The ugly sweater with the tags missing. The book you already have. The digital camcorder you couldn’t figure out how to use. Each holiday season, we relegate our unwanted gifts to the return bins of retailers across the country and never think of them again. But these items have a second life. Third-party businesses known as liquidators swoop in and rescue truckloads of returned, damaged and unsold merchandise from retailers and resell it to other merchants, who in turn sell it back to consumers. The busy season lies ahead for those companies, which buy up a windfall of post-holiday products ranging from artificial Christmas trees to consumer electronics over the next several months — not as romantic as the Island of Misfit Toys in the classic TV movie about a certain red-nosed reindeer, but this is real life.
“We help [stores] rapidly convert those excess items into cash sales,” said Bill Angrick, chief executive of Liquidity Services, a District company that works with many big-box stores. The holiday season is the most lucrative time of year for retailers, accounting for 20 percent of annual sales. But not every purchase is a success. A recent survey by the National Retail Federation, a trade group, found that 36 percent of consumers made a return last holiday. The NRF estimated that 7 percent of merchandise sold in stores wound up coming back.
Dealing with returns is a headache for retailers, which would much rather focus on selling goods than on taking them back. Sometimes, an unopened item in pristine condition can simply go back on the shelf. Stores may stick returns with beat-up packages in a discounted section or ship them to their outlet stores. Retailers can even send a small amount of returned merchandise back to its manufacturer or resell it to other stores or on eBay. But often, retailers just want to shift the headache to someone else. Perhaps the item is defective. Or the instruction manual is missing. Maybe the box is so wrecked that shoppers would turn up their noses. Restocking the merchandise, fixing the packaging or even simply shipping it to a retail distribution center could cost more than the product itself. “They don’t want it to end up back in their stores,” said Dan Butler, vice president of merchandising and retail operations at the retail federation. “When they get rid of it, they want to get rid of it.”
That’s where the liquidators come in. These companies receive unwanted merchandise from stores. They then sell it for a profit to mom-and-pop shops, discount retailers, eBay power sellers and even exporters. Dale Rogers, director of the Center for Logistics Management at the University of Nevada at Reno, said the market for such goods in the United States totaled $223 billion last year. “Today, because there are so many secondary markets for things, you can drain stuff out of the system and not get hurt as badly,” he said.
With Liquidity Services, retailers ship their unwanted merchandise to one of the company’s six distribution centers across the country as frequently as once a week. The company then inspects and sorts the goods before holding a private online auction for interested buyers, typically small businesses. Liquidity Services keeps an average of 20 percent of the selling price, and the retailer gets the rest. The company, which was founded in 1999 and works under loose contracts with retailers, has sold $840 million of merchandise in its online auctions since 2002, Angrick said. The average transaction is $1,100, and only rarely do products not sell, he said.
“There is a buyer for any quantity or condition of merchandise,” Angrick said. The bulk of unwanted holiday products begins to reach liquidators in February, as many retailers give shoppers 30 days or longer to make returns. Angrick said he moves a lot of consumer electronics after Christmas. Recipients often return them because they are too complicated to use, and technology progresses so rapidly that stores frequently end up saddled with out-of-date merchandise. Jacques Stambouli, chief executive of Via Trading in California, said his liquidation company has already begun receiving Christmas trees and other seasonal products. The amount he must pay for the merchandise ranges from 2 to 20 percent of its value, he said. Holiday decorations are especially cheap.
“Christmas trees sold in January will not get you a lot of money,” Stambouli said. Out of sight does not mean out of mind for many stores, however. Some retailers place stringent restrictions on the products they turn over to liquidators for resale. After all, they don’t want them reappearing at a rival down the street for half price. Stambouli said some retailers request that their products be sent outside the area or even overseas. They also want to ensure that any evidence of the goods’ original home is erased to prevent return fraud.
But in a retailer’s utopia, there would be no need for liquidators. Stores would have just enough merchandise to meet demand at just the right time. Every product would work perfectly. And every gift would be loved. “The retailer’s goal is to touch the merchandise as little as possible,” Butler said. “It’s not their goal to have a lot to send back anywhere.”
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