These three labels cover much of the liquidation market, and new buyers often treat them as grades on one quality scale. They aren't. They describe why the goods left the normal retail path. That reason tells you what to expect when the trailer doors open.
The terms also aren't standard. One seller's returns are tested and sorted. Another's are raw. Use this guide to know which questions to ask, then read each seller's own definitions before you buy.
- Customer returns: someone bought it and brought it back. Condition is unknown until you check. The most work.
- Overstock: too many were made or bought. Usually new. The least work, but you compete with the same item still selling new.
- Scratch and dent: cosmetic damage, should work fine. Moderate work: inspect, test, grade and disclose.
- None of them comes with a guaranteed recovery or margin. Your numbers come from your own testing and your own sales.
Customer returns
A customer return is an item someone bought and brought back. People return things for many reasons: they changed their mind, it didn't fit the space, it arrived damaged, a part was missing, or it didn't work. The return slip may record a reason, but it often doesn't reach you, and it isn't always accurate.
That is why condition on returns ranges so widely. In the same load you can find unopened boxes, units that were installed and removed, and units that don't power on. You don't know which is which until you check.
- Work: test every unit, check for missing parts and accessories, clean, and repackage or re-grade.
- Risk: the unsellable share is the big unknown, and it varies by seller, category and program.
- Price: sells at a discount to new, set by the grade you give it after testing.
Overstock
Overstock is excess inventory. A retailer ordered more than it sold, a manufacturer built more than it shipped, or a season ended with units left. It is usually new, in the original packaging, and never sold to a customer.
That makes it the easiest of the three to process. The catch is price. Overstock is often a model that is still on sale new somewhere else, so shoppers can compare your price with the current retail price and any sale running that week. Your ceiling is set by the market for the same new item.
- Work: count, check packaging, spot-check function, list.
- Risk: there was a reason it didn't sell. It may be a slow model, an outgoing model or a seasonal item at the wrong time of year.
- Price: below the current new price, by enough to make a shopper choose you.
Scratch and dent
Scratch and dentScratch and dent Scratch-and-dent goods are new or nearly new items with cosmetic damage that does not affect function, sold at a discount. goods are new or nearly new items with cosmetic damage that does not affect function, sold at a discount. The unit works. The finish doesn't sell at full price. In appliances it is common, because heavy units get handled many times between the factory and the home.
The work is mostly inspection and honesty. You still test, because a dent can hide a problem and an upstream label isn't proof the unit works. Then you grade the damage consistently, photograph it, price it and disclose it.
- Work: inspect, test, grade, photograph and disclose.
- Risk: damage that turns out to be more than cosmetic, and inconsistent grading that makes customers stop trusting your prices.
- Price: a discount to new that depends on how visible the damage is once the unit is installed.
Side by side: condition, risk and price
Why it entered the reverse channel:
- Returns: a customer brought it back.
- Overstock: more was made or bought than sold.
- Scratch and dent: it got cosmetically damaged on the way.
Condition to expect:
- Returns: anything from unopened to broken. Unknown until tested.
- Overstock: usually new in the box.
- Scratch and dent: works, looks imperfect. Confirm by testing.
Work per unit:
- Returns: the most. Test, check parts, clean, re-grade.
- Overstock: the least. Count and spot-check.
- Scratch and dent: moderate. Test, grade the damage, disclose.
Pricing:
- Returns: a discount to new, set by your grade after testing.
- Overstock: capped by what the same new item sells for today.
- Scratch and dent: a discount set by how visible the damage is.
Main risk:
- Returns: the unsellable share.
- Overstock: slow sell-through and aging.
- Scratch and dent: hidden functional damage and inconsistent grading.
A manifestManifest A manifest is the supplier's list of what is on the load, typically model, quantity, condition and a retail reference value. may list a condition code for each unit. Treat it as the seller's description of the type, not a promise of condition. Codes are not standard across sellers.
Which type fits your business
The right type is the one your business can process and sell quickly. Match it to your skills, space and channel.
- Selling online with no testing bench: overstock and shelf pulls are easier. Returns mean testing and buyer questions you may not be set up for.
- An appliance or electronics store with people who can test and repair: returns and scratch and dent fit, because you can do the work that creates the value.
- A showroom that sells on price and appearance: scratch and dent fits, if you grade consistently and disclose clearly.
- Wholesale to other dealers: overstock and sorted loads move most easily, because other buyers want to know what they are getting.
Start with one type, learn what it really costs you per sellable unit, and only then add another. A mixed load of all three is fine once you know what each part is worth to you.
There are no universal recovery rates or margins for any of these types. They vary by category, seller, program and your sales channel. What you can do is know which costs each type pushes up.
- Testing labor. Highest on returns, lower on scratch and dent, lowest on overstock.
- Unsellable share. Usually the biggest unknown on returns. Your own receiving history is the only honest source for it.
- Parts and repair. Mostly a returns cost. It can apply to scratch and dent when damage turns out to be more than cosmetic.
- Price ceiling. Overstock competes with the current new price and current sales. Returns and scratch and dent sell at a discount to new.
- Time to sell. Overstock of a slow or outgoing model can sit. That ties up cash and shows up in inventory agingInventory aging Aging groups your unsold inventory by how long it has been in the building, typically 0–30, 31–60, 61–90 and 90+ days..
Put those costs into landed costLanded cost Landed cost is what a unit really costs you once it is in your building and ready to sell, purchase price plus freight, handling, parts and the cost of what could not be sold. per sellable unit, then compare it with what you have actually sold similar units for. That gives you gross marginGross margin Gross margin is revenue minus COGS, usually shown as a percentage of revenue. It is what is left to cover everything else., the share of each sale left after the cost of the goods, for each type, and that is the number that tells you which type works for you.
- Treating returns, overstock and scratch and dent as grades on one quality scale.
- Assuming scratch and dent means tested. Test it anyway.
- Selling a unit with a functional fault under a cosmetic grade.
- Pricing overstock without checking what the same item sells for new right now.
- Underestimating the labor in returns: testing, cleaning, missing parts and repackaging.
- Not disclosing cosmetic damage clearly, in photos and in writing.
- Ignoring why overstock didn't sell the first time.
- Selling returns without checking them against product recalls.
Terms in this guide
Sources
- U.S. Consumer Product Safety Commission: Recalls
- CPSC: Resellers guide to selling safer products (CPSA Section 19)