It’s Outta Here

Even the best merchants sometimes over-buy or miscalculate sales projections. And sometimes your returns ratio creeps a bit higher than normal. What’s a cataloger to do?

Dump the stuff.

Surplus goods have no value to your catalog until they’re converted into cash and those funds are reinvested. In addition, the overstocked items are taking up precious real estate in your warehouse, and you must pay to insure and maintain them. Finally, surplus assets depreciate in value more quickly than other assets as they become obsolete.

Following are some ways to discard inventory and clear your shelves for tomorrow’s new goods.

Discount to Move

1. If done right, sale catalogs can offer a high recovery rate. The purpose of a sale book is sell-through, not customer acquisition, says George Mollo, president of GJM Associates, an operations consulting firm.

“You have to be cautious that you don’t send so many sale catalogs that you train your customers to wait for sales,” he notes. “Rather, your sale books should include remnants—odd sizes, odd colors—not the cream of your selection.”

In this way, he says, customers won’t want to wait for sales; they’ll learn that the best stuff is available only from your full-priced book.

Mollo says when some catalogers devise profit-and-loss statements for each book, they often think that sale books produce a loss. But, he cautions, it’s usually only a paper loss. “They should look instead at how much inventory they’ve moved with that sale book.”

“If you didn’t have a sale book, how would you dispose of the $2.16 million in inventory?” asks Mollo.

2. Try an overstocks page on your Web site. Lands’ End’s overstocks page notes when new listings will appear (every Wednesday and Saturday)—a good way to drive traffic. Be sure to include disclaimers such as “quantities are limited.”

3. Try targeted e-mail sale notices. “As long as you don’t abuse this channel, e-mail marketing can be a great way to stay in touch with customers,” says Mollo.

Idea: Rather than directing customers on your e-mail list to your regular home page, include in your e-mails a link to a “secret” Web site featuring sale items and a strong call to action.

4. Advertise the goods in your package stuffers. This way you can limit the circulation of the sales notices—a good tactic when you have smaller lot sizes of overstocks, says Mollo.

5. If you have brick-and-mortar outlets, send the goods to the stores, a tactic used by catalogers such as J. Crew and L.L. Bean. One benefit is that the branded items remain within your company’s control, that is, they won’t show up on a Marshall’s or other discount merchant’s racks brandishing your brand name. One drawback, however, is the overhead expense to the stores including the “prep” and freight to ship the goods to your outlet.

Mollo suggests you take a cost reduction on the goods being transferred from your catalog unit to your off-price retail division. “The store should buy the goods from the catalog division at, say, 65 percent of the company’s cost. This is how, as a company, you can determine which division created the overstock in the first place,” Mollo says. “This is how you hold your people accountable. Your catalog merchants can’t just say: ‘Oh, there’s no problem if we can’t sell this item I’m buying. We can always just send it to our retail stores.’”

6. Upsell or cross-sell the items from your call center. This can increase your average order value and shed inventory from your warehouse, says Mollo. But it’s a strategy that may not work for some items. After all, there’s a reason those products didn’t sell or were returned.

John Laures, cross-sell manager at PHE, a North Carolina-based cataloger of adult products and a company with a strong upselling program, says there must be a good reason to have call center reps sell products. “And the reason should be something other than the products didn’t sell from the catalog,” says Laures. You don’t want to “dump” products on your call center agents and force them to hawk the failed goods to valued customers.

That said, a cross-sell strategy may work when, for example, a customer already is buying one of your overstocked items; he or she might welcome an offer to buy another at half price. Your agent could prompt the sale by suggesting that the second item be used as a gift.

“You have to frequently change the items offered,” Mollo suggests. “And to get the maximum benefit, someone in your company should be assigned to manage this program.”

When Sales Don’t Work

7. Send the merchandise back to the manufacturers or vendors.

Of course, not all vendors will accept returned goods, and those that do, may not give a full-dollar value refund. Negotiate these points with your vendor before purchasing the items in the first place.

Says Mollo, “Ensure that this privilege doesn’t ultimately impact your original product margins, especially in subsequent seasons.”

8. Barter it away. A barter company will take the goods and give you commercial trade credits that can be used toward other products and services such as printing, transportation, packaging and more, notes Jim Parsons, president of Corporate Barter Advisors, a Santa Barbara, CA-based barter consultant.

It’s important to note, however, that trade credits are not valued at 100 percent of the goods you’ve bartered. That is, if you have $1 million worth of goods, the barter company may give you $600,000 in trade credits, he notes.

In addition, if you want to use your trade credits for, say, transportation services, the transport company may accept 15 percent in trade credits and 85 percent in cash. “The challenge is to smartly liquidate your trade credits,” says Parsons. “Someone in a cataloger’s operation needs to keep track of those barter credits.”

Parsons helps companies negotiate lower per-transaction fees to the barter company, and he assists them in devising contracts. “Most barter companies will give you certain offerings if you know to ask for them,” he says. “But for most people, bartering is not something they do on a regular basis, so they often don’t even know what to ask for.”

Moreover, he’ll suggest to his merchant clients ways to use the trade credits. And for a percentage of the trade credits used, he’ll even manage a merchant’s barter program.

9. Sell to liquidators. Jobbers take your goods for sometimes only pennies on the dollar. But they will empty your warehouse and give you at least some return on your investment.

Many companies compete in this space. Some liquidators specialize in certain types of products, and some offer more comprehensive services (e.g., warehousing, shipping). It’s wise to shop around.

Liquidity Services, which operates Liquidation.com, an online auction for surplus merchandise, works with many large catalogers. “We have a thick market of buyers interested in purchasing these types of goods in bulk,” says Asad Haroon, vice president of marketing for the Washington, D.C.-based company whose buyers include retail chains, e-commerce channels, exporters, wholesalers, even other liquidators.

Liquidation.com will develop a sales plan for the goods. The team will plan the number of anonymous online auctions it will hold, often breaking up large lots to maximize returns for the seller. Liquidation.com also will market the auction to buyers, collect marketing and pricing information, and then manage the actual auction itself. It’ll even arrange shipping, logistics and warehousing.

Haroon says it usually takes two to three weeks, depending on the type of products sold and their condition, for a seller to dispose of all of its goods and receive payment. Payment percentages for the goods vary from 10 to 40 cents on the dollar, he notes.

J. Finn Industries, Morganville, NJ, is another liquidator that handles catalog merchandise. Its client list, as posted on its Web site, includes Lillian Vernon, Martha Stewart and Ross-Simons, to name a few.

In addition to accepting almost all types of catalog goods, this liquidator takes seasonal goods. “We accept Easter items the week after Easter, for example, and Christmas items in the middle of July,” says Jay Finn, president, and a former liquidator for the Carol Wright catalog.

Payment percentages fall into three general categories, says Finn. A company that’s going out of business and wants to quickly get rid of everything in its warehouse usually will get 7 percent to 10 percent on the original cost. A company staying in business and that has unbranded products can expect to recover 10 percent to 19 percent. And a cataloger with branded items and staying in business can expect to recover 17 percent to 25 percent.

“The best deals are when we’re chosen as the regular liquidator, and the cataloger sends to us goods every month or so,” says Finn.

10. Donate the items to charity. Under U.S. Internal Revenue Code 170(e)(3), companies may deduct the cost of inventory donated to charitable organizations such as schools and nonprofit organizations. According to the National Association for the Exchange of Industrial Resources (NAEIR), a non-profit group, donors may deduct cost as carried on their books, plus half the difference between cost (basis) and the fair market value of the goods. But the deduction may not exceed twice the cost.

For example, items carried on your books at a cost of $100 that have an established fair market value of $200 can be donated and a deduction of $150 can be taken, according to NAEIR officials, who recommend that donors consult with their tax advisors for further details.

NAEIR, based in Galesburg, IL, is a membership organization that collects and redistributes donated surplus merchandise. Schools and nonprofit groups, which pay a membership fee to participate in the service, must agree to use the merchandise for the care of the ill, needy or minors. Members cannot sell, barter or trade the donated items, so there should be no chance you’ll later see your branded gear in an outlet store’s window.

Since the NAEIR’s founding in 1977, it has collected and redistributed more than $1 billion worth of new, donated supplies and equipment. Jack Zavada, communications director at NAEIR, says the agency accepts various types of items from catalogers (except food and perishables). There’s no donor fee, and NAEIR will provide tax documentation to the donor about 14 days after receipt of the merchandise.

Addition: When Liquidating

The following tips may help you select a liquidator and negotiate the best deals:

* Don’t wait too long to dispose of overstocks. Catalogers often wait too long to contact a liquidator, says George Mollo, president of GJM Associates, an operations consulting firm. Jobbers (liquidators) often will pay more for seasonal items when they’re sold within that season (e.g., light jackets liquidated in April, rather than July).

“Because the jobber usually can turn around and sell items more quickly when they’re in season, you’ll usually get more money for the goods then,” says Mollo.

* Be sure you get the price you’re promised. During negotiations, determine who will pay shipping, warehousing and logistics, for example. “If neither the jobber nor the buyer are willing to pay for shipping,” says Mollo, “then you, as the seller, should raise your rates a bit to recover your shipping costs.”

* Understand how the jobber gets paid. Does the liquidator buy the merchandise from you outright, or do you get paid only when the jobber receives payment from the buyer? Know this before you sign the deal.

For More Info

- GJM Associates, (845)627-0788, www.gjmassoc.com

- Corporate Barter Advisors, Santa Barbara, CA, (805)569-0842

- Liquidity Services, www.liquidation.com, (202) 467-6868

- J. Finn Industries, www.ineed2liquidate.com, (732) 591-8677

- National Association for the Exchange of Industrial Resources, www.naeir.org; e-mail: donor@naeir.org; or call (800) 562-0955