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How to Use Product Returns as an Ecommerce Opportunity

For retailers and online merchants, product returns can haunt them in the weeks and months after the Christmas holiday. A percentage of holiday gifts so lovingly wrapped transform into Problems for the recipients – it doesn’t fit, it’s the wrong color, or “what were they thinking?!”

But there is a positive side to post-holiday returns, at least for some resourceful sellers: product-sourcing opportunities. But are returns and refurbished products suitable for resale on sites like eBay and Amazon?

We turned to former eBay executive Howard Rosenberg, now CEO of B-Stock Solutions, which helps enterprise clients liquidate excess, overstock, returned, and end-of-life inventory, to find out what sellers should be thinking about as the Season of Returns is now here.

Rosenberg says his company makes returns less painful for the retailers who are receiving the unwanted products back from shippers, and presents opportunities for marketplace sellers.

He reveals where buyers resell the returned goods they purchase on the platforms powered by his company and the kind of margins they get on marketplaces like eBay and Amazon. But Rosenberg recommends buyers on B-Stock platforms do their homework and bid carefully – see what other advice he offers sellers when it comes to using retail returns as a source of inventory.

In a recent blog post, B-Stock Solutions noted that holiday returns account for 10 percent of holiday sales – many billions of dollars worth of merchandise. What will happen to those goods?

Howard Rosenberg: Most of the returned merchandise can’t or won’t go back on store shelves. If the item and packaging are not in new, unopened condition, the product is most likely destined for the secondary market.

How retailers deal with returned items depends in large part on the type of item. For example, a pair of unworn shoes is much more likely to go back on a store’s shelves than a big screen TV return that’s been taken out of the box.

The time and expense required to inspect, test, and repackage a TV (not to mention the cost of shipping it to a facility where this can happen and then ship it again back to the store) may render it more economical to send it straight into the secondary market.

Most online merchants dread product returns. How does B-Stock Solutions help?

Howard Rosenberg: B-Stock helps retailers “lose less” on their returns and other excess inventory. It is commonplace for retailers and online merchants to implement more forgiving return policies as a marketing differentiator to increase sales. To remain competitive, it is simply the price of entry for any merchant.

While returns are never desirable, they don’t need to be dreaded. What should be more dreaded is the liquidation of those returns: that is where the retailer generally takes the hit that results from the steep markdown. As a rule, liquidation is going to be a money-losing endeavor. But, by optimizing this part of the process in order to maximize recovery and minimize that loss, the notion of returns can be made much less painful.

This is where B-Stock shines. Our web-based solution increases the prices retailers are able to get for their liquidation goods by as much as 80%. We connect returned and obsolete inventory directly to tens of thousands of targeted business buyers who compete for it via an online auction platform.

We do this in a way that not only pushes prices up to deliver the highest possible value, but it also automates the sales process, delivers higher velocity and generates proprietary market intelligence in the form of real data on market prices. This allows returned merchandise to contribute to the development of a strategic asset rather than remaining a dreaded afterthought.

Where do you get your inventory for sale on B-Stock Supply?

Howard Rosenberg: B-Stock Supply is our multi-seller B2B marketplace where small and large companies who aren’t necessarily candidates for a branded, private B2B marketplace of their own, can sell their returned and excess inventory in bulk lots. The sellers on the site offer products across hundreds of product categories and in every conceivable condition. There are hundreds of active sellers on the site; our most popular product categories include: cell phones, consumer electronics, fashion, and appliances.

B-Stock does not purchase the inventory and then resell it (like a traditional liquidator) but rather provides the online auction platform for these companies to sell their inventory directly to an extremely concentrated base of qualified business buyers. Many of the sellers on the site started out as buyers on other B-Stock marketplaces.

Are eBay and Amazon the right marketplaces to sell merchandise purchased from a marketplace like B-Stock Supply?

Howard Rosenberg: For buyers in our clients’ marketplaces and BStockSupply.com, Amazon and eBay both offer great platforms to sell merchandise directly to consumers.

I strongly recommend that anyone considering buying with an eye towards selling on either of these marketplaces take the time to educate themselves on the supply and demand dynamics for the products they are considering purchasing. For example, if you are selling refurbished electronics, take a look at what the competition is selling, and how much buyer demand exists.

Some of our buyers that sell on Amazon and eBay have reported to us earning triple digit margins on a per-unit basis while others have reported 10-20% on more commoditized products. The margin opportunities exist on these marketplaces for smart buyers who do their homework and bid carefully to make money.

Where else are the buyers of these returned items selling their goods?

Howard Rosenberg: We have a global buyer base representing 135 countries. The sales channels across this base are as varied as their locations. There are plenty of other online channels, including other third party marketplaces, like Craigslist. In addition, many buyers sell via their own online store.

Then there are offline channels. At the smaller end of the spectrum, some buyers sell at flea markets; other buyers have their own discount and wholesale shops. We’ve even had buyers who throw “buying parties” in their dining rooms for their friends and neighbors.

Among larger buyers, there are major bargain outlet chains, exporters and even some of the largest liquidators in the country buying in the marketplaces.

Selling overseas also presents a great opportunity for buyers who know how to export and can reach international buyers. For example, there is an insatiable demand in emerging markets for used iPhones.

Many brand owners require that their merchandise leave the country to avoid channel conflict or brand degradation locally. If you have the capability to export the merchandise, you have vastly reduced your competition, which will help you make money.

What do you think of “retail arbitrage” where online sellers source inventory at retail stores to sell online (esp. on Amazon)?

Howard Rosenberg: I know it happens, but it sounds to me like a challenging proposition that would be hard to execute at meaningful scale. While a buyer might find a unique item or two at an abnormally low price, retailers are pretty good at squeezing as much out of their inventory as they are able. The amount of time and work required to source that way tells me that it is unlikely that a consistent, dependable source of inventory will come from that approach.

When I worked at eBay (2002-2008), we received a consistent message loud and clear from our sellers, which was that the number one barrier to their growth was finding consistent, dependable sources of quality inventory. This was, in large part, the inspiration for me to start B-Stock Solutions.

Is there anything else small merchants should know about buying and selling returned goods?

Howard Rosenberg: Two trends are converging that make this a great time for small merchants in the secondary market: first, the competitive retail environment and continued growth in ecommerce have driven returns to $260 billion worth of merchandise annually; second, there has never been easier access to inventory directly from retailers. The days of having to pay markups to liquidators or other middlemen are over.

There are a few things every buyer should keep in mind:

1) Buy the inventory directly from the source. By purchasing directly from the retailer or manufacturer there is no middleman attempting to profit from your purchase. You will simply be helping a retailer “lose less” on its excess inventory.

2) Source online from reputable sellers whose primary business is not to profit on your purchase. If a seller’s entire business depends on their making money on your purchase, they have too much incentive to take actions detrimental to you.

By contrast, if the seller is a retailer its liquidation sales probably represent 1-2% of their entire business. Their motivation is to empty the warehouse by moving the excess inventory quickly and efficiently to good, dependable buyers who understand what they are doing for the best price the market will bear at that moment.

3) Do your homework to understand what you are purchasing. You must read descriptions carefully and understand the sellers’ terms of sale.

In liquidation, merchandise is typically sold “as is” meaning no returns. Part of the reason you are getting it for cents on the dollar is because you are waiving your right to return it if you change your mind. So be sure you know what you are buying.

Ina Steiner on EmailIna Steiner on LinkedinIna Steiner on Twitter
Ina Steiner
Ina Steiner
Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.