Discount sales often get pushed to the side, and very few actually dig into the numbers to determine the value of secondary sales. In truth, there’s a wealth of data available on discounts that can help drive better performance. Here we’ll take a look at six key statistics that every liquidation team should know as they determine the performance and value of their program.
1. Only 4% of closeout teams recover >75% of costs
In our recent survey of 100 liquidation professionals, we found a surprising statistic about the limited costs companies are recovering. When asked what their average cost recovery for discount items sold is, only 4% reported that they regain 75% or more. In fact, 72% said they recover 50% or less.
That means that most companies are losing 50% or more on discount items. Instead, they should look for opportunities to optimize their processes and increase cost recovery. Every company would jump at the chance to lose less, but how do you get started? We’ll cover that in just a minute.
2. Companies are only seeing a 48% sell-through rate
In addition to cost recovery, sell-through rate is a key metric for measuring the success of a discount program. On average, CPG companies only see a 48% sell-through rate of listed excess goods. This aligns with our survey findings, in which 53% said they sell about 50% or less of their excess inventory. This might go without saying, but the more you sell through, the more you’re likely to recover. Anything that continues to go unsold will likely end up donated or, if it’s too close to expiration, dumped.
Dumping comes with its own set of challenge and expenses, and donations, while beneficial from a write-off perspective, isn’t as financially advantageous as discount sales. So how do you increase sell-through rate? That brings us to our third and fourth key stats.
3. 52% of companies sell to 4 or fewer buyers
One of the best ways to increase sell-through rate (and cost recovery) is by building up a robust buyer network. When surveyed, 52% of companies said that they currently sell to four or fewer discount buyers.
Building your network doesn’t just mean blasting out offers to as many potential buyers as possible in hopes that they’ll start outbidding each other. Instead, you should be deliberate about who you work with. Reliable, consistent buyers can save you countless employee hours. Finding buyers local to your distribution centers can dramatically cut logistics costs and speed up time to market. Finding buyers that can accommodate certain handling requirements, like frozen or refrigerated, can help make sure more goods get sold.
By diversifying your network, you increase the likelihood that you’ll have a buyer for each item, rather than relying on just a few who may or may not be willing and able to purchase your product in a given cycle.
4. Cost recovery peaks at 100 days of shelf life
The other way to increase both cost recovery and sell-through rate is by offering items to buyers sooner. In fact, we’ve found that cost recovery is at its highest about 100 days before an item expires. After that point, cost recovery begins to decline as the item loses its shelf life.
Simply put, buyers want items that will be sellable for a longer time, and they’re willing to pay more for them.
Identifying excess inventory while it still has a longer shelf life is largely a matter of refining processes. Building transparency around demand planning vs. actuals, especially around seasonal or discontinued items, can help get it into the discount process sooner. Liquidation software can help build this transparency, especially by connecting with your ERP or inventory management system.
5. Carrying costs are 20-30% of all inventory costs for a business
It’s also important to recognize the costs of not investing in a closeout program. When excess inventory sits unsold, it continues to accrue carrying costs. This is an expensive proposition, as carrying costs typically make up about 20-30% of a company’s overall inventory costs. That only increases if items need special temperature control, have low stack limits, or have other unique storage needs. That’s a big slice of the pie that you can start shrinking by moving excess inventory out of distribution centers faster.
6. Only 36% of companies track excess inventory against ESG goals
Finally, let’s look at one of the hidden perks of an effective excess inventory program. For every item that gets sold into the secondary market, it’s an item that will reach an end consumer rather than a landfill. The resources that go into production – from land to water to energy – are completely wasted when inventory gets dumped, so minimizing waste has a clear impact on ESG efforts.
Unfortunately, only 36% of companies we surveyed include discounting efforts in their ESG programs. While this is clearly a supply chain- and sales operations-led effort, coordinating with an ESG team can yield numerous benefits. In some cases, it can help make the case for funding innovation. In others, the ESG team may have a budget that can be directly applied to advancing secondary sales programs and processes.
Putting statistics to use
Of course, just knowing these statistics doesn’t help you make groundbreaking changes in your organization. That has to come from investment, process improvements, and digitization. Hopefully, these numbers can help make the case for that investment, and lead to a more effective, influential closeout program down the line.
For more excess inventory statistics and how to start leveraging them, download our research report, Technological maturity in the secondary CPG market.