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As heaps of returned, untouched products pile up inventory, retailers look to liquidation warehouses



By: Andy Yu


The aftermath of the pandemic is dirty. It sucked the economy barren and dry leaving most companies hanging on by threads; however, some businesses are booming. Following the drastic inflation rise during the pandemic, retailers are experiencing a piling up inventory fueled by less consumer spending and large returns. Meanwhile, liquidation warehouses such as the one run in Scranton by Liquidity Services, are undergoing large booms in business.


In the midst of the pandemic, large government spending was used as a means to keep the US economy afloat. What followed this injection of billions and billions of dollars twas a two-year consumer splurge that has just begun to stop, leading to consumers cutting down on wants and focusing on needs like food. The drop in purchases in favor of food leads to a stock pile up of unbought products.


Along with a decline in purchases, returns have also become an major factor in the stock pileup. From 2020 to 2021 the average rate at which merchandise was returned increased by 6%. Online shopping shows an even more devastating trend: 20.8% of all merchandise purchased online is returned. Processing returns can be extremely costly for retailer companies, potentially costing up to 66% of the original items price.


With less purchases and more frequent returns, many companies are unable to afford keeping the surplus as they need to make room for new seasonal items that customers now prefer. An easy solution might be to discount the surplus within their store; however, many retailers are unwilling to as it would jeopardize their brand by accustoming shoppers to price cuts. Instead, they turn to Liquidation Warehouses to do their dirty work.


Sonia Lapinsky, an consultor working at AlixPartners, explains how liquidation services work: “Liquidators are coming in and they’re buying up all of this product in bulk. They’re then packaging it, palletizing it and reselling it, either to be resold on a site like eBay or Poshmark, or even to individual consumers. So it’s turned into a much bigger portion of the industry than we’ve ever seen before.”


Liquidation warehouses also provide an environmental solution to inventory pileups. Instead of being thrown into the landfill, liquidation services resell the unwanted items for much cheaper which reduces carbon foot print.


What started as a small startup, Liquidation Services has ended up to be a $644 billion business thanks much to the efforts of the pandemic. With the continuing popularity and need for these services, new warehouses and businesses are sprouting up such as Liquidity Services, who has announced their intentions on opening a second warehouse later this year.



Links:

https://www.nytimes.com/2022/07/30/business/retail-returns-liquidation.html

https://www.cnbc.com/2022/02/19/liquidation-services-resell-returned-items-a-644-billion-business.html

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