Cashing In On Returns: Marketplaces Reinvent Inventory Liquidation

The rise of eCommerce, and the fierce competition it has produced among merchants, has led to return policies that are liberal, inexpensive and nearly hassle-free for consumers. Those unwanted products, in turn, can create headaches for retailers — and a business opportunity for the so-called secondary market.

The evolution of that business was among the subjects that Howard Rosenberg, CEO and co-founder of B2B marketplace operator B-Stock, discussed during a recent interview with Karen Webster for the latest edition of “The FUNDED Series” from PYMNTS.

In a press release last week, the decade-old firm announced it had raised a $65 million investment from Spectrum Equity, whose capital and expertise, Rosenberg said, will help B-Stock expand its marketplace services and workforce.

Retailer overstocks and excess inventory help to drive B-Stock, which facilitates the sale of some 70 million items each year via online auctions of various product categories and types. The auction format, according to the company, encourages greater demand, higher pricing and a faster sales cycle while allowing for greater control over the process.

Returns stand out, though, given the importance they have gained as more consumers shop digitally.

“Return rates for eCommerce are as much as three times higher than for brick-and-mortar retailers, or even higher,” said Rosenberg, a veteran of eBay. He spent seven years there, including business development for eBay Motors, and then as general manager at the company’s private marketplace group, which he launched in 2004.

The financial crash of 2008 also changed consumer habits to the benefit of the second marketplace, Rosenberg said. That crash left merchants with an excess of unsold products, of course, providing a shot of business for resellers. But more than that, anxious consumers – and people faced with limited budgets – started to show more willingness to buy less-than-perfect items, he said.

“Consumers started to trade down, buying refurbished TVs and saving $400,” he said by way of example. “Or [buying] appliances with a scratch on the side.”

Meanwhile, the typical seller on B-Stock is “liquidation-minded,” Rosenberg said, someone who wants to convert that unneeded inventory “into cash as soon as possible.” Those sellers include nine of the 10 largest retailers in the United States, along with the country’s top two wireless carriers.

Traditionally, retailers left with excess inventory at the end of a particular season, or because they simply bought too many goods, work with a few trusted liquidators or jobbers with whom those merchants have established relationships. That still happens, Rosenberg said – but with the second market valued at up to $500 billion by some estimates, an online channel offers more options for sales, and the chance to earn higher prices for that excess inventory.

In fact, one of the selling points that B-Stock can offer, Rosenberg noted, is that retailers can put more faith in liquidation by using an online channel, trusting they can eliminate excess inventory. This can help to prevent the temptation to tighten return policies, which could alienate loyal customers and sacrifice the chance to sell to other consumers.

“You can build it into your business process,” Rosenberg said.

He likened a more dependable liquidation process to “flushing the system constantly” — a more rational approach, perhaps, than having a frenzied CFO stomp into the warehouse at the end of the quarter and demand that all of those surplus goods be taken off the books one way or another.

So what’s to keep companies with too much product from trying to get rid of counterfeit goods in the online marketplace? Reputation, Rosenberg said. The big retailers that work with B-Stock generally know their suppliers well, and are unlikely to have any fake products in stock. “The nature of the sellers sort of guarantees that the products are genuine,” he said, “unless you believe some of those retailers are selling counterfeits.”

It’s not only the new investment that could help B-Stock gain more sellers and otherwise expand. The online marketplace never takes possession of the items sold via its site, which leads to general savings. Additionally, even though eCommerce retailers are offering discounts on products that consumers are not allowed to return, any major move toward a general tightening of return policies seems extremely unlikely.

“As eCommerce continues to grow and return rates continue to rise, the cost associated with processing returns is becoming a major pain point,” Rosenberg said. “Given today’s competitive retail climate, the ability to minimize any loss on returned and other excess inventory has become a competitive advantage for our clients.”