December 25, 2008 in Business

What happens to unsold products?

Discount retailers, online sites will buy leftover stock
By VINNEE TONG Associated Press
 
File Associated Press photo

Shoppers push their carts through the toy aisles at the Costco in Cranberry, Pa., Butler County. With holiday sales shaping up to be the lowest in years, shoppers may be finding some great deals after Christmas.
(Full-size photo)

NEW YORK – Retailers are expected to have one of the worst holiday seasons in years as consumers cope with job uncertainty and the nerve-racking stock market, which lost $10 trillion in value between October 2007 and November 2008.

Understandably, shoppers have been cautious. If that keeps up through the rest of the month, retailers are likely to have plenty of leftovers. From toys to DVDs and terry cloth robes, what will happen to all that unsold merchandise?

Here are some questions and answers about what retailers do with the stuff they can’t sell.

Q. Where does it all go?

A. Liquidity Services Inc. CEO Bill Angrick, whose company operates Liquidation.com, said merchandise at traditional retail outlets can end up unsold for a number of reasons. Manufacturers can be stuck with it because orders were canceled, merchandise gets returned by customers, and other items, of course, just sit on store shelves unsold until managers decide to pull them (called a “shelf-pull” in the business).

Retailers and suppliers divert the merchandise to a number of places: discount stores such as TJ Maxx and Marshalls, outlet malls, boutique retailers that buy from wholesalers, and Web sites like Overstock.com.

Q. Is there a category of merchandise that’s selling particularly badly?

A. As people across the income spectrum cut back on spending, the higher-end, luxury goods are most likely to be left sitting on shelves.

“We would say it’s aspirational brands, high-end deluxe – that’s what really taking the hit,” said Overstock.com Chief Executive Patrick Byrne. “Middle income people are tightening their belts. Affluent people are moving down to middle-income brands.”

Q. How has online retailing changed the market for unsold goods?

A. Online sellers have created a number of new markets, and cut-rate merchandise is no exception.

“The simple question for retailers is, ‘How do I know I’m getting the best price?’ ” said Angrick of Liquidation.com, a leading online auction company for surplus goods.

“A lot of these Fortune 500 companies are trying to save costs and raise cash. This channel we have is a source of working capital for them.”

Angrick’s site, which has more than 1 million registered wholesale buyers, had its highest number of unique bidders in a single day this past week when 23,000 buyers submitted bids. That’s a sign that the market for returned and unsold merchandise has ballooned.

Q. Are shoppers likely to get even more to choose from in January?

A. A number of retailers have filed for Chapter 11 bankruptcy – from Linens ’N Things to Circuit City Stores Inc. and Steve and Barry’s LLC – and experts predict that January will bring even more filings. That should bring going-out-of-business sales, which means even more discounted goods.

“I’ve never seen anything like this in the nine years we’ve been in business, in terms of the flood of goods we’re getting from retailers,” Overstock’s Byrne said, adding, “I think you’re going to see, in the first quarter, a wave of store closings.”

Byrne and other experts say most retailers will wait to see how they did during the holiday season and, in January and February, make decisions about store closings. Many more closings are likely to be announced later on, and Byrne predicted we will soon see the brick-and-mortar equivalent of the 2000-01 dot-com crash.

Q. What happens to merchandise that even the discounters can’t sell? Does it get dumped in landfills?

A. Generally there is strong demand for unsold merchandise from American retailers in many export markets. Some liquidators find a place for overflow goods in Latin America, North Africa and parts of the Middle East.

Another option is to give the goods to charity. And yes, some merchandise might end up in landfills, but only as a last resort.

© Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.


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