Businesses have a variety of options when the time comes to move unsold product. But what's involved in distributing them through secondary markets, and what should brands look out for?
James Holden, Director of Merchandise Sales with Active International, answers some frequently asked questions.
How do most businesses deal with unsold product?
JH: Some move product through their own distribution channels at a discount, others discard the product or donate to charity, some sell lots through a liquidator which go on to secondary markets. Businesses who want to avoid or recover the product financial write-down often turn to a corporate trade company for help.
What are secondary markets?
JH: Secondary markets are smaller, 'mom and pop' shops that sell anything from liquidations to close-outs; these are products that have seen the end of their lifecycle. They don't stock product on a continuous basis, you won't always be able to go in and find breakfast cereal, for instance. Secondary markets also operate in tertiary markets - lower end shopping plazas, independent buildings usually in more remote locations.
What is the process that a corporate trade company takes when re-selling a client's excess inventory to secondary markets?
JH: The client first identifies what the inventory problem is. It could be inventory at the end of its product lifecycle, a product in need of a packaging change, a forecasting error, a sluggish retail season, etc. Once they identify the problem, they present it to a corporate trade partner like Active. We'll valuate it, usually providing 3 times market value (but in future media space) and then taking the responsibility of re-selling it to the secondary markets. The most important thing is that the business maintains control of who and where the product is being sold to.
Q: What restrictions exist with secondary market re-sale?
JH: The client dictates the restrictions by telling us where we can or cannot sell their excess goods. For instance, there could be a geographic restriction where the client only wants their products sold in Europe. If deciding to move product through corporate trade, it's important to look for a partner who is very flexible when it comes to re-sale restrictions and works to ensure all criteria are adhered to.
Q: What types of buyers can a corporate trade company re-sell inventory to?
JH: It really depends on the corporate trade company, and the relationships they have in the marketplace. At Active, I work with all types of buyers: people who run warehouse sales, people who run traditional brick-and-motor businesses, auction houses, an online marketplace, etc. We work with our clients to ensure we can tailor the re-sale of their products to their expectations and don't conflict with what their doing in the marketplace.
Q: What are the benefits/challenges of secondary market re-sale?
JH: The Canadian marketplace has evolved over the last 5-7 years with the exit of a couple of major liquidators. Now the business is fragmented. The challenge exists when you have a lot of inventory because you're going to spend a lot of time trying to re-sell that inventory on your own through multiple, smaller liquidators.
Moreso, if you do choose to partner with a larger liquidator, it's difficult to develop a strong relationship. Most liquidators work based off of one-time deals, meaning they don't have a vested interest in your company and often not adhering to your re-sale restrictions.
A corporate trade company, however, has a longer term vested interest in your business. Unlike the traditional liquidator relationship, a corporate trade transaction doesn't end when the product is sold, they also work with you over time to help you achieve more value in your advertising. A reputable corporate trading company should have developped tight-knit relationships relationships with secondary market partners over time.
Q: What sets Active apart from liquidators?
JH: The key difference is more value. When selling direct to a liquidator, you're receiving cash in hand but typically at a significant write-down. When trading-up, you're receiving 3 times that aftermarket value, but instead of cash, it's in future media space.
Another point of difference is transparency. We're quite transparent with all of the steps that we do: from the point of reviewing our inventory to the re-sale, our clients are involved at whatever level they want to be at. We'll provide them all of the information on which market we sold their products to, how much we sold them for, etc.
We're about the long-term relationship; we want our clients to think of us as a viable solution for their excess assets and inventory.