As return rates continue to rise, the cost associated with processing returned merchandise—whether back on the shelf or returned to the vendor—is becoming a major pain point.
Consider this: it costs twice the amount to process an online return for resale as it does to sell it the first time around. What’s more, by the time an item is returned, a newer product (that can be sold at full price) may now be on the shelf. This is often the case for specialty retailers with quickly rotating inventory.
It’s no surprise then that more retailers are opting to sell their returned and excess inventory into the secondary market to offset loss.
Defined as post-retail channels that provide a means to sell and buy returned, excess or other previously unwanted goods, the secondary market includes channels like factory outlets, off-price and discount stores, dollar stores, flea markets and online auction houses. In 2017, it was estimated at $600 billion and is growing 8 percent annually (which, at that rate, currently outpaces overall GDP). Think about this:
- TJX Companies and Dollar General rank among the top 20 U.S. retailers.
- Nordstrom Rack stores outnumber the amount of Nordstrom locations.
- Nine of the 10 10 U.S. retailers are selling returned and overstock goods via their own B2B liquidation marketplaces.
This goes beyond the spike in return rates, too. In order to better understand the cause of this record-breaking growth—and how retailers can best leverage the secondary market to recoup losses and protect their brand—let’s take a look at what’s going on:
Consumer behavior is shifting: Buying a used or heavily discounted product no longer has a stigma attached to it. Getting a deal on eBay, shopping at Ross or Goodwill, or hitting up a consignment shop to find a secondhand treasure is now brag worthy. Plus, people like the idea of sustainability.
Social responsibility: Sending items to landfills is now socially unacceptable in the eyes of consumers and investors. We’ve seen headline-grabbing stories of burned and buried inventory and subsequent backlash on those retailers. What’s more, e-waste laws have held manufacturers accountable for where their products end up.
Better recovery (minimize more loss): One of the biggest drivers of secondary market growth is the ability to offset loss from returned and unsold goods. Depending on what channel a retailer chooses, there is great opportunity to achieve high pricing. Even liquidation—if managed correctly—is becoming a viable option.
Brand protection: Knowing how your merchandise enters the secondary market and who is buying it is important. Many retailers are opting to own their own secondary channel(s) in order to have greater lifecycle oversight of their products and brands. This might include factory outlet stores or a branded B2B marketplace for selling bulk quantities of returned products.
In the past, options for returned and excess stock were limited to selling to a liquidator or landfilling. Now, dozens of channels exist, and can be leveraged depending on the retailer’s goal (recovery, brand protection, risk aversion, etc.). A surplus of designer swimsuits could sell at factory outlet stores; a truckload of mixed, Grade A merchandise could sell to Ross or Tuesday Morning; about-to-expire food products are often bought by dollar stores.
Newer technology-based methods for selling into the secondary market are also being leveraged. For example, many retailers are opting to build their own B2B marketplaces in order to auction bulk quantities of returned and excess merchandise to business buyers around the country.
With low barriers to entry, many Americans start secondary market businesses to make a living. From salvage and discount store owners to online sellers to mom-and-pop shops, refurbishers and exporters, a robust buyer base exists for just about every product regardless of condition.
An online auction channel sets up a dynamic where many buyers are competing for the inventory; this pushes up prices, allows for a faster sales cycle and reduces the cost of processing returns.
Unless you have a zero returns or zero return-to-vendor policy, returns will happen. Couple that with the fact that retailers and manufacturers are under a microscope for sustainable (and ethical) business practices, it’s clear there should be a strategic, ongoing process to mitigate the impact of returns. Companies should set up goals and rules for what happens to returned items. Goals should include:
- Quickly identify what channel(s) are the best fit for the products.
- Shorten the amount of time the inventory sits in the warehouse.
- Analyze and track costs involved.
Often it makes sense to partner with a vendor whose primary business is to provide remarketing solutions for returned and excess inventory. The best partners have extensive knowledge of the secondary market and can develop strategies to meet the retailer’s goals.
Howard Rosenberg is CEO and co-founder of B-Stock, the world’s most efficient and recovery-generating platform for returned, excess and liquidation goods. By applying our auction strategy and data, nine of the top 10 U.S. retailers, along with hundreds of other businesses, are attaining the highest pricing possible for secondary-market merchandise across all categories, conditions and quantities.