Posts Tagged Costco

Exclusive Costco Customer Returns Contract Part 2: Fraud Prevention and Label Sanitation

Posted by Wholesale News in Wholesale, eBusiness on April 27th, 2009

costco-wholesaleThere are a few more terms you need to familiarize yourself with if you are still interested in obtaining an exclusive contract with Costco for customer returns. In Part 1, I talked about how you simply get the contract, who you need to talk to, and what you can expect in picking up the Costco customer returns for wholesale liquidation.

Real liquidation of customer returns does not just stop with early pick up times. As a liquidator, you are responsible for protecting your supplier from return fraud with label sanitation. When the original supplier, Costco in our case, liquidates products they fully expect to never deal with them again. Here is how you make sure this happens:

Return Fraud With Liquidated Products

The last thing Costco wants to see is their salvage items finding a way back to their front end returns desk. As fraudulent as this seems to be, it’s easy to do and happens with regularity. “How does this happen?” you might ask?

  1. Costco sells its salvage batches of customer returns to the contracted liquidator.
  2. A wholesale liquidator markets the customer returned products. The customer returns are sold to either a retail store, in case lots (re-wholesale), or in a secondary retail outlet (flea market or eBay).
  3. The customer who buys a salvaged customer return drives to the nearest Costco and seeks a full retail refund. Even without a store receipt, the refund policy will usually give store credit or exchange for a brand new item.

A customer returned digital camera for example may end up in the customer’s hands for only $60.00. After taking it to Costco for a retail refund, the refunded amount could be as much as $199, or more. Even in store credit, this is a huge theft by return fraud for Costco, or any other retail outlet!

Prevent Return Fraud With Label Sanitation

It’s up to liquidators to stop return fraud from happening. After all, why would Costco want to sell their customer returns if it will just lead them to more returns? A simple label sanitation process will stop return fraud thieves in their tracks.
Label sanitation covers three basic areas:

  • Remove all references to the original source. Sales tags and store stickers are often stuck on the products themselves.
  • Remove brand names or strike through with black permanent ink if the brand is store-exclusive. Costco has a few brands exclusive to their stores, such as the Kirkland brand. Make sure you know which brand names scream “I’m from Costco!” and handle them appropriately.
  • Disable the bar code or scan tag. Be careful here– only draw a black line with a permanent marker through the black and white bar code so a customer return agent cannot scan the item back in. Do not remove or disfigure the model number or serial number. Those are indications of stolen property, not liquidated products.

Tips and Tricks for Label Sanitation

Label sanitation can be a ton of extra work though. Make sure your contract with Costco, or any other retail outlet, spells out your label sanitation responsibilities. Distinguish between low-risk and high-risk customer returns. Liquidated items like food, paper goods, and household staples are not likely to be returned for personal gain to the original supplier. There are a number of red flag categories for customer return fraud, such as:

  • Clothing
  • Electronics
  • Appliances
  • Jewelry/Watches

These high risk categories MUST have all labels sanitized. A regular permanent black marker will disable a bar code very easily, and it takes only a moment to do so. Clothing tags should have a black slash through the brand name to denote returned status. If the clothing tag is black, use gold or silver permanent ink instead.

Another strategy is to mark large electronics and appliances with the term “SALVAGED.” You may see this in grease pencil or some other colored marking on the back of a wholesale good in secondary markets. Be leery about agreeing to this practice on every electronic. First, try to make sure you can place such a term discreetly near the model number or other area a customer return agent would look for information during the return process. The reason is that you still need to remember you must resell these items, whether to another wholesale distributor or in another discount retail market. Customers and wholesale buyers will be reluctant to buy liquidated electronics and items with large writing on the back of a negative term like “SALVAGED.”

Bringing up effective strategies to prevent customer return fraud is another valued service you bring as a liquidator. Large retail sellers, like Costco, will be happy you bring this up as it saves them on fraudulent returns. It may take some negotiation on how to handle label sanitation, but make sure you don’t sacrifice your ability to resell the items. Finally, label sanitation shows your supplier that you are a professional player in the liquidation industry.

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How I Secured an Exclusive Contract with Costco for Customer Returns

Posted by Wholesale News in eBusiness on April 8th, 2009

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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.

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