retail, terminologyIs there an industry term in retail for the arrangement to return any unsold outdated merchandise to the store’s suppliers for credit? For example, this practice is common with magazines being sold by bookstores; meaning after a magazine is outdated, the store returns just the magazine’s cover for credit and recycles the rest of the magazine.
Reverse logistics is for all operations related to the reuse of products and materials, and per Wikipedia, includes the return of unsold goods:
In certain industries, goods are distributed to downstream members in the supply chain with the understanding that the goods may be returned for credit if they are not sold e.g., newspapers and magazines. This acts as an incentive for downstream members to carry more stock, because the risk of obsolescence is borne by the upstream supply chain members. However, there is also a distinct risk attached to this logistics concept. The downstream member in the supply chain might exploit the situation by ordering more stock than is required and returning large volumes. In this way, the downstream partner is able to offer high level of service without carrying the risks associated with large inventories. The supplier effectively finances the inventory for the downstream member. It is therefore important to analyze customers’ accounts for hidden costs.
The downstream member in the supply chain might exploit the situation by ordering more stock. In this way, the downstream partner is able to offer high level of service without carrying the risks.It is important to analyze customers’ accounts for hidden costs
Surely you’re just describing “sale or return”?
Sometimes, accompanying a sale or return agreement, you’ll find a “restocking fee”. That’s what I’ll charge you for taking your unsold items back into my stock, deducting that figure (an amount or percentage per item or per order) from the credit I’ll issue based on what you originally paid.
In addition, there may be a bunch of rules regarding the condition of returned goods. Usually, if you’re working to a market like this, you’ll find a set of conventions already established, whether in written small print or in generally accepted undocumented practices.
There’s an adjacent business approach called the consignment model. Here the original supplier remains the owner until an end customer makes a purchase agreement with a reseller, triggering a chain of sales and purchases. This alternative approach is sometimes used when one or more of the following applies:
Resellers in your (high unit price) industry aren’t creditworthy (so that the default risk outweighs the cash flow benefit)
Resellers of high ticket price items generate value for themselves by making significant modifications (so they either have to purchase the item for themselves and modify ahead of sale, or hold back on modifying until they have made a sale)
There’s high price volatility but no viable secondary market (so the cash flow benefit of a sale is outweighed by the opportunity to share in the upside of a reseller achieving high end customer prices)
For logistics reasons the original supplier needs to move products into the reseller channel before the market price is established
The original supplier has a legal need to control end customer sales
Consignment clearly has a lot in common with agency agreements. Your agent represents you to prospective customers, in exchange for a commission, introduction fee or similar. Resellers working on consignment, however, own their customer relationships.
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