As inventory builds, clearance stores are busy

PITTSTON, Pennsylvania — Once upon a time, when parents were struggling to keep their kids busy during pandemic lockdowns, bikes were hard to find. But today, at a giant warehouse in northeastern Pennsylvania, there are shiny new Huffys and Schwinns available at deep discounts.

The same goes for lawn furniture, garden hoses, and portable pizza ovens. There are home spas, Rachael Ray nonstick pans, and a backyard fire pit, which promises to create “memories every day.”

The warehouse is run by Liquidity Services, a company that collects surplus and returned products from major retailers like Target and Amazon and resells them, often for pennies on the dollar. The facility opened last November and is operating at exceptionally high volumes for this time of year.

The warehouse offers a window into a reckoning in the retail industry and the broader economy: After a two-year binge of consumer spending, fueled by government checks and the ease of e-commerce, it’s taking over a nasty hangover.

As consumers cut back on discretionary purchases due to high inflation, retailers now have more inventory than they need. While overall spending rebounded last month, some major retailers say shoppers are buying fewer clothes, lawn equipment and electronics and instead focusing on basics like groceries and gasoline.

Adding to that glut is all the stuff people bought during the pandemic, often online, and then returned. In 2021, shoppers returned an average of 16.6% of their purchases, up from 10.6% in 2020 and more than double the rate in 2019, according to analysis by the National Retail Federation, a trade group, and Appriss Retail, a software company and analytics firm.

Last year’s profits, which retailers can’t always resell themselves, totaled $761 billion in lost sales. That, the retail federation noted, is more than the annual budget of the US Department of Defense.

It is becoming increasingly clear that retailers misjudged supply and demand. Part of their miscalculation was due to supply chain delays, leading companies to secure products well in advance. Then there’s the natural cycle of booms: Whether out of optimism or greed, companies rarely back down before it’s too late.

“I’m surprised on some level that we saw all of that surge in buying activity and we couldn’t collectively see that it was going to end at some point,” JD Daunt, chief trading officer for Liquidity Services, said in an interview at the Pennsylvania warehouse earlier in the day. of this month.

“You would think there would be enough data and history to see that a little more clearly,” he added. “But it also suggests that times are changing and changing faster and more dramatically.”

Strong consumer spending may have saved the economy from ruin during the pandemic, but it has also led to enormous excess and waste.

Retailers have begun to reduce inventory prices in their stores and online. Last Monday, Walmart issued the industry’s latest warning when it said its operating profit would fall sharply this year as it cut prices from an oversupply of general merchandise.

Many businesses can’t afford to let discount items stay on their shelves because they have to make room for new seasonal products and the necessities that consumers now prefer. While some retailers are discounting overstock inside their stores, many prefer to avoid big sales for fear of damaging their brands by conditioning shoppers to expect big price cuts as a rule. So retailers turn to liquidators to do their dirty work.

In addition, industry executives say the glut is so great that some retailers may run out of space to house it all.

“It’s unprecedented,” said Chuck Johnston, a former Walmart executive who is now chief strategy officer at goTRG, a firm that helps retailers manage returns. “I have never seen the pressure in terms of excess inventory like what I am seeing now.”

So much of the industry’s waste and scrap is laundered in repositories like this one, located on Interstate 81, a few exits off the President Biden Expressway in Scranton, the president’s hometown.

The giant facility is part of an industrial park that was built on top of a reclaimed open-pit mine dating back to when this region was a major coal producer. Today, the local economy is home to dozens of e-commerce warehouses that dot the mountainous landscape like giant spaceships, funneling goods to population centers in and around New York and Philadelphia.

Liquidity Services, a publicly traded company founded in 1999, decided to open its new facility as close as possible to major Scranton-area e-commerce warehouses, making it easy for retailers to dispose of their unwanted and returned items.

Even before the excess inventory appeared this spring, returns had been a major problem for retailers. The huge increase in e-commerce sales during the pandemic, which is up more than 40 percent in 2020 from the previous year, has only added to it.

The National Retail Federation and Appriss Retail estimate that more than 10 percent of returns last year involved fraud, including people who wore clothes and then returned them or stole products from stores and returned them with false receipts. But more fundamentally, industry analysts say rising returns reflect consumer expectations that anything can be recovered.

“It’s getting worse and worse,” Johnston said.

Some of the returns and excess inventory will be donated to charity or returned to the manufacturers. Others are recycled, buried in landfills, or burned in incinerators that generate electricity.

The liquidators say they offer a more environmentally responsible option by finding new buyers and markets for unwanted products, both those that were returned and those that were never purchased in the first place. “We are reducing the carbon footprint,” said Tony Sciarrotta, executive director of the Reverse Logistics Association, the industry trade group. “But there is still too much going to landfill.”

Retailers will likely receive only a fraction of the items’ original value from liquidators, but it makes more sense to take the loss and get the products off store shelves quickly.

Still, liquidation can be a touchy subject for large companies that want customers to focus on their “A-goods,” not failures.

Sciarrotta calls it “the dark side” of retail.

On a tour of the Pennsylvania warehouse, Mr. Daunt and warehouse manager Trevor Morgan said they were not allowed to discuss the origin of the products. But it wasn’t hard to find out.

An 85-inch flat-screen TV still had an Amazon Prime sticker on the box. The bathroom vanities come from Home Depot. There was a “home theater” memory foam futon with a built-in cup holder from a Walmart return center.

Many unopened boxes on the warehouse floor bore the familiar Target logo in the shape of a bull’s-eye. Air fryers, baby strollers and towering mounds of Barbie’s “Dream House,” complete with a pool, elevator and home office. (Even Barbie, it seems, has grown tired of working from home.)

When Target’s sales soared during the first year of the pandemic, the company was a Wall Street darling. But in May, the retailer said he was oversupplied with certain products and that the company’s share price plunged nearly 25 percent in one day. Share prices of other retailers have also fallen.

Target’s stumbles have been an opportunity for the likes of Walter Crowley.

Mr. Crowley regularly rents a U-Haul and drives to and from the clearance store from his home near Binghamton, New York.

Crowley, who turns 54 next month, focuses primarily on discount home improvement products, which he resells to local contractors, like the multi-pallets of discontinued garage door openers, originally priced at $14,000, that he got for $600.

But on a sweltering day earlier this month, he stood outside the warehouse in his U-Haul carrying Target items.

“I saw his stock go down,” Crowley said, a cigarette dangling from his mouth and sweat pouring down his face. “It’s an ugly situation for them.”

She bought several cribs, a set of sheets for her own house, and a pink castle for a girl in her neighborhood who had just turned 5.

“I end up giving away a lot to my neighbors, to be honest,” he said. “Some people just barely get by.”

Buyers bid on goods through online auctions and then head to the warehouse to collect their winnings.

It is a diverse group. There was a science teacher who stocked up on plastic parts for her class, as well as a woman who planned to resell her purchases — neon green Igloo coolers, a table saw, baby pajamas — in New York’s Haitian and Jamaican communities. She ships other items to Trinidad.

The Pennsylvania warehouse, one of eight that Liquidity Service operates across the country, employs about 20 workers, some of whom have been hired on a temporary basis. Starting pay is $17.50 an hour.

Charles Benincasa, 39, is a temporary worker who has held numerous “warehousing” jobs, most recently at the Chewy pet food distribution center in nearby Wilkes-Barre.

Mr. Benincasa said his friends and family have gotten used to returning many of the products they buy online. But as he watches the boxes pile up in the Liquidity Services warehouse, he worries about the implications for the economy.

“Companies are losing a lot of money,” he said. “There is no free lunch.”

Leave a Comment

Your email address will not be published.