When you clear stock you want to maximise value recovery without devaluing your brand. These two often run in opposition, and this article covers the options open to you.
In short: the controls are territory restrictions, named retailer and marketplace bans, delabelling, dispersing the parcel across many small buyers, and consignment rather than an outright sale. Weigh each against the stock value it costs you. Do not restrict without verification, and align your partner's incentives with your requirements rather than 'fire and forget'.
Who are we?
We are a small clearance team with 40+ years of experience in the trade. This is part of an article series covering the most common questions we get asked.
Full disclosure
We run a clearance company and buy clearance stock from brands and retailers like yourself, distributing to small and medium sized businesses, as well as handling export channels in Africa, LATAM and the Middle East.
Where brand damage actually comes from
Humans anchor pricing and value. If a product is seen in Poundland it will be harder to sell in Selfridges. Likewise if Gucci bags were seen for £10 online, they would lose the customers willing to spend £1,000.
The controls and what they cost you
- Market and territory restrictions
- De-label and/or de-tag
- Parcel dispersion
- Specific retailer and marketplace restrictions
- Consignment vs outright
Market and territory restrictions
If you require that the items are sold in a place your brand has no presence, then the clearance will be worth very little. This is because it is then competing against other items as unbranded products.
If you also specify low-income markets, then these are markets which (a) will have less disposable income and (b) likely have higher transport costs and tariffs to import the goods.
De-label and de-tag
This destroys a lot of value for similar reasons: it removes the brand value. However, because the goods stay in the home country, it avoids the costs of transport, duties and moving to a country with less buying power. There is also the cost of the delabelling itself.
Parcel dispersion
This means selling a parcel to hundreds of small and independent businesses, particularly to channels with no obvious online discount, like market stalls. With a small quantity in each place, no individual shop is going to run a promotion with enough reach to show your item at a discount.
With a wide enough customer base, we have seen even 100,000+ items made to disappear without causing brand damage. Do not jump to restrictions like 'only sell to Africa' if a dispersed sell-down in existing markets would work and recover 5x to 10x the value.
Specific retailer and marketplace restrictions
This tends to be much lower cost. For example, suppose you do not want your brand to be associated with some well-known discount chains. You can agree a restriction for those specifically.
Consignment vs outright
If you sell a parcel outright, then from a cash perspective the clearance partner will be under large pressure for the stock to be gone tomorrow. If you do not want the stock liquidated to a small number of players in a short space of time, which causes the most brand damage, you might want to consider a consignment option where the clearance partner's incentives are more aligned. With consignment you also have more visibility over where stock ends up, because payment is based on sales receipts.
The controls that do not work
What does not work?
- Controls with no verification mechanisms
- Requirements which ignore basic economics and incentives
If there are no verification mechanisms, your clearance partner might promise the moon and then do whatever the hell they want with it.
This is especially dangerous when done while ignoring the basic economics. For example, suppose I auction a parcel to the highest bidder, and require the parcel ends in Africa. Suppose it only sells for 3% of retail in Africa. The wholesaler who plans on doing that will get outbid. Whereas someone who bids 5% and plans to sell in America for 10% will win the bid.
Also note the parcel might be sold to someone in the target market who ships it straight back. This is particularly hard to verify against, as there is an invoice in the right market.
Plan of action
- Be clear about the trade-offs you care most about with your stock and the restrictions.
- For the restrictions you pick, understand the incentives and enforcement mechanisms.
- If you do have restrictions, do not run an auction with no way of verifying what happened afterwards. Be aware that restrictions will reduce your recovery value.
Speak to us
Please use our contact form, WhatsApp me directly on +44 7348 950 325, or email me at ethan.horsfall@diracgroup.com.