As Inventory Stacks, Liquidation Warehouses Are Busy

PITTSTON, Pa. Once upon a time, when parents were scrambling to keep their children during the pandemic lockdown, it was difficult to get a bicycle. But today, at a sprawling warehouse in northeastern Pennsylvania, shiny new Huffy & Schwinns are available at great discounts.

The same goes for patio furniture, garden hose, and portable pizza ovens. The home spa, Rachel Ray’s has nonstick pans and a backyard firepit, which promises to create “memories every day.”

The warehouse is run by Liquidity Services, a company that collects surpluses from major retailers such as Target and Amazon and returns and resells goods, often for cents on the dollar. The facility opened last November and is operating at an exceptionally high volume for this time of year.

The warehouse provides a window into the retail industry and the broader economy: After a two-year binge of consumer spending — from government scrutiny and the ease of e-commerce — a nasty hangover is taking hold.

With the cut in discretionary purchases by consumers due to high inflation, retailers are now stuck with more inventory than required. While overall spending picked up last month, some major retailers say shoppers are buying less clothing, gardening equipment and electronics and focusing on basics like food and gas.

Adding to that glut are all the things people bought during the pandemic – often online – and then came back. In 2021, shoppers returned an average of 16.6 percent of their purchases, up from 10.6 percent in 2020 and more than double in 2019, according to an analysis by the National Retail Federation, a trade group, and Aprys Retail, a software and eyepiece retailer. analytics firm.

Last year’s returns, which retailers aren’t always able to resell themselves, resulted in a loss of $761 billion in total sales. This, the retail federation noted, exceeds the annual budget of the US Department of Defense.

It is becoming clear that retailers misjudge supply and demand. Part of their miscalculation was due to supply chain delays, which prompted companies to secure products earlier. Then, there’s the natural cycle of boom – whether because of optimism or greed, companies rarely back off before it’s too late.

JD Dunt, Chief Commercial Officer, Liquidity Services, said, “It is somewhat surprising to me that we saw an increase in buying activity and we were not able to collectively see that this was going to end at some point. ” An interview at a Pennsylvania warehouse earlier this month.

“You’d think there would be enough data and enough history to see it a little more clearly,” he said. “But it also shows that times are changing and they are changing faster and more dramatically.”

Strong consumer spending may have saved the economy from ruin during the pandemic, but it has also led to excessive excess and wastage.

Retailers have begun slashing prices on inventory in their stores and online. Last Monday, Walmart issued the industry’s latest warning, when it said its operating profit would drop sharply this year as it cut prices on a higher supply of general merchandise.

Many companies cannot afford to keep discounted items on their shelves because they have to make room for new seasonal goods and consumer choice needs. While some retailers are offering discounts on surplus within their stores, many avoid holding large sales for fear of damaging their brand by conditioning shoppers to expect large price cuts. That’s why retailers look to liquidators to do that dirty work.

Additionally, industry executives say the glut is so large that some retailers may not have the space to store it all.

“This is unprecedented,” said Chuck Johnson, a former Walmart executive who is now chief strategy officer at GoTRG, a firm that helps retailers manage returns. I have never seen pressure in terms of excess inventory.”

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So, much of the industry’s flotsam and jetsam flowed into such warehouses, located on Interstate 81, a few exits off the President Biden Expressway in Scranton, the president’s hometown.

The massive facility is part of an industrial park that was built on top of a renovated strip mine, when the area was a major coal producer. Today, the local economy is home to dozens of e-commerce warehouses that cover mountainous landscapes such as giant spacecraft, funneling goods to population centers in and around New York and Philadelphia.

Liquidity Services, a publicly traded company founded in 1999, decided to open its new facility closer to the Scranton area’s major e-commerce warehouses to make it easier for retailers to drop off their unwanted and returned items Gone.

Even before the inventory glut appeared this spring, returns were a major problem for retailers. The huge jump in e-commerce sales during the pandemic – a growth of more than 40 percent in 2020 over the previous year – has only added to this.

The National Retail Federation and Aprice Retail have calculated that more than 10 percent of last year’s returns involved fraud, involving people wearing clothes and then sending it back or stealing items from stores and returning them with counterfeit receipts. But more fundamentally, industry analysts say rising yields reflect consumer expectations that everything can be withdrawn.

“It is getting worse and worse,” Mr Johnson said.

Some returns and excess inventory will be donated or returned to manufacturers. Others get recycled, buried in landfills or burned in incinerators that generate electricity.

Liquidators say they provide a more environmentally responsible alternative by finding new buyers and markets for unwanted products, both those that were returned and those that had never been purchased before. “We are reducing our carbon footprint,” said Tony Ciarotta, executive director of the industry trade group Reverse Logistics Association. “But there’s still a lot in the landfill.”

Retailers will probably receive only a fraction of the original value of the items from the liquidator, but it makes more sense to take the loss and move the goods off store shelves quickly.

Still, liquidation can be a sensitive topic for large companies that want customers to focus on their “A-goods,” not failures.

Mr Ciarotta calls this the “dark side” of the retail sector.

On a tour of the Pennsylvania warehouse, Mr. Dunt and the warehouse manager, Trevor Morgan, said they were not allowed to discuss where the products originated. But it was not difficult to find out.

The 85-inch flat-screen TV still had the Amazon Prime sticker on the box. Bathroom vanities came from Home Depot. There was a “home theater” memory foam futon with built-in cup holder from the Walmart Return Center.

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Target’s familiar bull’s-eye logo was in several unopened boxes on the warehouse floor. Air fryers, baby strollers and giant stacks of Barbie’s “dream house,” which has a swimming pool, elevator, and a home office. (Looks like Barbie is too tired to work from home.)

When Target’s sales exploded during the first year of the pandemic, the company was a darling of Wall Street. But in May, the retailer said it was stuck with oversupply of some goods and that the company’s stock price had fallen nearly 25 percent in a day. Share prices of other retailers also declined.

Target’s stumbling block has been an opportunity for people like Walter Crowley.

Mr. Crowley regularly rents a U-hall and drives back and forth from his home near Binghamton, NY to the liquidation warehouse.

Mr. Crowley, who turns 54 next month, focuses mostly on discounted home improvement items, which he resells to local contractors, such as several pallets of closed garage door openers, originally priced at $14,000. On the price they got for $ 600.

But one day earlier this month, he was loading up on items from Target outside the warehouse in his U-Haul.

“I saw its stock tanked,” said Mr. Crowley, a cigarette hanging from his mouth and sweat dripping down his face. “It’s an ugly situation for them.”

He bought several cradles, a set of sheets for his house and a pink palace for a girl in his neighborhood who was just 5 years old.

“I’m finally giving a lot to my neighbors, to be honest,” he said. “Some people are hard to find.”

Buyers bid for goods through an online auction and then walk to the warehouse to collect their winnings.

This is a diverse group. There was a science teacher in New York’s Haitian and Jamaican communities who stockpiled plastic parts for her class, as well as a woman planning to resell her purchases—neon green igloo coolers, a table saw, baby pajamas. She sends other items to Trinidad.

The Pennsylvania warehouse, one of eight that liquidity services operate nationwide, employs about 20 employees, some of whom are hired on a temporary basis. The starting salary is $17.50 per hour.

Charles Benincasa, 39, is a temporary worker with several “warehousing” jobs, most recently at a Chevy pet food delivery center in nearby Wilkes-Barre.

Mr Benincasa said his friends and family have become used to returning many of the items he has bought online. But as he watches the boxes pile up in the Liquidity Services warehouse, he worries about the implications for the economy.

“Companies are incurring huge losses. “There is no free lunch.”