PITTSTON, Pa. — Once upon a time, when parents were scrambling to keep their kids busy during pandemic shutdowns, bikes were hard to come by. But today, in a giant warehouse in northeastern Pennsylvania, shiny new Huffys and Schwinns are available at great value prices.
The same goes for patio furniture, garden hoses and portable pizza ovens. There are home spas, non-stick pans from Rachael Ray and a garden fire pit, which promises to make “memories every day”.
The warehouse is run by Liquidity Services, a company that collects excess and returned merchandise from major retailers like Target and Amazon and resells it, often for pennies on the dollar. The facility opened last November and is operating at unusually high volumes for this time of year.
The warehouse offers a window into a toll on the retail industry and the broader economy: After two years of excessive consumer spending — fueled by government checks and the ease of e-commerce — an ugly face of wood settles.
With consumers cutting back on discretionary purchases due to high inflation, retailers are now stuck with more inventory than they need. As overall spending rebounded last month, some major retailers say shoppers are buying less clothing, gardening equipment and electronics and focusing instead on basics like food and gasoline.
Adding to this glut is all the stuff people bought during the pandemic – often online – and then returned. In 2021, shoppers returned an average of 16.6% of their purchases, up from 10.6% in 2020 and more than double the rate in 2019, according to analysis by the National Retail Federation, a trade group, and Appriss Retail, a software and analytics company.
Last year’s returns, which retailers are not always able to resell themselves, totaled $761 billion in lost sales. That, the retail federation noted, is more than the US Department of Defense’s annual budget.
It becomes clear that retailers have misjudged supply and demand. Part of their miscalculation was caused by delays in the supply chain, prompting companies to secure products well in advance. Then there’s the natural cycle of booms – whether out of optimism or greed, companies rarely back down until it’s too late.
“It’s surprising to me on some level that we’ve seen all of this increase in buying activity and weren’t able to collectively see that it was going to end at some point,” said JD Daunt, chief commercial officer of Liquidity Services, in an interview at the Pennsylvania warehouse earlier this month.
“You would think there would be enough data and enough history to see this a little more clearly,” he added. “But it also suggests that times are changing, and they are changing quickly and more dramatically.”
Strong consumer spending may have saved the economy from ruin during the pandemic, but it has also led to huge excesses and waste.
Retailers have started slashing inventory prices in their stores and online. Last Monday, Walmart issued the latest industry warning when it said operating profits would fall sharply this year due to a price cut on oversupply of general merchandise.
Many businesses can’t afford to leave discounted items lying around on their shelves as they have to make room for new seasonal products and the essentials that consumers now prefer. While some retailers discount the surplus in their stores, many prefer to avoid big sales themselves for fear of damaging their brands by conditioning shoppers to expect deep price cuts as the norm. So retailers are turning to liquidators to do this dirty work.
Additionally, industry executives say the glut is so great that some retailers may run out of space to house it all.
“It’s unprecedented,” said Chuck Johnston, a former Walmart executive who is now chief strategy officer at goTRG, a company that helps retailers manage returns. “I’ve never seen the pressure in terms of excess inventory like I see it right now.”
So much of the wreckage and debris from industry ends up in warehouses like this one, located on Interstate 81, just a few exits from the President Biden Highway in Scranton, the president’s hometown.
The giant facility is part of an industrial park that was built on top of an open-pit mine dating back to when this region was a major coal producer. Today, the local economy is home to dozens of e-commerce warehouses that span the hilly landscape like giant spaceships, ferrying goods to population centers in and around New York and Philadelphia.
Liquidity Services, a publicly traded company founded in 1999, decided to open its new facility as close to major Scranton-area e-commerce warehouses as possible, making it easy for retailers to dispense with their unwanted items. and returned.
Even before the inventory glut emerged this spring, returns were a major issue for retailers. The huge increase in e-commerce sales during the pandemic – increasing by more than 40% in 2020 compared to the previous year – has only added to this.
The National Retail Federation and Appriss Retail calculate that more than 10% of returns last year involved fraud, including people wearing clothes and then sending them back or stealing goods from stores and returning them with fake receipts. But more fundamentally, industry analysts say increasing returns reflect consumer expectations that anything can be taken back.
“It’s getting worse and worse,” Mr Johnston said.
Some of the returns and excess inventory will be donated to charity or returned to manufacturers. Others are recycled, buried in landfills or burned in incinerators that generate electricity.
Liquidators say they are providing a more environmentally friendly option by finding new buyers and markets for unwanted goods, both those that have been returned and those that were never bought in the first place. “We’re reducing the carbon footprint,” said Tony Sciarrotta, executive director of the Reverse Logistics Association, the industry trade group. “But there are still too many things going to landfills.”
Retailers will likely receive only a fraction of the items’ original value from liquidators, but it makes more sense to take the losses and quickly remove the goods from store shelves.
Still, liquidation can be a sensitive topic for large companies that want customers to focus on their “A assets,” not failures.
Mr. Sciarrotta calls it “the dark side” of retail.
During a tour of the Pennsylvania warehouse, Mr Daunt and warehouse manager Trevor Morgan said they were not allowed to discuss the origin of the products. But it wasn’t hard to understand.
An 85-inch flatscreen TV still had an Amazon Prime sticker on the box. The bathroom vanities were from Home Depot. There was a “home theater” memory foam futon with a built-in cup holder from a Walmart return center.
Many unopened boxes on the warehouse floor bore the well-known Target logo. Air fryers, strollers, and towering stacks of Barbie’s “Dream House,” which includes a pool, elevator, and home office. (Even Barbie, it seems, is tired of working from home.)
When Target’s sales exploded in the first year of the pandemic, the company was the darling of Wall Street. But in May, the retailer said it was struggling with oversupply of some products and the company’s stock price fell nearly 25% in one day. Share prices of other retailers also fell.
Target’s stumbles were an opportunity for people like Walter Crowley.
Mr. Crowley regularly rents a U-Haul and drives back and forth to the Liquidation Warehouse from his home near Binghamton, NY
Mr Crowley, who turns 54 next month, is mainly focused on discount home improvement products, which he resells to local contractors, such as multiple pallets of abandoned garage door openers, at the original price of $14,000 which he got for $600.
But on a sweltering day earlier this month, he stood outside the warehouse in his U-Haul loading items from Target.
“I saw his stock getting filled up,” Mr Crowley said, a cigarette hanging from his mouth and sweat streaming down his face. “It’s a bad situation for them.”
He bought several cribs, a set of sheets for his own house, and a pink castle for a girl in his neighborhood who just turned 5.
“I end up giving a lot to my neighbors, to be honest,” he said. “Some barely make it.”
Buyers bid on goods through online auctions and then go to the warehouse to collect their winnings.
It’s a diverse group. There was a science teacher who stocked up on plastic parts for her class, as well as a woman who planned to resell her purchases – neon green Igloo coolers, a table saw, baby pajamas – in the communities Haitian and Jamaican from New York. She ships other items to Trinidad.
The Pennsylvania warehouse, one of eight that Liquidity Service operates across the country, employs about 20 workers, some of whom have been hired on a temporary basis. The starting salary is $17.50 per hour.
Charles Benincasa, 39, is a temp worker who has held numerous ‘warehousing’ jobs, the most recent at the Chewy Pet Food Distribution Center in nearby Wilkes-Barre.
Mr Benincasa said his friends and family have become accustomed to returning many of the goods they buy online. But as he watches the boxes pile up in the Liquidity Services warehouse, he worries about the implications for the economy.
“Companies are losing a lot of money,” he said. “There is no free lunch.”