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Whether you’re a brand name manufacturer or a retailer, the products that you sell to your buyers are a significant investment. One common way to ensure peace of mind for brands and stores alike is a Return-to-Vendor (RTV) agreement. Even if you’ve heard the term in passing you might still wonder: just what is RTV in retail?
Read on to learn more about what these agreements are, their pros and cons, as well as a great alternative that your business can leverage to gain some peace of mind.
RTV simply stands for “Return to Vendor.” This refers to any situation in which a retailer arranges to return merchandise to the vendor who sold it to them. There are often specific processes in place and certain conditions determining the details of the transaction.
Especially important to this discussion are RTV agreements. An RTV agreement is a contract that a manufacturer of goods and retailer of those goods each sign. The agreement obligates the retailer to return any unsold inventory to the brand that made it. Likewise, it obligates the brand to accept the unsold product back. The agreement also determines the terms of this merchandise return. These terms may include how much of the unsold stock the brand will buy back, what they will pay per unit, the timeline of the returns, and anything else the buyer or seller wishes to negotiate.
Say, for example, an electronics retailer buys 50 laptops from a premium manufacturer. Both parties negotiate and sign an RTV agreement. Now imagine that after a time, the retailer is only able to sell 10 of these computers to consumers. Whether the laptops fail to sell due to a dip in demand, a product defect, the store going out of business, or some other cause, the RTV agreement comes into play. Depending on the terms of the contract, the manufacturer may now have to buy back some or all of the remaining 40 laptops in the agreed-upon number for the agreed-upon price.
While this may just seem like a get-out-of-jail-free card for stores and a raw deal for manufacturers, RTV agreements can benefit both parties.
As explained above, these agreements ensure that a retailer isn’t stuck with thousands of dollars worth of product they can’t move. It offers them a sense of security, ensuring that they won’t take a total loss on inventory that doesn’t sell—sometimes for reasons beyond their control. This allows them to take risks and stock a wide variety of products to attract shoppers who expect multiple options.
It also means they won’t have to waste precious space on their sales floors or in their warehouses to store a product that’s not selling. Further, the retailer won’t ever have to pay to ship it from place to place as they plan how to deal with their aging stock.
RTV doesn’t come free, however. Retailers will almost always pay more per unit for the products covered by an RTV agreement, so there is a trade off. Think of RTV as an insurance policy—you hope you’ll never need it, but if you do, you’ll be glad you paid the extra cost up front.
So what’s in it for the manufacturer, then?
Aside from the higher up-front price paid, RTV agreements offer another key benefit for brands. They give suppliers a chance to preserve their reputation.
Consider the laptop example above. This manufacturer is considered a premium brand. They put a lot of care into product design and execution, and just as much care—and money— into maintaining their stylish, high-end image. Protecting this invaluable asset is key.
Perhaps they don’t want to see their product being sold in discount stores that don’t match their preferred aesthetic, or where sales staff might not be as knowledgeable on the product. Maybe a defect has led to poor sales, and the brand wants to keep an inferior batch off the market if they feel it could tarnish consumer perception. They may also have a robust program in place to sell or donate them in bulk. Or perhaps the company prides itself on sustainability and wants to recycle components and keep their product from winding up in a landfill.
Whatever the reason—and there are plenty of them—the result is the same if there is an RTV agreement in place. The brand can maintain total control over their product in the event that a retailer can’t sell it. Even if they take a loss, buying back stock may be very much worth it to a manufacturer.
There’s no shame in such missteps. They happen to even the most popular brands and the most successful stores. Because of this, RTVs are a better-than-nothing option. Even so, RTV still involves many moving parts for both sides to contend with. So is there a better option?
If you’re a retailer that’s traditionally relied on RTV agreements, you might want to consider a change. Specifically, transitioning away from RTV in favor of a robust, full-featured online auction platform could be the right move for several reasons.
If you’re a retailer, setting RTV terms with your suppliers can be a frustrating and costly back-and-forth. It’s not unusual for both parties to leave unsatisfied. Adopting online auctions for inventory recommerce provides the same main benefit—peace of mind that you’ll be able to recover some value.
At the same time dropping RTV agreements lowers acquisition costs. Those RTV costs we mentioned before inflate your price per unit. But with an alternate solution in your corner, you can negotiate added RTV costs out of your purchase price altogether. This simplifies contracts too, meaning your business can move more quickly, while putting less money on the line.
Acquisition costs aside, retailers still have carrying costs to consider. That means there are expenses associated with just having the inventory in your possession. Simply put, unsold inventory is a liability, tying up your business’s money and taking up often costly warehouse space. Online auctions provide an alternate way of slashing your overhead costs—warehousing, transportation, and associated
personnel, etc.—while increasing your liquidity.
Consumers love great deals. As a retailer, you can catch customers’ attention and lock down the sale if you can offer the lowest price for a given item. Getting them in the door could also produce further sales opportunities. Trading your RTV agreement for an online auction solution can help do just that. Here is how.
When you lower your inventory acquisition costs, your profit margins grow. At that point, it’s your call. Would you’d like to pass those savings on to customers or pocket the revenue? If your goal is to provide discounts and develop your reputation as an affordable place to shop, you might now be in a better position to do so. Or if you’re simply out to pad your bottom line, you still come out ahead.
Although the example we used earlier involved laptop computers, there are countless items that an RTV agreement could cover. It’s a good thing, then, that there are hungry buyers for virtually anything you’d want to sell. Electronics, definitely, but also apparel, furniture, appliances, and more. When you do business with a robust online solution, you’ll be able to sell to more active buyers and across more categories than ever before. An online solution is best positioned to be your single partner in moving whatever goods you have to offer.
In terms of efficiency, just as important as the variety of buyers you can reach is the auction format. This is the forte of a multi-user online solution. As opposed to pre-negotiated prices for your RTV stock, open bidding among a pool of possible buyers creates competition, ensuring that you receive the highest price per unit that the market can supply.
As a retailer, you prioritize and pride yourself on B2C sales of new items. But why not build a B2B presence as well on the secondary market?
Moving high-quality and superior-condition products into the secondary market is a sustainable option that will feed the circular economy while attracting a global base of buyers. This is something that businesses have caught onto in recent years.
As B-Stock’s COO, Marcus Shen, told PYMNTS, “brands, manufacturers and retailers are being smarter about putting more inventory available for sale on B2B marketplaces” following a surge of demand for affordable goods. Clogged supply chains and increased eCommerce returns during the pandemic meant that businesses would have more unsold inventory than ever. Small businesses certainly capitalized on the overstock. For example, the last year has driven the secondhand market for apparel toward a projected $77 billion by 2025.
With this demand in mind, your reputation will benefit as you become a consistent source of valuable products to consumers and businesses alike.
Not sure that you want your main store associated with your surplus auctions? Know that the best auction platforms allow you to choose whether your marketplace wears your company’s name or goes unbranded. Either way, those buying your stock will come to depend on you for inventory, and will no doubt be back for more.
When returning goods to a vendor, there are a handful of steps that can drag out your time to recovery. These include waiting for return merchandise authorization (RMA) to clear, for shipping services to arrive and pick items up, or for the manufacturer to issue and activate RTV credits.
If you waive RTV programs, you can address high weeks-of-supply SKUs without multiple roadblocks. Ultimately, the time you save here can go towards your core business operations. This is not to mention the savings on any costs associated with these steps, and the sheer headache of sluggish business bureaucracy.
Logistical and legal red tape aside, a manufacturer may not be in a hurry when reclaiming its inventory. This is especially true if consumer demand is low or there is something wrong with the merchandise. On the other hand, bidders that buy on the secondary market to resell will certainly not be dragging their feet.
As business owners themselves, these buyers are eager to take delivery as soon as possible. Their own stores rely on a constant flow of goods. They’ll work with you to sort out payments and shipping so both parties get what they need fast. In short, opening your unsold inventory up to small businesses via online auctions means you’ll never be stuck with old merchandise for long.
Interested in dropping your RTV agreements in favor of an online auction solution? B-Stock needs to be at the top of your list.
With a network of over 500,000 buyers, B-Stock gives enterprise sellers and small businesses alike massive reach into the global secondary market for 18 different product categories—all through a single partner. With B-Stock, buyers compete over your inventory, fetching high prices fast rather than a static pre-negotiated amount. In fact, you could see recovered revenue in as little as 15 days after signing up.
Further, with personalized seller agreements and a customized marketplace open only to vetted buyers, you’re in full control. As a seller on B-Stock, you can choose who bids, where items go and how they’re remarketed to avoid taking business from your primary channels.
If you’re frustrated with any of the issues mentioned here, or feel like the return to vendor process has been getting the better of your business, learn how B-Stock can help today.