Retail Suppliers’ Excess Inventory Can be Very Appealing to Those Managing Store Closure Events

Steve Katz  

Hi, everybody, and thanks for taking time out of your schedule to listen in on our Hilco global smarter perspective podcasts. As returning listeners know, I’m your host, Steve Katz. And if this is your first time with us, we’re really glad that you could tune in. And we hope you enjoy our discussion today. And today, we’re joined by a return guest, Katie Feodoroff, who’s Senior Vice President of Hilco wholesale solutions to talk about the dramatic increase that we’ve been seeing in retail bankruptcies and store closures and how integrating a specific type of strategy into liquidation efforts is really proving highly beneficial for retailers as well as suppliers. So Katie, welcome back to the podcast.

Katie Feodoroff  

Thank you so much for having me back.

Steve Katz  

Well, we’re glad to have you on. And I’m hoping you could kick us off just with a bit of a quick top line of why it is that we’re seeing so many bankruptcies right now. Bankruptcies and store closures across retail.

Katie Feodoroff  

Sure, Steve. So, um, consumers have you know, as we’ve all seen, consumers have gravitated to speed, convenience, and really the type of tailored online shopping experience that everyone got really used to, during the pandemic. So this has altered the entire retail landscape and certainly impacted certain categories more than others. There’s less foot traffic in stores these days, and the money being spent in stores is also tempered by inflation. So really, all of these are contributing factors in the increase in retail bankruptcies this year. You know, this year alone, there’s been around 40 bankruptcy filings among consumer discretionary companies, and big retailers that we all know like Bed Bath and Beyond, Party City and Tuesday Morning, are some of the major names that we’ve seen close this year.

Steve Katz  

Yeah, I think everybody’s been surprised by the volume, and particularly about some of those names. And when retailers do go out of business, or strategically close their doors, I know you and the team at Hilco Wholesale Solutions are often among the first parties that are contacted. So can you take us through what happens next, when you do get those calls?

Katie Feodoroff  

Sure, Steve. So when there are truly no other options, and a company has to close all of their stores, it’s essential to conduct this in a very timely manner to liquidate all of the remaining inventory. So the goal is to sell as much merchandise as possible in a very limited timeframe while maximizing the return for the business and the creditors and stakeholders before ceasing all operations. So, at Hilco, we model out the term and other details of the sale balancing proceeds from the sale along with the associated expenses involved. Our team at HMR (Hilco Merchant Resources) specializes in monetizing assets in these types of scenarios. And we are brought in to both operate and manage the entire liquidation process. So when Hilco comes in during these events, we will assess the quantity composition and value of the inventory on hand and implement pricing strategies that we know through all of our experience will be most effective to entice customers to purchase the remaining inventory at a discount. So we carefully manage the discount structure really by product category, and by department throughout the course of the sale in order to maximize the total recovery. Besides managing the discount, we also will optimize the sale by modifying a store’s layout. This could mean you know bringing certain key categories to the front of the store, placing displays and going out of business banners and signage in store as well as in front of the stores on the windows. We have an entire marketing department that puts together a strategy to market the store closing event to consumers.

Steve Katz  

Yeah, so that would be sort of the the ads that consumers will see in the papers and announcements and televisions and things like that.

Katie Feodoroff  

Correct. Yep. And now you know, there’s the email blasts, there’s social media, advertising, there’s even influencers that we can use to promote these sales.

Steve Katz  

Interesting, very interesting. So as part of those efforts, my understanding is that you also utilize other highly specialized techniques to help drive the efforts. Can you talk a little bit more about some of those?

Katie Feodoroff  

Yeah. So there’s a unique aspect to these closures that plays a critical role in delivering optimal outcome for the retailer and at the same time can really benefit the suppliers, and other manufacturers and distributors who are in possession of excess inventory. So when a major retail like, for example, we can use Bed Bath and Beyond that we recently closed that sale finished at the end of July this year, when that store will declare bankruptcy and embark on the efforts to close hundreds of its stores, we are called upon to manage that process, and part of this includes augmenting the merchandise that an operator has in stores and at their distribution centers.

Steve Katz  

And what’s an augmentation is what?

Katie Feodoroff  

Yeah, so I did not even realize until I joined Hilco, that this was part of a store closing event where not only does when the sale begins, you have the owned inventory that’s always already in stores, often the shelves are are depleted, because you have vendors that have stopped shipping, knowing you know, this, potentially they’re going down this road, there could be a liquidation. So what we do is we go in the market and buy additional inventory to ship into these events and augment the owned inventory in these sales.

Steve Katz  

Interesting.

Katie Feodoroff  

Yeah. So this serves to ensure that there’s enough merchandise in the store the right variety to appeal to the different consumers, both the traditional consumers of that store, as well as new consumers that flocked to these going out of business events.

Steve Katz  

So I come into the store, whether I’m a loyal customer over the years, or someone who’s kind of looking for a bargain, maybe I felt I couldn’t, I couldn’t afford was usually in the store, there’s what I’m going to find is what I would expect to find.

Katie Feodoroff  

Yeah, you know, so when we’re buying, for example, Bed, Bath and Beyond, we’re gonna be focused on towels and sheets versus when we were buying for Nordstrom, Canada earlier this year, it was you know, branded footwear and women’s apparel. So we definitely cater to, you know, the banner that were the retail that were closing. But there are certain categories that just kind of always do well in an Augment, like impulse buys, value oriented merchandise, I like to use socks as an example, this is something that typically was not sold at a Bed, Bath and Beyond, but when you know the package of socks at a great price or update the register, we can sell through a lot of that category.

Steve Katz  

So that’s the retail side of the augment coin. Right. But we were talking earlier, there’s two, there’s two sides to it. What’s the other side?

Katie Feodoroff  

Yeah, so you’re right, two sides to every coin. On the one side of the coin, you have the retailers who need the merchandise in the store to ensure a successful closing sale. On the other side, we have the suppliers or vendors who have been left with excess inventory and need to dispose of these goods. So sometimes this could be private label inventory that there’s very few solutions for or, you know, other excess that they could sell into the off price market or try to monetize other ways. You know, often you see that POs are being cancelled by the distressed retailer. So leading into even before the announcement before we’re actively augmenting, we’re often already getting calls to help monetize this excess inventory.

Steve Katz  

Does that does that happen because you, Hilco has been around so long you have relationships with these suppliers as well as the retailers themselves? Is that where you get the calls? Or?

Katie Feodoroff  

Yeah, so we work with so many of the retailers and vendors in a number of different capacities. So, you know, we’re always buying and selling inventory, even as part of our regular wholesale business. And you know, people that are in the market have been doing this a while the second they hear about a bankruptcy or store closing. They know to contact Hilco as we could be making buys for that sale.

Steve Katz  

Yeah. Yeah. And when you’re making those buys, or are there certain factors you keep in mind specifically?

Katie Feodoroff  

Yeah, so when my team starts to make these augment buys, there’s really three key factors. So I like to break it down on the product mix, the pricing, and then the speed or the timing. So product mix, we already kind of talked about selecting the appropriate inventory for that store concept. So this could be you know, existing categories that are in that store. or that you’re just supplementing that merchandise mix, or it could be new, you know, impulse categories, like, you know, going into fourth quarter, I would likely put toys in all stores, because that’s a great fourth quarter item to have. The second group pricing, so we have to make buys at very advantageous pricing. So as the discount message in the stores continues to escalate, goes from 20 off to 30 off to 40, until at the end of the sale, it’s, you know, 90 off and it’s sold to the piece, we have to make sure that we’re buying the goods, right, so we’re not upside down on that cost structure, we want to make sure we’re selling as much of our augment inventory as possible on the front half of that discount message, then, you know, as it gets much deeper.

Steve Katz  

Sure.

Katie Feodoroff  

And that, you know, speaks to the speed and timing of how this works. So depending on the the set term of the sale, it’s crucial to you know, source the goods, negotiate, get these purchases done, ticketed, shipped to stores and merchandise out onto the selling floor as quickly as possible. So you’re still catching that, that low discount message and not having all the goods hidden. When the stores that you know, 80 off.

Steve Katz  

It makes a lot of sense. And so I’m assuming given what’s going on this year, which is how we kicked this whole thing off, you guys have been particularly busy.

Katie Feodoroff  

Oh, yeah, this, we’ve been very busy this year, during 2023 there were definitely times when our team had the largest open to buy in the market. To date this year, we’ve already purchased over 100 million at cost of augment inventory for the various going out of business sales that we’ve participated in.

Steve Katz  

Yeah, big value. All right, so it is a win-win not only for retailers, but also for suppliers during what’s clearly really a difficult time for many right now in this market. We have to unfortunately wrap it up. But anything we didn’t touch on regarding the use of an Augment strategy or the market that you wanted to add.

Katie Feodoroff  

Sure, you know, I would just add that given the current environment, we’re hearing directly from more suppliers than ever before, who are really realizing that this channel a disposition can be an ideal means of quickly monetizing excess inventory and unproductive assets. And if the timing isn’t right, if we’re not actively buying for an Augment sale, we’re always buying and selling inventory to our various partners as part of our ongoing wholesale solutions business. So by working with us, you know, manufacturers can free up valuable warehouse space, redeploy the capital towards, you know, new product lines and profitable areas of their business, you know, versus carrying this excess inventory into the following year.

Steve Katz  

Yeah, and that, you know, liquidity is a big issue right now. So that’s a really great point. I’m glad you added that. All right. Well, there you have it. For any retail vendors or suppliers or lenders with those businesses in their portfolios, who are listening in right now a call to Katie might be really worth your time, I think based on what we just discussed, and what everybody knows is happening in the retail environment. So Katie, how can listeners best get in touch with you?

Katie Feodoroff  

Sure, my email is KFeodoroff at Hilcoglobal.com. K as in Katie, and then F E O D O R O F F at Hilcoglobal.com is the best way to reach out to me.

Steve Katz  

Okay, awesome. Well, thanks again, Katie for joining us, we’ll look to have you on again soon and give us an update on what’s going on in the market. And listeners, as always, we hope that this smarter perspective podcast provided you with at least one key takeaway that you can put to good use in your business or share with a colleague or client to help make them that much more successful moving forward. And if you found today’s discussion insightful, which we hope you did, be sure to check out our library of other podcasts and you can find those at Hilcoglobal.com Forward slash smarter dash perspectives or on your favorite podcast platform. Till next time for Hilco global. I’m Steve Katz.