The dirty secret of online retail

Helen ParkerHelen is the CEO of Recoverex, the company that owns StockShifters and The Wholesale Forums. She’s in the business of helping companies dispose of excess stock and time and time again sees companies that would rather hang on to stock that’s never going to sell than cut their losses and liquidate. Today Helen explains why it’s better to get the stock shifted than have it sat in your warehouse gathering dust.

Excess StockYou’ve been trying to sell your stock for over 3 months, you’ve marketed it, you’ve played with pricing, other sellers are pricing online at less than you paid for it, you’re paying to store it. What do you do?

It’s obvious right? You sell at the highest price you can right now. You’re better off having the cash so you can purchase more, and make a profit?

But there’s a few problems:-

1. You have to admit you’re wrong about the value

We’re naturally biased to think that something that we own is more valuable than if someone else owns it. This is seen in house selling as John Gourvillle, a professor and expert in buyer behaviour at Harvard Business School says “The buyer is looking at ‘What are comparable houses selling for?’ and the seller is thinking, ‘What did I pay for this six years ago?’. The same applies to stock, it’s difficult to make a rational decision about the market when you’re psychologically anchored to your original buying price.

2. You have to take it off the books at your ‘ideal value’

A warehouse director recently commented to me ‘In the past 6 months, our more cash-strapped clients have been stock piling, the commercial guys come in and just want to get rid, but complain about the finance manager not being willing to take it off the company books – if the stock is on record at £100k, but the actual sales value now is £50k, it will raise all sorts of questions with management/shareholders. So they won’t shift it. I have someone who is paying for storage for a bulk of ‘Happy Christmas 2012’ cards. They won’t get rid, because the books lose money.’ It’s counter intuitive, but sometimes hard to bite the bullet and have difficult commercial conversations when you have to re-align the business view of the stock value.

3. You’re emotionally engaged with the value

Dr. Katherine Pugh, a clinical psychologist studying worry at Oxford University says “as humans we can become dis-inclined to make a decision when we fear the results may induce a negative emotion”. Losing money, or not turning a profit on stock is very likely to make us feel negative, so often rather than face that, we’ll do nothing.

What do you do?

So, what do the most experienced and successful sellers do? In this industry especially, traders don’t like to discuss their failures, usually focussing on telling people when they’ve made a big profit, how well they’re doing etc etc. Despite the number of sellers I’ve had conversations with about clearing at a loss – even getting quotes for this article has been difficult once you ask them to put their name by their experience!

• Research: look at what other sellers are doing

10yr eBay Power Seller Jane of Sheer Miracle Makeup says “Research, research, research. Finding out what your competition is selling for is about two clicks of work for you. Find sellers successfully selling similar or identical products to yours and set your price close to theirs. Don’t set price too high. Consumers are savvy and will do the research if you don’t”.

• Clear Quick: if you realise the stock isn’t worth what you thought. Liquidate fast.

“It seems that we all have this idea embedded into our minds of the fact that the longer we hold the stock, in the end someone might come along and buy at the price we want to sell it for. However the truth of the matter is that after a certain amount of time, the only asset is the growth of dust particles that cover the stock, and the stock starts to decrease in price. Therefore, surely the best situation is to release the equity of the stock and turn it into new stock, rather than sitting around waiting for the stock to sell at a price you want it and hope it magically disappears and leaves the money behind, such as a tooth fairy would.” – Daniel Rabinowitz of Top Trading

• Learn from experience: Look at the trends, and the sales you are making

We’ve worked clearing stock from a lot of the top retailers who have to go through a learning experience on the secondary market. One of our biggest clothing retailers had to accept following the first wave of sales that they had mis-judged the market for their stock. Lowering their minimum sale price by 4%. We then went on to clear over £1.5m of stock quickly through the website – meaning they had the cash, rather than storing stock.

It’s easier said than done, as we all know, but sometimes it’s worth swallowing the pride and making the difficult decision to recognise the market value, rather than that in our own heads. We occasionally buy small volumes of stock, and I’ve had to do it myself. It hurts and I don’t really ever bring it up in conversation! – but in the end, it felt better to have the money in the bank, than big piles of over-valued stock sitting around eating up cash.