condition; in every major city there are businesses that purchase truckloads of customer returns, excess inventory and discontinued goods for resale. Historically this buyer base was dependent on a liquidator or jobber in order to gain access to these goods. But now, there are web-based platforms available that allow sellers and buyers of liquidation inventory to transact directly, eliminating the middleman (as well as multiple touch points).

A PaaS (platform as a service) online auction marketplace is one example. These can be customized, integrated, and scaled based on your unique needs – think of it like your own, private site to sell returned, excess or liquidation inventory. They also allow total control over who is buying the inventory and how it enters the secondary market. Another good option is to leverage an established B2B online auction marketplace. These multi-seller marketplaces provide easy access to a wide range of buyers.

These online auction marketplaces make it just as easy to take bids from a buyer pool of thousands as it does to negotiate offline with one liquidator. What’s more, you eliminate time-consuming negotiations, automate the sales process, deliver a faster sales cycle, and generate proprietary market intelligence in the form of real data on secondary market prices. When done right, an online auction liquidation solution can boost recovery by 20%+ and sometimes much more.

Why liquidation is worth worrying about
Before taking a deeper dive into the benefits of and best practices for selling returns, excess and other liquidation inventory via an online auction platform, let’s look at what a 20% increase in recovery on your liquidation inventory means for your bottom line.

Historically, companies have viewed strategic liquidation planning as a money-losing investment: a 20% increase in recovery only impacts revenue by a fraction of a percent (so why even discuss internally?). But there is a better way to look at it: increasing recovery rate on liquidation is like raising price on a product. For example, if you are selling an item this week for $50 and next week you find you can sell it for $75, that incremental $25 drops straight to your bottom line. There is no additional cost of goods, marketing expense or other overhead to accomplish this.

This is exactly what happens when a company increases recovery rate on liquidation product.

Let’s run through some math using the following scenario:

1. Consider a retailer with $100 million in revenue and $3 million of that coming from liquidation sales
2. This is a relatively well-run retailer with an operating earnings margin of 6% (or $6 million)
3. If the company increased pricing on its liquidation sales by 20%, that extra $600,000 drops to the operating margin – turning $6mm into $6.6mm
4. The retailer has now increased its operating profit by 10%

Consider what the company would have to do in order to increase sales of ‘A’ stock product enough to have the same impact on operating profit? (Answer: it would have to generate an incremental $10 million in top line sales - that is 10% growth, no easy feat - to generate the same $600,000 in incremental operating profit assuming the same 6% margin).

Online auctions to increase liquidation pricing
An online auction liquidation solution – in the form of a B2B marketplace – is the best way to achieve a 20%+ increase in pricing. There are plenty of B2B auction platforms or online liquidation marketplaces out there to choose from, so do your homework, as not all are created equal. The best ones will:

• Provide immediate access to a large group of interested, vetted buyers, who meet your specific criteria
• Encourage competition and keep buyers engaged
• Allow you to sell from multiple locations, reducing the need to consolidate inventory and eliminating extra transportation costs

To really achieve optimal results requires substantial expertise. With auctions, this expertise comes from knowing how to analyze and understand the data that the platform generates, and knowing how to react to those results. When choosing a SaaS solution or B2B marketplace platform to sell your liquidation inventory, look at the company and team behind it. Does it have:

Online marketplace expertise: It is not enough just to have a web-based technology platform. Such a platform must be well designed, flexible and scalable. More important, the team behind the platform must have extensive experience in managing auction marketplaces and developing strategies to maximize your results. If you were given a Ferrari, you would probably not win many races without putting a very skilled driver behind the wheel.

Customized strategies should be applied depending on the type of product being sold, the condition, the quantity, and the retailer’s expectations. This might include adjusting the lot sizes or type of product available in the lot; it could also include adjusting the start price. Example: a lower start price will increase bidder engagement and ultimately produce a higher selling price.

Targeted demand generation: The best technology on the planet will underperform if you lack demand for your products. A good team will have a proven track record of growing custom buyer bases interested in a given type of inventory. For example, a domestic appliance buyer would be marketed to much differently than a large, overseas mobile buyer. The same can be said for a buyer of Grade D/salvage versus a buyer that is only interested in new condition/shelf pulls.

More bidder competition amongst the right buyers means higher prices every time. Consider this: pricing can increase threefold as competition grows from under five bidders to more than 15.

Logistics services and support: Make sure the company has experience working with a variety of third party service providers to ensure seamless integration. This should include hands on client support, logistics, inventory handling and warehousing.

Keep in mind that by using a B2B liquidation marketplace platform you are promoting a direct relationship between you and your buyers, and with that comes the responsibility to provide them a great buying experience. A good platform will have a customer support team that – among other things – will resolve any disputes amicably and quickly.

Case study: how an ecommerce company doubled pricing on returned inventory
The following case study takes a look at what happened when a global ecommerce company partnered with my company B-Stock to set up a marketplace dynamic in which thousands of secondary market buyers could bid on its returned and excess inventory.

A global ecommerce company was selling all its returned, overstock, and other liquidation inventory to a single buyer at an extremely low pre-negotiated price. Over the years, the e-retailer became increasingly dependent on the buyer, who used that as leverage to dictate terms, conditions, and pricing. As pricing dropped to below 10% of retail in key categories it became clear the e-retailer needed a better solution for its excess goods.

The e-retailer turned to B-Stock with the following goals:

• Limit the dependence on a single buyer
• Increase recovery rate and demand for the inventory
• Develop strategies to build a diverse buyer network

B-Stock launched a branded, private B2B liquidation marketplace for the e-retailer, setting up a dynamic in which thousands of approved buyers could bid on the inventory via a web-based online auction platform. This immediately solved the problem of being dependent on a single buyer who was now forced to compete against other buyers and ultimately pay more.

Over time, data-driven auction strategies were applied to maximize price and grow the buyer base. This included:

• Increasing the amount of categories offered
• Offering smaller, category-specific lots

Additionally, B-Stock’s account team performed ongoing analysis of buyer behavior to identify and target the right buyers for each category and auction lot in order to extract the highest value.

Within a month of launching its B2B liquidation marketplace the e-retailer had hundreds of buyers competing for its inventory. By reducing the dependence on a single buyer prices in key categories doubled, earning 39% over target pricing, what’s more the automated auction platform eliminated hours of offline negotiation.

To increase bid activity and overall recovery after the first month, B-Stock’s team of marketplace experts recommended increasing the amount of product category-specific lots and offering smaller lot sizes; this allowed more buyers to participate and helped drive prices up. Targeted demand generation campaigns were implemented to drive the right buyers to each type of lot (small, large, category specific, etc.) generating an average of 300 new bidders per month. After 60 days the recovery increased by 37%; within six months recovery increased by 51% (over month one recovery).

Through data-driven methods and its years of marketplace experience, the B-Stock team has continued to beat monthly recovery targets set by the retailer. Since inception, B-Stock’s solution has earned 85% over target pricing.

Returned merchandise from a Fortune 500 home improvement retailer. These items will be grouped together and auctioned off to the highest bidder via the retailer’s B2B liquidation marketplace.

Let’s face it, returns are the rule in retail and will continue to be a major pain point. Given the amount of time and money required to handle them, it can literally pay to do the math on your remarketing channels (this includes comparing RTV and back-on-shelf to liquidation). If done right, liquidation can become an ongoing, strategic, recovery-generating asset; not to mention a more efficient way to process returned inventory. Some of the world’s largest – and most successful – retailers are using their own private liquidation marketplaces to generate high pricing on returned inventory. My company, B-Stock is currently operating private marketplaces for hundreds of companies including nine of the top 10 U.S. retailers.

As the relevance of incorporating reverse logistics programs into overall business strategy continues to grow, it’s important to include liquidation as part of the discussion. In today’s competitive landscape, driving cost out of the returns process and taking the time to really analyze the value of your returned, excess and other liquidation merchandise on the secondary market is essential.
Howard Rosenberg is CEO and co-founder of B-Stock, the world’s largest B2B marketplace for returned, excess and liquidation goods. Hundreds of companies including nine of the top 10 U.S. retailers, are leveraging B-Stock’s technology and service offerings to sell billions of dollars in consumer returned and excess inventory. For more information please visit
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