Don’t Overlook the Obvious

Alan Scroope – March 31, 2010

In a recent auction of “Open Box” product (untested customer returns), we recovered over 80% of standard cost for the OEM, a personal peripheral devices manufacturer, compared to their existing run rate which was averaging around 30%.  There are two lessons to be learned here.

First, why the huge jump in recovery?  The seller had settled into a comfortable routine of monthly liquidation with a single buyer.  This was a relationship of convenience for both parties; with pricing set in advance throughput was fast and intervention was minimal.  Convinced by FreeFlow to run a pilot auction with a wide audience of competitive bidders, the seller was astounded to recognize how much money they’d been leaving on the table, and with FreeFlow managing the process for them their overhead remains low.  They’re now fully committed to the auction process.

Secondly, why in the world would untested customer returns bring 80% of standard cost at auction?  Two reasons:  unlike the End-of-Life and close-out products typically found on auction, untested customer returns are typically on current version product.  Secondly, the No Trouble Found (NTF) rate on consumer electronics can be 80% or higher.  Secondary market buyers with test and repair capability capitalize on this situation and make a tidy margin, and they’ll compete for this inventory – driving recovery upward for the seller.
Sellers take note:  lured by the retail or near-retail pricing for manufacturer refurbished inventory, you may be convinced that adding the (not-insignificant) processing cost  of refurb is the way to go.  I’d suggest running some trial auctions on your untested returns – you too may be pleasantly astounded at what the market will bear.