Why skipping price cuts may be smartphone retailers’ best bet
October 3, 2013
Kevis Farkas is executive vice president of sales and business development for Active International
By Kevin Farkas
Conditioned by constant product launches and upgrades, consumers increasingly want the newest and fastest smartphone available and are willing to wait to buy the newest release.
This means that many retailers, from Amazon to Best Buy to carrier stores, are faced with thousands of extra phones in their warehouses since they made upfront volume purchasing commitments for in-demand products from companies such as Apple and Samsung.
To address this sales vacuum, as well as focus on more profitable items, tech retailers are looking for financial options to mitigate the large amounts of excess inventory with which they are left. While many offer in-store discounts as a method for selling the excess, this typically results in significant income loss.
Both corporate trade and liquidation are financial solutions that tech retailers should consider.
While corporate trade is growing in popularity, each route offers pros and cons that retailers must carefully review when deciding what best meets their short-term and long-term business needs.
In corporate trade, a retailer’s excess inventory is purchased with trade credits, cash or a combination of the two. Payment is usually equal to the wholesale/acquisition cost of the smartphones.
In exchange for purchasing the surplus smartphones above market value, retailers commit to making business purchases through corporate trade companies using the trade credits and cash.
Common expenditures include advertising, marketing, travel, and freight and logistics services – expenses that retailers normally take on.
Once corporate trade companies acquire the smartphones, they are reprogrammed and even repackaged as necessary and sold in accordance with company restrictions with regard to pricing, geography and distribution channels.
In addition, corporate trade companies can provide access to new distribution channels like their trading partners and private networks that may have been previously inaccessible.
Alternatively, retailers can mark-down their stock and slowly sell it off, while taking up valuable shelf space.
The other option is to sell their excess inventory to a liquidator or off-price buyer who generally pays a lower price.
When liquidating excess inventory, retailers are usually able to sell their assets off more quickly than through corporate trade, but at a greatly reduced price.
Liquidation is one of the most widely used methods for handling excess inventory.
In fact, most retailers’ supply chain strategy incorporates liquidation in some way. This is largely because of its ability to generate cash immediately – something that retailers swimming in surplus inventory often are seeking.
This speed comes at a price, however.
Because the smartphones are sold for a lower price than what the company paid for it, retailers are forced to take a loss. This can negatively affect investor sentiment as well as future budget planning.
Furthermore, until the liquidation process is complete, stored and unused goods take up the warehouse stock space intended for new merchandise.
WHILE EACH OPTION offers various pros and cons, it is up to tech retailers to decide which method will make the most sense for them.
With many big-name retailers’ in-store price cuts popping up in the news more frequently, those who want to not only survive, but thrive should start seriously considering all of their options now.
Kevin Farkas is executive vice president of sales and business development for Active International, Pearl River, NY. Reach him at .
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