Private equity firm Apollo Global Management will take Rackspace private in the all-cash deal.
With the holidays approaching, online retailers are negotiating over product returns.
With the U.S. economy sending mixed signals about its overall health, online retailers are carefully placing purchase orders for the amount of inventory they think they can profitably sell during the holiday season.
“I really am trying to hit it on the nose and order what I think we can sell through the end of the year,” says Mark Carson, owner of FatBrainToys.com, a specialty toy e-retailer.
But devising an accurate forecast for Q4 is tough, and e-retailers today are making sure they have arrangements with major suppliers that allow them to return or exchange merchandise that consumers don’t scoop up. “We always say we’d rather work with them than dump it on the market,” 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.”
Christine Wacker, director of commerce partnerships for Discovery Channel Store Inc., operators of DiscoveryStore.com, says rather than get stuck with warehouse storage fees after the holiday for stock unlikely to sell, the e-retailer negotiates return clauses with major suppliers. The return clauses let the retailer return a certain amount of unsold merchandise to the supplier for credit on a future order, or exchange unsold merchandise for products it may be able to sell better. “We negotiate it up front. We might pay a higher cost per unit for the ability to return it if it doesn’t sell,” Wacker says.
She says this option is most readily available from suppliers DiscoveryStore.com has a sustained and profitable relationship with. “If they feel at any moment they would not have business with us going forward, they would never put the clause in,” she says.
Discovery returns merchandise to its suppliers in late January, when the number of visitors to DiscoveryStore.com drops off and the e-retailer reaches a point where any additional sales are unlikely to offset the cost of storing the merchandise. “It’s hard to get enough eyeballs on the site after this point if you miscalculated,” Wacker says.
Larry Sales, vice president and general manager of merchandising for kitchen goods e-retailer Cooking.com, says that of the e-retailer’s top 10 suppliers, only two or three take the position of “you bought it, it’s yours and you can’t mark it down,” Another two or three will take items back for credit or exchanges, while the rest will work to find some middle ground, usually in the form of providing an ad allowance or helping with a special sale or promotion. Because Cooking.com sells kitchenware such as stock pots and spatulas, which tend not to change much from year to year, Sales says he is more comfortable holding over some merchandise 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,” he says, “you may use it to drive further sales.”