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To put it in perspective: online apparel purchases have one of the highest return rates -- around 30 percent of items are returned -- and last year alone web sales of apparel grew 20 percent (versus just a 1 percent increase for physical stores). The expectation of free returns, in addition to buyer's remorse stemming from the consumer not being able to touch or try on the product plays a large role, as does the tendency for a customer to order two or three pairs of something (shoes, pants, you name it) and send back the ones that don’t work. No matter the reason for return, this trend, and the growing cost associated with it, creates a new urgency for e-retailers to put an efficient reverse logistics process in place.
When it comes to apparel that cannot be returned to virtual shelves and is slated for the secondary market, a liquidation solution that captures maximum value for this inventory is key. If you are still negotiating over the phone with a couple of liquidators you are doing a disservice to your company and your shareholders as you are undoubtedly leaving huge amounts of money on the table. The days of that being an adequate and responsible approach are long gone.
Over the past few years a shift has taken place in how organizations deal with their returned and excess inventory slated for liquidation: many are incorporating technology-based programs into overall business strategy. This includes launching customized B2B marketplaces that connect obsolete merchandise directly to thousands of business buyers who will compete for the inventory, pushing prices up versus a handful of buyers negotiating them down. This type of technology, when configured, integrated, analyzed and scaled to meet unique needs, is enabling some of the world’s largest apparel retailers and e-retailers to increase recovery by 30 percent to 80 percent and create significant incremental revenue.
So how exactly is this possible? The trick is understanding auction strategy and the techniques for optimizing in a dynamic pricing environment. Finding the right buyers, retaining those buyers and driving competition amongst those buyers are among the keys to success. Here is some food for thought:
Find the Right Buyers
Having the right buyers is a critical first step to maximizing recovery. Segmenting buyers by commodity category, condition code and ability to participate (financial ability, geographic location, etc.) will properly drive demand. There is a robust secondary market for apparel and by tapping into the right buyer base some retailers have increased recovery by almost 400 percent.
Sustain Bidder Competition
More bidder competition, among the right buyers, means higher prices so continually investing in attracting new buyers through targeted demand generation programs is critical. Consider this: we have seen a 300 percent increase in recovery rates as competition grows from under five bidders to more than 15 bidders.
Generate Repeat Buyers
Repeat buyers drive higher prices over time; this is especially the case with apparel buyers. 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.
How auction lots are assembled is also extremely important to maximizing recovery numbers. This might include segmenting by apparel 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 achieving this optimization can have a double-digit impact on recovery rate.
While it’s clear that a technology-based B2B liquidation program will automate the sales process, drive operational efficiency, and deliver the highest prices possible, keep in mind that to achieve optimal results proactive management is critical and requires a dedicated and experienced team to manage it well. Many global retailers and e-retailers have opted to partner with companies whose primary business is providing solutions for returned and overstock merchandise. There are a lot of options out there so make sure to do your homework. Ask yourself:
Do you reap the benefits or does your liquidation provider? Make sure you aren’t relying on a solution that creates apparent efficiency by making inventory disappear quickly, but only at the huge cost of getting much less for it than you otherwise could.
Does it provide the control you want? It’s important to retain control over who is able to buy your excess inventory and how your brand enters the secondary market.
Is the solution adequately flexible? The one constant in business is change; this includes priorities and goals with respect to liquidation. Make sure your solution is flexible enough to accommodate changing needs.
What kind of marketplace platform is offered? It is not enough just to have a web-based technology platform. Such a platform must be well designed, flexible and scalable. More important, your partner must have extensive experience in managing marketplaces and developing strategies to maximize your results.
How is demand generated? The best technology on the planet will underperform if you lack demand for your apparel. A good partner will have a proven track record of growing custom buyer bases interested a given type of inventory.
What kind of logistics services and support are offered? Make sure the partner has experience working with a variety of third-party service providers to ensure seamless integration. This should include hands-on client support, logistics, inventory handling and warehousing.
Let’s be honest, the trend of ordering five pairs of jeans with the intention of returning four, isn’t going away. Given that e-commerce sales - and returns - are projected to grow at a 15 percent annual rate, it’s a must for any e-retailer or retailer with an online channel to rethink whatever program(s) they have in place. Every dollar increase in recovery value, or reduction in expense, equals another dollar of profit.
Source: B-Stock Solutions
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