Shedding Excess Inventory
Retailing has always been a gamble, with inventory management perhaps the consummate game of chance. In times of economic peril, the stakes are even higher. To quote a country-music legend: “You’ve got to know when to hold ’em, know when to fold ’em, know when to walk away, know when to run.”
This is the month to run—at least in terms of moving excess inventories through the point of sale at deep discounts or back through the supply chain.
“The best recovery for excess inventories,” explained Larry Kerr, director of operations for secondary markets at Best Buy, Inc., “is always in the store. Even if it means selling product at a significant discount, sometimes that is a bullet you have to bite.”
For the Minneapolis-based consumer-electronics retailer, excess inventories encompass a range of merchandise, from overstocked SKUs to unwanted holiday returns to distressed products being recycled through the company’s generous warranty/repair service.
“We take an end-to-end approach,” Kerr noted. “When we’ve reached the point that product can no longer sell in the store, we pursue other channels such as online business-to-consumer store-fronts or business-to-business liquidators such as Liquidity Services, Inc. (LSI).”
In addition to using Best Buy’s Web-based outlet store and popular e-commerce sites such as eBay and Amazon to liquidate inventory, Kerr said the company acquired DealTree.com last month, an online-auction portal that Best Buy had partnered with for a couple of years.
Although each of these venues has proved worthwhile for selling small quantities of product to consumers, the bigger challenges are off-loading large volumes of multi-million dollar inventories. For transactions on this scale, Best Buy has partnered with Washington, D.C.-based LSI, which enables the retailer to liquidate pallets and even full truck-loads of excess product.
“One of the strategic benefits of partnering with LSI is that they can take a large volume of inventory very quickly, which is particularly important because we don’t want dated or distressed inventory sitting around,” stated Kerr. “We also get a decent rate of recovery because they have more than 1 million customers.”
Working with the third-party liquidator has also enabled Best Buy to maintain better control of the inventory through the disposition process. “The two biggest challenges,” continued Kerr, “are e-waste compliance, which is ensuring product that doesn’t sell is recycled appropriately, and data-privacy compliance, which is ensuring that any products being resold have been cleansed of all customer data.”
Selling Equipment and FixturesStore closings and consolidation of operations have left many retailers facing liquidation challenges that extend far beyond the product sold to consumers. Everything from fixtures used for product displays to storage racks and conveyors inside distribution centers has to be disposed of.
William P. Angrick, co-founder and CEO of Liquidity Services, Inc. (LSI), Washington, D.C., noted it is important for retailers to recycle materials in compliance with environmental codes and to recover any value possible from the assets being dissolved.
In addition to selling excess inventories to wholesalers, LSI also manages the liquidation of retailers’ commodity items and assets including material-handling equipment, shelves, metals and packaging materials such as cardboards and plastics.
In some instances, Best Buy has been able to recover value from damaged and distressed goods by selling the working parts or by combining the working parts from two or more items to create a functioning, salable product.
“LSI is very good at identifying and understanding the market and where the value is for product,” said Kerr. “For instance, if the market is flooded with a certain product, they help us anticipate the demand and better understand the product’s value. It’s all part of that end-to-end approach. If we could only get 20 cents on the dollar in the liquidation market, then it would be better to lower the prices in the stores more aggressively.”
Consumer electronics, like seasonal product or high-fashion apparel, is not inventory that a retailer wants to hold onto. Best Buy has six inventory turns annually, and the typical life cycle of electronics is less than 60 days, and less than 45 days for computer products.