How I Secured an Exclusive Contract with Costco for Customer Returns

costco-wholesale

After a few years in the liquidation and surplus business, I realized I lacked an “exclusive” deal with a supplier. All of my wholesale and liquidation suppliers were available to every other wholesaler out there. I was still building a successful business, but there was NO standing for my business to negotiate better prices or goods in this “free-to-all” supply chain. The prices on the liquidation items were the same for any liquidator based on supply and demand from other wholesale buyers. I decided to find a business needing a better return on their liquidated and overstock goods and secure my wholesale business an exclusive supply chain.

It’s one thing to decide, and quite another to achieve! Where was I to start? I began with my favorite place to shop– Costco. But could I negotiate with corporate minded General Managers? Would they even speak to me? My wholesale business was an ant in comparison to the giant Costco!

Thankfully, the simple truth is ALL retail businesses need liquidators in one form or another. Without liquidators, the product cycle comes to a stand still as there just isn’t any room for new inventory. Plus, the generous return policies every retailer must keep for happy customers create large stockpiles of virgin customer returns. For Costco, just on a weekly basis this stock of customer returns builds up considerably. Most of these customer returns are in selling condition, it was just a return due to preference. The corporate headquarters doesn’t want those items sent back, what would they do with them?

This is where I, and other liquidators, offer a service– for pennies on the dollar, a wholesale business could buy customer returns that Costco cannot or will not sell to another consumer. I get a great value on my supply of products and Costco can recoup some of the loss on the returned merchandise.

The beauty of seeking an exclusive contract for  customer returns with a business like Costco is the type of products they carry. Costco bills itself as a wholesaler, although technically they are selling retail since it is going to the end consumer. The majority of items are sold in bulk numbers. Customers will buy numerous quantities and if anything is damaged, they will return the entire case lot. For me the wholesaler, I can dispose of the damaged unit and sell the remaining pristine units at a markup. Customer returns are frequently in popular categories of wholesale goods such as households, clothing, and other general merchandise. After all, someone wanted to buy them in the first place!

So how did I get a contract with Costco to buy their store returns?

I let my fingers do the walking, calling many of my local Costco stores directly. At first it didn’t go so well until I realized a few things:

  • Always represent yourself as a liquidator, this let’s them clearly identify your intent. Another term they may use is salvage company.
  • Ask for the RTV (Return to Vendor) manager or the Receiving manager. This is who generally makes decisions about how and who handles customer returns.
  • Ask what percentage their current “salvage company” is currently buying the customer returns for and see if you can beat it. If they are currently getting 15-28%, see if you can offer 3-5% above.
  • It may take as long as 30 days for Costco (or any large business) to terminate the contract with the current salvage company. Be prepared too for a bidding war.

Working with Costco to Process the Customer Returns

Once I secured the contract for Costco’s customer returns, there were a few differences I noticed in working with them in a business relationship. First, the RTV or Receiving Manager is always going to want the highest revenue possible for the customer returns with the least amount of headache. It is very different working with an employee of a large corporation instead of another business owner. The business relationship is a little lop-sided in terms of what the RTV Manager can do or is willing to do in the event of a dispute.

To avoid losing the contract I had to adopt these behaviors:

  • Remember the RTV Manager’s motivation is to please the General Manager. Therefore, he or she will not be thrilled to provide flexibility at the expense of Costco, even if it is in the interest of the continued business relationship.
  • Be prepared to show up weekly with a VERY large truck. Nothing screams unprofessional more than a liquidator unable to pick up all of the overstock goods and customer returns he or she is scheduled to do so.
  • Costco will not give the customer returns or overstock on credit. You must pay in cash or with your business credit card (they do accept American Express), or cashier’s check at the time of pick up.
  • Visually check any item listed over $1,000 as the paperwork will often include the item, but it really was shipped back to the original vendor. Any large oversights like this must be resolved at the pick up time.
  • Expect an early morning pick up always arranged in advance, with enough assistance to handle the pick up as efficiently as possible.
  • There will be other discrepancies in the order. 99% of our pick ups always had different quantities from the inventory sheet prepared by the RTV. There will be overages and under reporting because the employees at Costco do not care if the inventory number is incorrect in the system, the items are just salvage to them. Regardless of if the numbers and items match up, the items are purged and end up in your shipment.
  • Be cautious and tactful about reporting discrepancies in your shipment. The RTV Manager’s job is to keep accurate count of every item, or at least appear to do so on paper to the General Manager. Every complaint you file is considered a personal attack and place the life of your contract in danger. Unfair, but a reality of working with a corporate giant.

Does this method only work for Costco?

My experience was working with Costco, but the basic premises are the same for any retail business. There are some large corporations that will handle their customer returns in-house, but you will never find out until you call and ask. Just remember that every retail business has overstock, liquidated items, and customer returns that must go somewhere. Your wholesale business could become any retailer’s liquidation outlet if you pursue an exclusive contract with them.

Overall, the liquidator is usually treated as the lowest on the totem pole. There will be some “unfair” contract provisions that as an overstock and liquidation business you just need to endure. However, if you can structure your profit margins to overcome these inconveniences, your wholesale business will ultimately come out ahead. The reality is most retail businesses are looking to pass the “headache” right along with the customer returns and liquidation items. Running a wholesale business is one part service to many parts goods and products.

4 thoughts on “How I Secured an Exclusive Contract with Costco for Customer Returns”

  1. I would like to speak with you more about your tactics and how to approuch an RTV. I am interested in becoming a Liquidator but don’t want to limit myself to just say…. Costco. I would like to purchase on a larger scale and possibly get to the point that I am liquidating and supplying other liquidators, such as some of the trading companies do.
    I am involved with an Auction house and Resturant, Supermarket fixture liquidating company.

    Thank you and a very interesting artical. Are you still doing this?

    John 602-390-9552

  2. Hi, I loved this article. Just like John DeGraaf I’m interested in becoming a liquidator and would like to know more if you wouldn’t mind giving a little advice. My email is springnative@hotmail.com if you have time to communicate. Thanks in advance.

    Michael

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