Handling obsolete products
Manufacturers, wholesalers and retailers all have obsolete and discontinued merchandise, the sales or purchasing departments usually have the responsibility to liquidate this inventory, neither of which usually has the time or contacts to get the product moved quickly and efficiently.
The first path is to offer it to current customers at a discount which is the easiest way to go and often times will result is some movement of the product, but it can also lead to lower profits as you must sell the closeouts at a major discount which in turn reduces the sale of your more profitable products and slows the introduction of your new programs. I recommend this as a first step, however do not make the discount too large, but try to get something above your cost. (When you go to the closeout market your cost has nothing to do with the sales price.) The real reason I suggest this is not that you will sell huge amounts of product to your current customers as most of the time if you cannot move it quickly they will not be able to either and they are aware of the situation, but if they see your product at a large discount somewhere else they will ask how come you sold it for less. Your reply will be I offered it to you: I needed to get rid of it and this contact made me an offer for the whole lot . Let him know that on the next future closeouts he will have the first look. Hopefully, this will encourage him to come back with an offer of his own.
After step one, the product often begins to sit in the warehouse as neither sales or purchasing departments have the experience in the closeout markets to get the product in the right hands. For them to spend exorbitant amounts of time to unsuccessfully move overstock hurts moral, their income, and your productivity. They do not want to admit they do not have an outlet for the product so they push it off to the side until someone forces the issue.
Step two is usually to call several closeout companies to see which one will give the best offer. This makes sense in other business deals but can give the product a shop worn appearance rather quickly. The closeout companies will go to the marketplace to get a feel for your product and how much it is worth, often times they will cross paths which makes it appear that your product is in desperate shape and therefore drives the price down.
A solution to the above dilemma is to approach one closeout specialist in your product category and work exclusively with that company. The first issue that you have now solved is productivity, and sales and purchasing can do the job they were trained to do.
When working with the closeout specialist tell him how you want the product sold, in any certain markets or regions, or if you would like it for export only. Whatever the situation, tell him what you want and ask for his suggestions. After you have determined the target market, consider how you want to ship the product to its final destination. The more you ship a product the higher the final cost. Additionally today’s freight rates can make a product undesirable due to handling costs. Note this, if you ship the freight to the end user, be it a retail outlet or freight forwarder, you will have few surprises as to where you will see the final disposition of your product. Also, by keeping the handling costs to a minimum, the buyer will be able to sell the product faster with quicker turns and better profits. When that happens the next time your product comes across his desk you will be sure it will catch his attention. Your aim is for him to want your product the same as your regular distributors
Most of the time closeouts are FOB your warehouse. However. if you have your own trucking and can move this at a reduced cost, consider offering the freight as part of the deal. You could also hold it back and when the negotiations are close for a few extra dollars you will toss in the freight. You may be able to put the load on a partially filled truck and ride for free so the money will drop to the bottom.
Cash or payment within a week are the terms 95% of the time. If your buyer is dependable, you can extend some dating up to 30 days. Do this only if you are comfortable with the buyer. The last thing you want to do is chase closeout money.
You thought I forgot about pricing? Here is where you should take serious consideration of your closeout specialist. Your product may have cost you $10 but you may only get $5, he will tell you what to expect. Do not expect a profit. If this makes you uneasy, then back out or make him an offer to work on a percentage, and make it in the double-digit range as he cannot survive on less. If your dollar value is large, it will eliminate a draw on his credit which he can use for other deals giving you the maximum amount for your product. This could work to your advantage if you are willing to extend a long term agreement with your closeout partner.
Find a closeout company and partner up. It is the best way to handle your obsolete product. You can even set up key accounts that will be waiting for your products. The goal is to move it quickly with as little pain as possible. Turning old product into cash is more fun than dusting the inventory!
If you'd like more pointers or a free quote, feel free to contact us.
