Your options are to work with a big discount chain, work with a trusted excess partner, or auction to several 'jobbers'. Here's how to choose.
Who are we?
We're a small team with 40+ years of combined experience in the trade. We often get questions from people looking to handle a clearance problem and put together this article to cover some of the common issues and questions.
The problem
If you are a retailer or brand with clearance, there will always be times where you over-order stock, or stock gets damaged. You put off dealing with it, and now your warehouse is full, or your inventory has too much dead stock on it.
Brand protection vs recovery value
One of the most difficult decisions you will make with clearance stock is maximising the value on the lot vs protecting the value of the brand.
Protecting the brand has a cost. The best way to protect the stock is either (a) send to a non-core low income market, e.g., in Africa or Latin America, or (b) work with a partner who will split the parcel into 100s or 1000s of small pieces going to a very large number of businesses. The parcel then disappears into these businesses without ever being heavily discounted in one place.
You can also do a fire-sale of stock to a big retailer, who will put the item on promotion. In our experience this is a good way to get cash fast but will hurt customer perception of the stock.
A great example of this is recently I visited a large brand, who were liquidating a lot of stock to a major retailer.
I spoke with a friend for a coffee catch-up and mentioned the brand; they said they would never wear it. This was because they saw it discounted in low-prestige retailers everywhere, and hence had associated the brand with that target market. This was despite, in my opinion, the product actually being very high quality.
Auctions and brand protection
If you decide to auction the lot to multiple clearance partners you face a trust issue: the person who bids most might win the auction because they know they will ignore your restrictions.
Suppose your brand is strong in the USA but weak in Africa. Maybe a $100 retail shoe in USA would only get $5 in Africa, because incomes are lower and no one knows your brand. You decide you want to sell it in Africa to protect brand value.
If 5 firms bid on your stock, a dishonest firm who says they will send to Africa but actually keeps it in the USA will win the auction, as they can bid, say $20, as they plan on selling it in the US for $30 to a retailer who will sell it for $50, devaluing your brand.
How can I make sure stock ends where a partner says it will go?
This is a very tricky problem.
What we recommend for sensitive parcels is agreeing with a third party, such as an accredited accountant, to verify the sales invoices for where the stock ends up.
This isn't bullet proof as stock can be later re-routed; if stock is sold to a wholesaler in a target market, they might then re-sell it back to the forbidden market. This is a classic problem we see: brand says don't sell in, for example, the USA. Company sells to, say, a French wholesaler, who promptly ships it back to the USA.
Our recommendation here is to work with partners who primarily sell to end users of stock. For example, if 300 units of stock is sold to a French market stall owner, it's quite unlikely that market stall owner freights it back to the USA. Whereas if 20,000 units goes to one customer they might re-export it.
If you work with a partner on consignment, they have more breathing room to sell in smaller batches than if stock is paid for pro-forma. If stock is paid upfront, then selling to a small number of larger sellers are often the only way for your clearance partner to get cash back in their business.
Options
You should do your own research, as full disclosure I run a clearance company.
If it's a lot of stock, you can consider selling to a big firm like TK Maxx, Sports Direct / Frasers Group, Burlington's stores.
Note these channels will impact your brand value substantially, as customers are aware of discounted stock in these stores. These big firms also need deals which fit for their stores, so your parcel might not be a fit. These firms often have +60 or +90 payment terms which should also factor into your decision making.
If working with a wholesaler you can look to sell take-all or consignment.
If cash isn't an immediate issue, in our experience consignment recovers more value with better cash recovery (as the wholesale partner has a fixed margin) and control over stock movements, but take-all is a better way of getting rid of the problem without thinking about it again. We find we can often recover more value on a parcel via consignment than a take-all price even to a major retailer like Frasers Group.
Speak to us
If you're interested in discreetly handling a clearance lot, you're very welcome to reach out to me directly on ethan.horsfall@diracgroup.com or on whatsapp at +44 7348 950325.
We've handled clearance lots for large high street retailers, and brands ranging from well known international companies to local brands. We hope to work with you soon!