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B2B Auctions - What Happens to Store Returns?
Topics Covered:
Intro
How Liquidation Auctions Work
What are the Costs?
Where’s the Opportunity for Sellers?
Where’s the Opportunity for Buyers?
Here’s an interesting statistic – Total returns for the retail industry amounted to $743 billion in 2023. As a percentage of sales, the total return rate for 2023 was 14.5%.
For retailers, these are ugly numbers. They cut right into their margins. But with giants like Amazon accepting returns without batting an eyelash, retailers are forced to do the same.
But have you ever wondered what happens with all of those returns? And what about inventory that a business just can’t sell? Does it all get thrown into a black hole and magically disappear?
Nope. Chances are that it goes to a liquidation auction.
How Liquidation Auctions Work:
A business that’s sitting on excess inventory faces a common challenge: what to do with all of that unsold and returned inventory?
Instead of significantly dropping the price and hoping that it sells, the business can turn to a liquidation auction site where the inventory is listed for buyers to bid on.
Examples of liquidation auction websites are B-Stock, DirectLiquidation, or Bulq.
A business can list items on these sites in different formats such as:
Individually,
By the pallet, or
By the truckload.
Generally, the more detailed the listing, the more appealing it will be for buyers. Key details that buyers look out for include:
Item Condition,
Pictures,
Manifests (detailed descriptions of goods),
Brands Involved,
Shipping Type and Cost, and
Original Retail Value (MSRP) of the merchandise
Once the listing is live, buyers place bids, competing for the inventory. This process drives demand and helps the seller get the most value of the sale. Think of it as eBay for B2B goods.
Here’s the most common types of items sold at liquidation auctions:
Overstocked Items
Discontinued Items
Seasonal Items
Customer Returns
Pre-Owned (Used / Refurbished)
Close-Out Items
What Are the Costs?
Liquidation auction sites split the costs between sellers and buyers.
Common Fees include:
Fee | Description | Who Pays? |
|---|---|---|
Listing Fees | A charge for listing items on the auction platform. | Seller |
Commission Fees | A percentage of the final sales price, typically between 10-25%. | Buyer, Seller, or Both (depending on the platform) |
Payment Processing Fees | Costs associated with payment methods like credit cards, wire transfers, or ACH transfers. | Each side pays their own fees. |
Shipping and Handling | Fees for transporting the merchandise from the seller to the buyer. | Usually the buyer, but the seller may cover costs to incentivize purchases. |
Where’s the Opportunity for Sellers?
For sellers, liquidation is an effective way of offloading inventory that’s been returned or remains unsold.
Excess merchandise that sits in storage depreciates in value, takes up warehouse space, and ties up capital that could be reinvested elsewhere. Liquidation not only clears out this inventory but also allows businesses to recoup anywhere from 20-50% of their wholesale cost.
Liquidation also saves businesses time in handling customer returns. Instead of repackaging, relabeling, and repricing returned goods individually, sellers can bundle and sell them all at once—saving time and effort.
Where’s the Opportunity for Buyers?
For buyers, liquidation auctions offer the chance to buy inventory at a significant discount. prices. Buyers can then resell the inventory through their own stores or through 3rd party marketplaces like Ebay, Poshmark, or Facebook Marketplace.
However, it’s important to note that although this can turn into a profitable business or side hustle, buyers should do their due diligence. Inventory received may not always be the best quality and the buyer may be left holding unsold stock for long periods or having to sell at a loss.
Source:
See You on the Next One,
— Oleg