If you get retailers, service providers, and manufacturers together to discuss latest trends in reverse logistics, more often than not issues in dealing with consumer electronics returns will come up. Consumer electronics (CE) is always a hot topic because this category, more than any other, has the greatest potential, while posing the greatest risks at the same time.
The biggest issue impacting consumer electronics returns is the combination of rising costs and lowering price points. Everyone is feeling this compression, and the service providers are stuck right in the middle. It is a tough market and many retailers and manufacturers are trying to figure out how to improve recovery rates and reduce processing costs. Service providers are simply trying to figure out how to survive. Everyone is trapped and there doesn’t seem to be any easy answers. However, there are alternatives for everyone involved that could add to everyone’s bottom line.
There are dozens of companies out there that specialize in repairing and/or liquidating CE goods. All these companies boast a nationwide program but nobody has a real coast to coast solution that doesn’t cost a fortune in transportation. Even the biggest repair service providers have only one truly comprehensive repair shop where every level of repair can be performed. Some boast of an east coast and west coast solution, while other have a “processing’ facility in the midwest but they do all the repairs in Mexico. Transportation costs are turning both of these models upside down. They simply don’t make economic sense when you look at the net realizable recovery rate you get for the goods on the secondary market.
In general, you can split CE reverse logistics service providers into three groups:
- Repair Only
- Liquidate Only
- Repair and Liquidate
The “Repair Only” companies that have a sustainable business model usually stay in business by providing local repair services to consumers and/or by providing regional field repair services for major telecom or cable providers. Back in the 1990s there were a number of large repair service providers but most of them went bankrupt when the average price of a PC dropped below $1,000.
Companies that just liquidate electronics are everywhere but they are all struggling to stay alive. Intense competition and falling retail prices in key segments are pushing these companies to the limit. Some of these liquidators have developed relationships with larger repair companies and now “offer” repair services that promise higher recovery rates. This is a dubious model and one that we have not seen work up to this point.
Service providers that legitimately offer both repair and liquidation services DO have a good model, if there is enough volume to support a dedicated operation. The size and location of the facility is critical, as is the retailer or manufacturer’s concern over brand name protection.
A key issue to consider is the amount of goods that are being sold “As Is” versus items that are “required” to be tested, repaired and resold. If you just take a cursory look at the numbers, you can make costly mistakes. For example, most consumer electronics liquidated “As Is” will be sold for 20% to 25% of retail. Repaired electronics that come with some type of guarantee can be sold for from 55% to 80% of retail. Seems like a no brainer….until you look at the costs involved, customer service requirements, and how long it takes to move the product. At the end of the day, it doesn’t matter how many items are actually repaired and sold, versus sold “As Is”. All that really matters is the total net recovery value and the time required to sell the product. Many experienced retailers and manufacturers never look at the total net recovery value and don’t think about the time requirements. They will focus on total liquidation revenue and yield rate. Companies that do this have a big opportunity to dramatically improve profits.
If you are in the CE reverse logistics world, you must know your net recovery value. What is the “Net Recovery Value?” You calculate net recovery value (NRV) as follows:
NRV= Total Liquidation Revenue + Recycling Revenue – Repair Costs – Processing Costs – Transportation Costs – Cost of Parts
Take a look at your last quarters results. Having a defined time period where you use actual costs and revenue is critical. Calculate your NRV for all CE product liquidated, including anything sold “As Is.” Next figure out NRV for CE that is “repaired and liquidated” versus CE that is sold “As Is.” After you have gone through this exercise you will have all you need to make adjustments to your CE reverse logistics program and you will be better prepared for the Christmas returns season.
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