Online Liquidation Enjoys Fresh Growth As More Consumers Embrace Returns

If you are the gambling or adventurous type, and have a few thousand dollars burning a hole in your pocket or purse, Amazon has a proposition for you.

For at least $8,913 — that was the high bid as of Thursday afternoon (Jan. 24) — you could be on your way to owning a pallet’s worth of mostly overstocked items, products that included a mystery collection of grocery and drugstore items, a “truckload” of apparel and accessories, the total of which retail for $620,611.

If you are lucky enough to take possession of items that consumers actually want to purchase at a decent price — and smart enough to unload those goods via other web channels before the opportunity dries up — you could make a profit, as a growing number of YouTube personalities are doing, inspiring other to take similar paths in the world of online liquidation. (In fact, opening these Amazon pallets, many of them consisted of customer returns — that is, the live reveal of potential retail treasure — has become a popular genre of YouTube videos, perhaps not surprising in this era of “Storage Wars.”)

New Force

Online liquidation is nothing new, of course, but it’s gaining force and taking new forms, as the YouTube videos demonstrate. The idea is the oldest in retail: Buy low — very low, in fact — and sell high, usually via eBay and other online marketplaces. The gamble does not pay off for everyone, including hopeful amateurs who often see a quick path to riches, as a recent article in The Atlantic about the “reverse supply chain” described. But the opportunities are real.

Fueling much of this activity are the liberal return policies of Amazon and other eCommerce operators, polices shaped by fierce competition. As well, various consumer surveys keep finding that returns are among the least favorable part of the eCommerce shopping process — another reason for those pro-consumer return policies, and another reason to doubt that such policies will be tightened, at least in general. The need to keep up with Amazon — whose size, of course, enables it it to make it easy for customers to return products with no questions asked — also argues in favor of liberal return polices as a permanent part of the 21st century retail landscape.

Investor Attention

And investors have taken notice. Last year, for instance, B2B marketplace operator B-Stock, as reported in a PYMNTS interview with its CEO, Howard Rosenberg, raised $65 million from Spectrum Equity.

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.

Much like the case with so called “recommerce “ — that is, selling of used items such as apparel and electronics online, the subject of another PYMNTS Deep Dive this week — the recession that started in 2008 helped bring more consumers to the online liquidation market. And a new recession, as anticipated by many observers, is certain to make such online activity even more attractive to companies and consumers interested in those discounted goods.

More Returns

The online liquidation market promises to grow in the coming years, with the amount of returns expected to exceed $1 trillion within the next few years, according to an estimate given by Tobin Moore, CEO and co-founder of reverse logistics technology company Optoro, in a CNBC interview.

“Retailers are losing billions and billions of dollars on the way returns are managed,” he said. “A lot of retailers can add 5 percent to their bottom line by better optimizing the management and resale of their returns.”

The holiday shopping season, of course, sparks a surge in returns, many of which eventually find their way to the online liquidation market. According to Gartner Reasearch, less than half of returned goods are resold at full price. That said, only 23 percent of retailers employ software to manage returns and their resale, according to Optoro.

But the prospect of earning revenue on returned, overstocked and similar goods — if only to offset storage and other costs — is becoming more attractive to more eCommerce operators, according to reports and analysts.

Groupon Move?

For example, Groupon — which started selling products online via its Groupon Goods offering in 2011, and its Groupon Stores  — reportedly “is testing a service to help mom-and-pop shops sell their unwanted goods at a discount.”

Groupon did not respond to a request for comment on Thursday.

But its service reportedly will “notify customers when there’s a sale or discounted items nearby. Customers also will have options to order items online and receive them the same day or pick them up at a retail location.” The offering would not only fit into the online liquidation trend, it would give Groupon a new way to attract customers. It also reflects a larger trend of online operators trying to work more closely with small and local businesses — one that is playing out in the on-demand food delivery industry, for example, as startups seek an edge and niche in a field that is fiercely competitive and dominated by big players.

Product Limitation

Of course, online liquidation — unlike some “recommerce” operations — tends to shy away from electronics, which, when returned, might need to be cleaned of data or undergo other steps that add unwanted costs before resale. But according to estimates, between 45 percent and 70 percent of expensive apparel can be resold via the online liquidation process — a customer might not care so much about seasonal trends if there is a chance to get a brand-name item in new condition at a reasonable price, after all.

All signs point to consumers becoming much more comfortable with buying returned, overstocked and similar items online, and no doubt they are becoming smarter about it as more such transactions take place and more eCommerce operators get into the game. You can expect that any economic downturn — 46 percent of U.S. consumers already live paycheck to paycheck, according to the PYMNTS Financial Invisibles report — will lead to more growth for this particular area of eCommerce.