July 31, 2011, 12:00 PM

Clear it Out

(Page 2 of 3)

Scot Wingo, CEO of ChannelAdvisor Corp., a company that helps retailers sell through online marketplaces, says eBay is making improvements that could make selling on the marketplace easier to manage. He says e-retailers would likely recoup more cash by selling overstock on eBay than by selling to a liquidator, but it does take more time. "A liquidator can probably get you your money in 15 days. Selling inventory on eBay will probably take 30-60 days, but you might get twice as much," Wingo says.

Moving quickly to dispose of excess merchandise is important for Discovery, as storage charges mount up quickly. DiscoveryStore.com rents its inventory space at one warehouse location operated by e-commerce services provider Delivery Agent Inc. Wacker says the e-retailer is charged a per-pallet, per-month fee and an additional fee if the vendor has to move pallets to get at stock.

On the money

Warehouse space after the holiday isn't a concern for FatBrainToys.com, which has its own 40,000-square foot facility stocking about 6,000 products from some 320 suppliers, or for Cooking.com, which has two warehouses and also stocks 6,000 SKUs and sells another 50,000-plus through manufacturers that drop ship products on Cooking.com's behalf. Still, neither retailer uses a liquidator, and both prefer to negotiate with suppliers to find ways to move unsold merchandise after the holidays rather than dramatically mark it down. "We always say we'd rather work with them than dump it on the market," FatBrainToys.com's Carson says. "We're not afraid to call a supplier and say we ended up long on this product, but we're carrying 20 others, can we exchange this? A lot of manufacturers will work with us and not try to gouge us with restocking fees."

Cooking.com's Sales says a portion of the e-retailer's stock is subject to minimum pricing guidelines, so drastic price cuts aren't an option. Cooking.com places more conservative purchase orders with suppliers it knows won't negotiate on returns or help in other ways to move stock, whereas it'll place more generous orders with suppliers that are more accommodating, he says.

The e-retailer also uses JustEnough, an inventory and demand planning software service, to help it place more accurate orders with suppliers. This may mean only placing early purchase orders for a handful of a supplier's products it knows will sell well, and holding off on the rest of the supplier's product line until September or later when the retailer has a better feel for demand. Sales says his regular suppliers understand that and know that being flexible may gain them more, larger Cooking.com orders. "You are never going to predict the market 100%," he says. "We make our bets with the folks we have a history with if we are going to buy deep into a product."

Of Cooking.com's top 10 suppliers, two or three take the position "you bought it, it's yours and you can't mark it down," another two or three will take goods back for credit or exchange it, and the rest will work to find some middle ground, usually providing an ad allowance or helping with a promotion, Sales says. Because Cooking.com sells kitchenware like stock pots and spatulas, which tend not to change much from year to year, he adds, it can hold some merchandise over for promotions. For example, the e-retailer might bundle a poorly selling soup ladle as a free gift with the purchase of a pricey stock pot. "Even if you are forced to sit on it a little longer, which no one likes, you may use it to drive further sales," he says.

Promotions like this and the after-holiday clearance sales help e-retailers gauge consumers' price sensitivity and demand for particular products, which helps them decide whether to stock an item in the future. Wacker says a toy may sell poorly at full price but sell well when discounted after the holidays. That suggests there is demand, but that the price was off, she says.

"We may go into a clearance sale thinking some products are dogs, but then see a 200% to 300% increase for them," she says. "That lets us know that it is OK to hold onto them because we can use them for an affiliate promotion or as a loss leader for events like Black Friday or Cyber Monday next year."

Alternative outlets

For apparel and outdoor gear e-retailer TheNorthFace.com, a division of VF Corp., discounting merchandise on its site is not an option, as that runs counter to the brand's marketing strategy. Many manufacturers sell at list price on their own sites, lest they anger the retailers that sell most of their goods. TheNorthFace.com targets a 70% sell-through rate for its merchandise, says Greg Pulsifer, general manager of e-commerce. What's left goes to nine The North Face outlet stores. Other multichannel retailers that have discount outlet venues, such as Sears, also use them to move leftover holiday merchandise.

A new option that has emerged in the last few years are flash-sale sites like ideeli or Beyond The Rack that offer deep discounts for a limited time. Jewelry e-retailer Ice.com in late May ran a sale on ideeli, offering 22 jewelry items like necklaces and earrings at a discount. Pinny Gniwisch, co-founder and executive vice president of business development for Ice.com, says some of the items were excess inventory; about half of the items offered sold out during the two-day sale.

Gniwisch says the flash sale was an experiment designed to both move merchandise and expose the Ice.com brand to ideeli's audience. He says Ice.com is trying to limit markdowns on its own site to build its reputation as a jewelry retailer that sells online for full price. Nonetheless, Ice.com will have a sale or clearance section on Ice.com after the holidays and likely will try flash sales again, Gniwisch says.

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