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Don’t Hesitate. Liquidate. The Advantages of Third Party Liquidation of Returns

Many product vendors invest freight, labor and storage costs to process returns at their own facilities, only to liquidate the products in bulk when they arrive from the retailer. Liquidating from the retailer’s returns center can avoid these costs and generate similar or higher recovery rates.

For some products, immediate liquidation is clearly preferred over extending the disposition cycle. Heavy freight like large furniture can yield a good recovery value, but not good enough to warrant the high transportation cost and damage risk. Low-value items like toothbrushes and combs have limited recovery value and would not be worth the extra freight and processing costs.

Over the last 10 to 15 years, product liquidation has become a large and increasingly sophisticated industry. Leading third party reverse logistics providers have invested in the high-level expertise and technology required to transform product liquidation from a “necessary evil” into a profit center for both product vendors and retailers. Third Party Liquidation inforgraphic

Here are the advantages that leading third party reverse logistics providers can bring:

  • Fast cash. In many cases, they will purchase the inventory outright, generating immediate cash for the retailer or product vendor.
  • Reduced cost. They have developed extensive buyer networks that enable them to sell large amounts of inventory quickly and avoid the expense of extended disposition cycles.
  • Brand protection. They can monitor compliance with resale restrictions. Some employ a compliance manager who monitors buyer compliance with the retailer’s or product vendor’s sale terms.
  • More efficient processing. They have invested to automate product receipt and sortation. Systems track products using bar code scanning as they move through the sorting process and generate manifests as loads are built for resale.
  • Higher recovery rates. They have multichannel sales strategies designed to yield the highest return possible based on the product condition. These channels include bulk truckload and pallet sales to other businesses, and unit sales to bargain hunters. Specially designed software uses product characteristics to assign products to the highest-yielding liquidation channel.
  • Greener planet. Liquidation is inherently a “green” activity since it promotes reuse over landfill disposal.

Choose disposition strategies that deliver the best net recovery value

Billions worth of returns are sent back to product vendors for disposition. This return trip requires major investments in freight, storage, and labor.

Product vendors should calculate their net recovery value on these assets after assignment of overhead costs. When these overhead costs offset any added recovery value achieved through in-house disposition, product vendors should consider making and acting on disposition decisions at the retailer’s returns center. These facilities are often operated by third party reverse logistics providers capable of handling most or all disposition activities.

To determine the right disposition strategy, product vendors should analyze processing costs and recovery potential for each class of product sold. Assistance for such an analysis is available from qualified third-party reverse logistics and asset recovery providers, who can offer recommendations that could yield substantial, bottom-line savings.

Millions are spent to process products with diminished value

The total retail value of returns is estimated at $219 billion annually (source: National Retail Federation). A large portion of this product is returned by the retailer to the product vendor for credit. The cost to transport and process this return to vendor (RTV) product is substantial, yet the average value realized is just 12.5 percent of the retail value (source: Aberdeen Group). Result: retailers and product vendors invest too much for too little return.

Why hasn’t the issue become more of a lightning rod for cost-conscious retailers and product vendors? In part, it’s because processing costs are buried within multiple P&Ls. The transportation budget does not isolate these costs. Likewise, warehousing costs to store and process RTV merchandise and marketing costs to sort and remarket the products are distributed across many departmental budgets. Disposition decisions are typically made without full visibility to the costs and their impact on profitability.