Overstock, online shopping returns drive clearance market
Consumer behavior, a looming recession and retailer reactions to pandemic-related supply chain issues are combining to drive a liquidation renaissance, according to a business advisor and retail futurist.
Companies like defunct Canadian chain Liquidation World have been liquidating consumer goods in North America for decades, typically moving leftover inventory from bankrupt retailers.
However, Doug Stephens says a new post-pandemic retail landscape could see liquidators serving a new purpose: shifting returns from online shopping and retail overstock created as a result of supply chain issues created by the pandemic.
“What we’ve seen through the pandemic is that there’s been a real revolution in the way consumers shop,” Stephens told CTVNews.ca. “People are buying much more online now than they did before the pandemic…and the return rate for goods is higher when purchased online.”
Stephens said the return rate for clothes purchased online can be as high as 33%. Additionally, analysis released jointly by the National Retail Federation and Appriss Retail – a software and analytics company – found that in 2021, shoppers returned an average of 16.6% of their purchases. That number was up from 10.6% in 2020 and more than double the 2019 rate.
Stephens said major online retailers with liberal return policies like Amazon and Wayfair have moved the watermark of return policies across the retail landscape, fueling the trend for consumers to purchase items online, just for send them back. In some cases, like with Amazon, Stephens said retailers route those returns directly to third-party liquidators.
“So what we’re seeing is that retailers like Amazon, Wayfair and others aren’t even accepting these goods. They don’t want them back,” he said. “They’re just reselling them to liquidators and it’s almost creating a sub-class or sub-category of retail in the market now that liquidators are essentially becoming a daily force in the market to erase those returns.”
Stephens said returns from online purchases are only part of the excess inventory that retailers are trying to move. A significant mismatch between the demand for consumer goods during the pandemic and the supply of those goods has also contributed to retailers’ overstocking.
Retailers caught without inventory amid 2020 and 2021 supply chain issues are finally catching up with demand for home goods and electronics, he said, just in time for economic growth to slow in Canada and in the United States, leading consumers to reduce their spending.
In July, Walmart issued a budget update warning that operating profits would fall sharply as it cut prices to shift inventory due to oversupply of general merchandise. This discord between supply and demand has created a new sell-off market that Stephens expects to persist for some time.
“Once [retailers] have been able to catch up with demand and place large orders and receive large orders, we are now starting to hear the reverberations of an impending recession,” Stephens said.
“So now you have retailers sitting on mountains of inventory that they now have to clear.”