An Upside to Markdowns
BoxFox helps relieve the burden of excess inventory
by: Martin Vilaboy
Markdowns can be equated to the “bitter pill” of specialty retail. They’re hard to choke down but likely good for the overall health of the business. Too many markdowns, and you risk the side effects of competing with your own full-price inventory, while effectively training your customers to look for clearance sales signs. Too few markdowns, and it could tie up cash flow needed to keep the lights on.
Either way, retailers’ disdain for the markdown is easy to understand. After all, the existence of aged and surplus inventory effectively shines a spotlight on buying mistakes, or at least some really bad luck. And while no one willingly wants to swallow the major margin losses that come with deep discounts and clearance sales used to the get rid of old inventory, letting that product rot on the shelves only leads to larger losses in the long run. What’s a retailer to do? Fortunately, BoxFox has come along with a little sugar to help the discounts go down.
BoxFox has built a platform that gives specialty retailers access to an on-demand pricing tool for surplus inventory and a private network of pre-qualified buyers looking to purchase it. The cloud-based platform and marketplace doesn’t exactly take the sting out of margin crunching clearance sales, but it does make the markdown process quite a bit more controlled and systematic, if not flat-out easier to swallow.
The basic concept is really quite simple and somewhat familiar. Say a retailer in Ohio ordered too many winter gloves for the amount of snowfall seen that winter. BoxFox can match it up with a retailer in, say, Colorado that is enjoying late snowfall or a wholesaler in Canada that knows of a retailer having a massive winter clearance sale. The retailer in Ohio gets the inventory off its shelves and cash to re-stock them with the most recent product introductions, and the buyer gets to move more gloves. BoxFox takes its 5 percent commission for its matchmaking service; everyone is happy.
“If we can work with retailers to get some of that product out of their market and into another business who’s interested in selling that same product, it’s usually good for everyone,” says Joe Van Deman, director of partnerships at BoxFox.
The process starts with a BoxFox retail partner uploading a list of excess inventory, typically by way of an Excel spreadsheet or export data from a point-of-sale system. (There’s also a BoxFox iPhone app whereby retailers can simply scan items on a clearance rack, for instance, and list items with a touch of button.) BoxFox then takes the products’ UPC codes, gathers information on those products through various plug-ins and pricing tools, and automatically creates a listing complete with colors, models, sizes, high-res images, and so forth, as well as a free appraisal of the inventory items to give the retailer an idea of what the products are generating on the open market and what they likely can get through the platform.
“We try to make it very simple, where the retailer doesn’t actually have to provide all that information,” says Van Deman.
The appraisal also sets the starting prices for a three-day listing period, during which time potential buyers bid on the inventory. At the end of the bidding process, the seller receives information on the highest offer. “Most of our offers that are accepted are within the range of probably plus or minus 10 percent of the appraised value” says Van Deman.
“From the buyer’s side, it is a bidding process, but only the highest total offer gets delivered to the seller,” he says. Unlike most other wholesale online marketplaces, the seller is under no obligation to accept any bids. After receiving a bid, a retailer may decide it could do better selling the inventory at markdown in-store to existing customers, or maybe they just want to use the appraisal to make more intelligent pricing decisions for an upcoming clearance sale.
“If they mark it down to 50 percent in-store, and they still don’t have any luck, they can come back to BoxFox, put it up again, and likely, we’ll be able to pull an offer that’s similar to what they had the last time,” says Van Deman.
If the retailer accepts the offer, the buyer pays into a third-party escrow account, including the cost for the shipping. BoxFox handles the back-office logistics so the selling retail r just needs to print a label and schedule a pick up. The buyer then has three days to review the order for accuracy, after which time the seller gets paid. At the end of the day, sellers typically recoup 60 to 70 percent of their inventory costs, say BoxFox executives.
The BoxFox network of buyers includes more than 1,500 pre-qualified businesses ranging from domestic and international discounters and clearinghouses to other online and brick-and-mortar retailers. Working with a large and diverse group of buyers, says Van Deman, allows BoxFox to accommodate the needs of he sellers, such as when product is not allowed to show up on Amazon or must be sold only in the U.S. or maybe can’t be sold in the U.S. Likewise, BoxFox says it works with sellers to make sure product is moved in ways that mesh with requirements and expectations. It also encourages sellers to stick with off-MAP product when using the marketplace in order to avoid any issues with vendors.
BoxFox retail members tend to be smaller specialty stores (the target market is one- to 10-store operations), says Van Deman, with about 60 percent of retailers coming from the sporting goods, running and outdoor retail segments.
How and how often retail members engage the platform depends on their specific needs, business models and preferences. Some prefer to buy and sell through BoxFox once a year, for an annual clearance sale, while others will use it regularly at the start of the markdown process to recover cash quickly and reinvest it into newer and hotter product.
BoxFox, for its part, recommends retail partners utilize the platform four to six times a year, as the seasons change and the occasional bad buy rears its head. That’s particularly true for industries such as sporting goods and outdoor where new introductions come to market on a regular, ongoing basis.
“We would like to become a regular part of their markdown process,” says Van Deman.
Considering the simplicity of the platform for sellers, the no-obligation bidding process, the out-of-market sales, and the zero cost/risk to list surplus inventory – as well as the alternative negative effects of holding onto aged and unwanted inventory too long – we’re betting most outdoor specialty retailers will appreciate the assistance.
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