With the festive season well and truly over, many retailers now have the enviable challenge of handling the surge in customer returns that has become common place at this time of year. To give you an idea of the scale, The Telegraph reported that UK retailers incurred costs of £180m from consumers returning goods bought during the 24-hour sales period of Black Friday 2015. When this is compared to the entire festive shopping period, it is clear that the costs associated with Christmas 2015 returns will be significantly higher.
Retailers and manufacturers liquidate more than 95 per cent of customer returns and overstock inventory, making it very important for them to be smart about liquidation and perhaps rethink whatever programme(s) they have in place. Traditional liquidation methods, including selling excess or returned stock to one or two liquidators, always leaves money on the table adding up to millions of pounds lost over time. That’s quite a hit to the bottom line for companies with already squeezed margins.
So the question becomes: how can an organisation update its liquidation programme in order to achieve maximum recovery for customer returns and other overstock merchandise marked for liquidation? The answer is really quite simple (and likely involves something you are already doing in your forward supply chain): by applying technology and data-driven analytics to your liquidation programme you can increase return, in some cases by triple figures.
Let’s first take a look at why conventional methods for dealing with customer returns and excess inventory are – like the inventory itself – obsolete. Consider this:
- If you’ve historically sold your inventory to one or two liquidation partners your recovery value will remain low because liquidators are experts at negotiating prices down in order to maximise their own profits. They make money by buying at lower prices, not by selling at higher prices.
- 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 of merchandise you have to sell (phone, fax, email), takes you away from core, strategic business activities.
OUT WITH THE OLD: APPLYING TECHNOLOGY TO LIQUIDATION
Over the past few years a shift has taken place in how organisations manage their returned and overstock inventory: many are bypassing layers of middlemen and incorporating technology-based liquidation programs into their overall business strategy. This might include implementing a SaaS online marketplace platform that can be customised, integrated and scaled based on your unique needs or leveraging an established B2B marketplace, making your merchandise available to thousands of buyers who will compete for it via online auctions.
Applying this type of online marketplace platform not only delivers the highest price your buyer community is willing to pay right now, but it also automates the sale process, delivers a faster sales cycle and generates proprietary market intelligence in the form of real data on market prices.
THE ANSWERS LIE IN THE DATA
Handing someone the keys to a Formula 1 race car and telling them to drive around the track as fast as they can is unlikely to yield a great result. Similarly, handing someone login credentials to run their own auction site and telling them to get the highest possible price is unlikely to yield the best result. Having the technology (whether it is the car or the technology platform) is the first step, but to deliver optimal results requires substantial expertise. With auctions, this expertise comes from knowing how to analyse and understand the data that the platform generates and knowing how to react to those results.
Let’s take look at how to build a data-driven formula for success through bidder acquisition and retention, sustained bidder competition, and inventory optimisation.
Find the Right Buyers
Having the right buyers is a critical first step to maximising recovery. By segmenting buyers by product category, inventory condition preference and their ability to participate (financial ability, geographic location, etc.) you can properly drive demand. Whether you handle in house or via a solutions provider, developing effective, robust demand generation campaigns can increase recovery by up to 400%.
Sustain Bidder Competition
More bidder competition, among the right buyers, means higher prices every time so continually investing in attracting new buyers through targeted demand generation programmes is critical. Consider this: there is up to a 300% increase in recovery rates as competition grows from under five bidders to more than 15 bidders.
Generate Repeat Buyers
Repeat buyers create a foundation on which to build a successful marketplace and can result in a triple digit increase in recovery. There are many operational elements that contribute to success here including: building customer loyalty programs that reward repeat purchases or marketing campaigns that target buyers based on their past bidding and buying history.
Optimise Your Inventory
How auction lots are assembled is also extremely important to maximizing recovery numbers. What works best here is very unique to every situation and there are many variables to be tweaked and tested. This might include segmenting by product type, original MSRP per item, overall lot size and even taking the time of year into consideration. It can take a while to figure out what optimal configurations look like, but proper optimisation can have a double-digit impact on recovery rate.
In summary, rethinking your liquidation program is a must in today’s competitive business climate given the slim margins most retailers are fighting to maintain. Any increase in prices you can achieve on liquidation volume falls 100% to the bottom line. If you do the maths on your company’s liquidation volume and assume a 30%-50% improvement in liquidation pricing, you will see that the impact on operating and net profit can be quite meaningful. Looked at through this lens, a technology and data-driven approach can create a true competitive advantage.
