The challenge for companies is to find the right market for their inventory and then perform the logistics needed to get it to the market efficiently. Traditional methods of liquidating inventory, such as auctions and liquidation sales, while still widely used, don’t generate nearly enough purchase opportunities, which suppresses recovery value. However, if companies can get their inventory into the vast secondary market for liquidation, it can become a profit maker.
The secondary market for liquidation is comprised of liquidators who buy and sell goods from retailers and manufacturers. Generally, there are three subsets of the secondary market – bulk buyers, pallet buyers and direct sales to consumers. Bulk buyers purchase millions of dollars of goods each week. They in turn sell primarily to smaller pallet buyers, who then use common outlets such as Craigslist, eBay, and local flea markets to sell their pallets of goods. Some goods may be sold direct to consumers on specialized B2C shopping sites.
Liquidators offer companies three ways to unload their goods: Outright purchase, revenue sharing or consignment.
Outright purchase: A liquidator can purchase the goods from a company with an immediate payment. This usually produces the lowest recovery value for the company because the liquidator will demand a lower price to minimize their profit risk.
Revenue Sharing: Revenue sharing allows companies to establish a low-end percentage on the recovery rate, which can protect their downside if the market is slow and provides more upside when there is more market demand for their products. The recovery rate floor could be set at 15 percent, payable up front, with a 50 percent rate on recovery that exceeds the floor. The revenue split above the floor is typically 50/50 but that can be negotiated by the liquidator.
Consignment: Goods sold on consignment are owned by the company until they are actually sold, at which point the liquidator charges a percent of gross revenue, typically around 10 percent.
Excess Inventory Liquidation
Excess inventory can present a problem for companies that need to dispose of it to make room in their warehouse for newer products. It is costly to keep in place, but they need to be able to maximize its recovery value. Manufacturers are concerned with defacing their brand if their product ends up in some flea market selling at deeply discounted prices. A liquidator experienced in selling excess inventory has access to buyers that can absorb large volumes of inventory because of their extensive network of retailers and distributors in many different markets.
Store Returns Liquidation
Store returns are one of the primary reasons why the secondary market has grown so much in recent years. With more options available to consumers through online shopping and more liberal return policies of retail stores, returns are becoming an increasing problem. Because returns are categorized differently in the secondary market – i.e., open-box, slightly used, pulled shelf, refurbished, parts salvage etc. – they appeal to different end-buyers. A liquidator has the network to be able to sell to the right end-buyer, whether it is an off-price retailer, a small liquidation firm, flea marketers or auction houses.
Retailers and manufacturers can’t afford to carry their seasonal items on the shelves past the selling season. Because they are seasonal goods, they are less attractive to most of the typical buyers who would have to sell them for cents on the dollar. With their broader network of buyers, liquidators may be able to place those goods with a company specializing in seasonal goods, or some have the capacity to retain them until the season comes around again. In most cases, season goods are purchased outright.
Overcoming the Costs of Reverse Logistics
For many companies, the biggest challenge in disposing of their returned and obsolete goods is the reverse logistics involved, which includes processing of returns, backing out inventory and transporting goods. Companies want to maximize their recovery value, but these logistics can eat into their profits. While companies can improve their profits by finding ways to reduce their logistics costs, they can improve them by a larger margin by increasing their recovery value.
Liquidators can help companies by improving both. A company can work with a full-service liquidator that includes third-party logistics service to reduce costs, maximize warehouse space and maximize their recovery value. The liquidator can handle all aspects of liquidation process, including the sales and marketing of the products, warehousing and transportation as well as the financial settlement of transactions. Their vast network of buyers enable them determine the liquidation method that will produce the highest recovery rate, while utilizing their technology for processing and transporting the goods.
The New Age of Secondary Market Liquidation
For the secondary market, liquidators are very much like the market makers in the stock market. They essentially create the market by bringing buyers and sellers together, providing a more efficient way for billions of dollars of secondary goods to flow through the economy. Companies looking to maximize their recovery value on returned or obsolete goods, now have access to the fast-growing secondary market and thousands of buyers through liquidators.