Why Liquidation is Worth Worrying About
Every company has liquidation inventory: returned, excess, obsolete or damaged merchandise that can’t go back on store shelves. Though most organizations would rather not admit they have a need for it, liquidation is the rule – not the exception – in retail. Given how competitive retailing is today, the ability to squeeze margin out of every area of the business is crucial; this includes merchandise slated for liquidation. There is in fact a huge opportunity to recoup more value for this inventory simply by applying technology and sound strategy.
So why then do so many retailers manage their liquidation programs the same way they did decades ago?
Historically investing in strategic liquidation planning has been viewed as a money-losing initiative: if a company’s liquidation revenue represents 3% of sales – which is generally in the ballpark for large enterprises – a 20% to 40% increase in recovery rate only impacts revenue by a fraction of a percent.
However, there is another – and better – way to look at this: increasing recovery rate on liquidation is like raising price on a product. Think about it: if you are selling an item this week for $100 and next week you find you can sell it for $120, that incremental $20 drops straight to your bottom line. There is no additional cost of goods, marketing expense or other overhead to accomplish this.
This is exactly what is happening when you increase recovery rate on liquidation product.
Let’s run through some math with the following sample scenario.
- You are a retailer with $100 million in revenue and $3 million of that comes from liquidation sales.
- You are a relatively well-run retailer and you have an operating earnings margin of 6%.
If you were able to increase pricing on your liquidation sales by 20% (which is typical for B-Stock’s retail clients), you would have made a $600,000 price improvement and increased operating profit by 10%. Not bad, considering you would have to generate an incremental $10 million in top line sales to generate the same $600,000 in incremental operating profit. Much easier said than done.
In most cases, it’s more efficient and cost-effective to focus on increasing recovery for your liquidation inventory. So, what does it take to achieve a 20%+ increase in pricing? It’s easier than you might think and starts with throwing out what you know about liquidation. Please visit our Seller Solutions page to learn more or Contact Us for more information on how B-Stock is boosting recovery rates for hundreds of retailers around the globe, including seven of the top 10 U.S. retailers.