Don’t Just Liquidate, Seek Scalable Solutions
Relaxed return policies create a competitive advantage for retailers but can wreak havoc on reverse logistics. Each year, consumers return hundreds of billions of dollars in merchandise, most of which can’t go back on the shelf due to diminished item condition, damaged packaging, or product obsolescence.
No matter the reason, that’s a significant amount of idle inventory taking up backroom or warehouse space. In today’s intensely competitive retail environment, this can translate to profit loss, heightening the importance of maximizing efficiency and return across all areas of the supply chain.
Reducing internal costs in reverse logistics handling of returned merchandise is a critical piece of that puzzle.
By getting smart about the secondary market and looking beyond traditional liquidation methods, you can create a sophisticated, scalable solution that optimizes your monetization of customer returns and other excess inventory.
Let’s first look at why conventional methods for dealing with customer returns and excess inventory are—like the inventory itself—obsolete. Reactive approaches and traditional liquidation programs have resulted in billions of dollars lost. Consider these drawbacks:
- If you’ve historically sold your inventory to one or two liquidation partners, the chances you are selling to the buyer willing to pay the most (and you are getting their actual maximum willingness to pay) is zero.
- Selling directly to a liquidator can mean a lack of control over who is eventually buying your inventory and how your brand enters the secondary market.
- Time spent negotiating deals for every lot you have to sell takes you away from more strategic activities.
How can you update your reverse logistics program? What does a successful and sophisticated solution for customer returns and other excess inventory look like? Here are some suggestions to help you achieve maximum efficiency and return:
- Automate. A web-based auction solution makes it easier for thousands of buyers to compete for your inventory. What’s more, operating your own liquidation marketplace means building a strategic asset that will benefit you for years to come. A marketplace is a strategic asset not only for the liquidity it provides, but also for the pricing and market intelligence you get from knowing precisely what buyers are willing to pay.
- Target the right buyers. More buyers result in increased competition and higher prices, but having the "right buyers" can increase prices by triple digits. Consider segmenting buyers by product category, condition code, and ability to participate.
- Take control. Retaining control over who is able to buy your returned and excess inventory, and how your brand enters the secondary market, is a must. By selling to a liquidator you lose control of downstream sales because you can’t take immediate action against your one or two buyers without jeopardizing your business.
- Establish a direct channel to buyers. While returned and excess inventory might have little value inside your company, it has substantial value to secondary market buyers. Selling directly to business buyers who compete for your inventory will help drive liquidation prices up versus having a single buyer negotiate them down.
- Reassess your reverse logistics plan for customer returns and excess inventory. A few margin points can mean the difference between competing effectively and losing money. Looking beyond traditional methods and approaching obsolete merchandise as an opportunity (versus a headache) can significantly impact your overall business margin.