Secondary markets should be important choice for excess inventory disposal
f you’ve ever gotten a great deal at a dollar store, won an online auction, or spent the day bargain hunting at stores such as Ross and T.J. Maxx, you’ve participated in secondary markets, a $664 billion business in the U.S. during 2020. That’s more than double its 2008 U.S. market size — and it’s one reason Dale Rogers, supply chain management professor and ON Semiconductor Professor of Business, thinks product-selling firms should consider making secondary markets part of their sales strategy.
He should know: Rogers is one of the first scholars to track such markets and published a multiyear study of them in the U.S. and China. Based on this and other research, he says secondary markets boost profit, are growing worldwide, and are more critical than ever.
Value-added
Secondary markets are sales channels that allow companies to dispose of excess inventory cost-effectively and often profitably. That inventory may be obsolete, unfashionable, slow-moving, or even defective, but chances are there’s a buyer for it. Along with auction sites, factory outlets, and dollar stores, salvage dealers and others trade off-price merchandise.
“Nike can make more money selling goods through its factory outlet stores than if it’s selling shoes to Foot Locker,” Rogers says. That’s because a retailer like Foot Locker receives a wholesale price — often 50% of the number on a consumer’s price tag. Meanwhile, outlet stores target a 30% reduction. “That’s more than the firm would get selling to Macy’s or Dillard’s.”
Manufacturers such as Polo Ralph Lauren make items for their factory outlet stores. Others create specially packaged products for dollar stores or value-priced retailers such as TJ Maxx or Ross.
“Secondary markets are drains that move products from places they aren’t selling to somewhere they do sell,” Rogers says. “You’re getting money out of the goods instead of throwing them away.”
Throwing goods away can have problems. Rogers points to the public relations uproar Burberry endured in 2018 when news outlets like BBC, Forbes, and The Guardian reported the upscale clothing and leather goods retailer destroyed apparel worth more than $90 million rather than let the items sell at a discount. The company claimed it used the energy generated from burning all those $2,400 trench coats. Still, public outcry influenced the company to change its practices.
He adds that environmental, social, and governance (ESG) goals are becoming increasingly important to consumers, which adds to the value of a solid secondary market strategy.
Formula for success
Consider this example if you doubt any firm can likely find a secondary market. While visiting a major baby formula manufacturer, Rogers noted that pig farms surrounded the factory. That came to mind when the manufacturer wanted a way to get something out of outdated formula. “Baby formula is high in calories, so the company sold it to nearby pig farmers. It was a great supplemental feed for the pigs,” he recalls.
Although the manufacturer didn’t get much money for the product, it saved the cost of tossing it in a landfill. That may have spared the company some public relations woes, too.
The takeaway from Rogers’ research is simple: If you’re running a firm that sells stuff, secondary markets should be part of your “go-to-market” strategy.
— Betsy Loeff