May 31st, 2019
How to Turn Distressed Inventory into Incremental Revenue (And Create Happy Customers)
Dealing with returned goods and overstocked items is nothing new. However, thanks to the growth of eCommerce, post-retail sales have soared, totaling $554 billion in 2016, and growing at an average rate of 7.5% every year since. This “reverse supply chain” has become an incredible avenue for companies to recover some of their losses — and it’s a smart way to make the most out of a bad situation.
But like all things, selling B-Stock is only advantageous when done correctly. If not appropriately managed, secondary channels can be just another headache for retailers instead of the bottom-line boost they’re intended to be.
So what do retailers need to know to make a go of it? Before we tell you what works, let’s first break down what B-Stock is, and what you need to avoid when you’re trying to resell.
What Is B-Stock, and What Makes It so Complicated?
A-Stock: New, unopened, fully functional product
B-Stock: Any non-new inventory, which is fully operable
Defective: Inoperable inventory, which cannot be resold without refurbishment and is often recycled/destroyed
When it comes to the different levels of stock quality, the above descriptions are a good general rule of thumb. However, the B-Stock category alone is pretty extensive and can refer to products that are out of season, non-defective returned products, overstock, refurbished goods, and much more. When it comes to these types of products, it’s easy to understand why B-Stock is one of the biggest challenges for manufacturers:
Reason 1: When things are left unsold, you slow down your sales cycle. When businesses have to deal with returns and other unsold goods, they incur restocking fees, additional shipping costs, and more to manage B-Stock items. Not only does this take much-needed resources from A-stock items, but you’ve also flatlined your revenue and profit possibilities on the B-Stock inventory until you can get them back in front of the customer.
Reason 2: One of the biggest problems is significant inventory volumes. Here’s the first question most businesses need to ask when items are returned, have been overproduced, or need to be liquidated: Where are all of these items going to go if they’re not on the store shelves? By keeping unsold items in your warehouse, you’re crowding out new stock, and taking up valuable space housing product that isn’t your first priority.
Reason 3: If managed incorrectly, B-Stock can damage your customer experience. One of the things we’ve learned time and time again is the potential for returns and exchanges to ruin your customer experience. Taking back stock is one thing, but managing the customer through a smooth, effortless transition with B-Stock is entirely different. First, you’ll need to discount the merchandise, and then you’ll need to ensure that the quality of your B-stock product matches customer expectations. If not, your customer may be less inclined to shop with you in the future.
Regardless of which reason is most prevalent to your situation, there’s one truth about returns. When it comes to eCommerce, this is the reality: There will generally be a linear relationship between revenue and consumer returns. As eCommerce revenue scales, so too will the relative amount of B-Stock generated. And while B-Stock certainly comes with its challenges, it also presents an opportunity to turn what may otherwise be a drag on the P&L into a new revenue line. Thinking of B-Stock as an inventory type, and effectively marketing it on the most appropriate eCommerce channels may ultimately benefit your business. That’s why it’s crucial to have the right strategy and operations in place. Here’s what you need to know to get started.
The Secret to Success: Effectively Managing Returns and Reselling
B-Stock is a factor of the consumer market, and returns and reselling are at the heart of making your B-Stock profitable. Here’s what you need to know about each of them to make them a success for your business as you attain the highest possible return on your secondary-market merchandise.
- Consideration 1: Time equals money. When it comes to strategy for your organization, most people want a short time frame when it comes to managing returns. That’s where an efficient, streamlined system for processing becomes essential. Your shipping and returns plan should be optimized so it’s not expensive to coordinate a return, ship the product back, issue a refund, and more.
- Consideration 2: Returns require additional labor. Let’s face it — your returns and exchanges will cost more if the product requires product assessment, refurbishing, relisting, or destruction. With these additional costs and touches, your returns process can become lengthy, involved, and very labor-intensive, cutting into your bottom line.
- Consideration 3: The right plan will include a quality assurance function to help manage product and customer expectations. When your customer returns either an A-Stock item resold as B Stock or begins the B Stock return process, they might already have a negative feeling associated with your product or your company. This could culminate in not only losing this one sale with a customer but it could affect their future purchases with you as well. In addition to this, customers could also leave poor reviews, souring the relationship you have with other customers. What does this mean for you? You need to focus on reassuring the customer with a quick, effortless process that answers all the consumer’s questions and encourages them to purchase again.
- Consideration 1: On average consumers may expect a minimum 20% discount on refurbished products. When it comes to the eCommerce world, there’s a lot of discounts out there — in fact, some people would say everything is at a discount. What we’ve learned over the years is that customers expect a 20% discount on most refurbished items, which we have found to be the optimal rate for encouraging customer demand within our clients’ businesses.
- Consideration 2: However, how you price your B-Stock items for resale is tied directly to your revenue strategy, so it varies from brand to brand. Even though the standard discount might be ~20%, it may not be the best choice for your brand. Instead, your B-Stock should be competitively priced to what consumers expect, but not so significantly that it hurts your brand. It’s all relative! After all, you’d likely never see Apple products heavily discounted, but if they were, they’d sell like hotcakes even at a 10% discount. On the other hand, a 10% discount off of a vase or non-technological household good might not have the same attractiveness.
- Consideration 3: You might choose to offer steeper discounts. Some brands prefer pricing aggressively (yet profitably) because they’re losing dollars in holding costs, and are unwilling to take on the burden of taking back the product, or hoping a retailer buys the inventory. Again, this comes down to defining your strategy to make a pricing decision that’s best for your business.
Here’s How Ally Fits Into the Picture.
At Ally, we sell A-quality products on all channels through our multi-channel solution, so we understand the intricacies of working with marketplace channels like eBay and Amazon, and bring extensive expertise to the table. That’s why we’re able to aggressively sell B-Stock inventory types on those channels — because our clients have been there before. By saving you valuable space, we leverage marketplaces in a way that is attractive to our clients and ensures that they’re not taking the attention away from their A-Stock inventory opportunity. We have the strategic and analytical prowess to maximize revenue and profit on distressed inventory types, as well as the operational services to accommodate the most significant obstacles you’ll face as you accommodate reverse logistics.
At the end of the day, when consumers need to return products, they can generally be disgruntled for any number of legitimate reasons. At Ally, we take an empathetic and unscripted approach to customer service, where delivering a strong customer brand experience is the ultimate outcome in mind. You will have returns in eCommerce — there’s no avoiding that. But with Ally, you’ll build an experience that speaks to your professionalism and brand values. After all, happy customers tell their friends about you, and the happiest customers buy again.
Craig Haynor is the VP of Account Management and Operations at Ally Commerce. Ally partners with brand manufacturers to drive their direct to consumer business, combining eCommerce expertise, technology, and operational services.