OVERSTOCKED? TRY BARTERING
Byline: Faye Brookman
PEARL RIVER, N.Y. — The jittery economy has some companies rubbing their hands in glee.
When belts tighten, manufacturers look for avenues to unload excess inventories. And, in an unforgiving economy, retailers are quicker to dump duds. Even minor repackaging dictates a need to find alternative retail channels for outdated merchandise.
Mark Goldsmith, vice president of sales for Active International, based here, likes to call the process “remarketing.” Active International is one of numerous barter companies in the country who help manufacturers find a channel to recoup some of their dollars on either bloated or unwanted inventory. The barter business is estimated to exceed $8 billion a year.
“The key is to find a way to do it without diversion and without angering a retailer.” Obviously a manufacturer of a premium product won’t want the local drugstore peddling his goods. However, Goldsmith said care must be taken with all merchandise. “We respect all trade classes. Just because an item is mass, doesn’t mean you can do what you want with it.”
By using barters, manufacturers transform nonperforming assets into something of value. In most cases, suppliers barter goods in exchange for advertising buys of existing products, although there are other deals such as for travel. Although some barter firms got a bad reputation in the Eighties, companies such as Active have polished the barter image.
“One of our biggest challenges is fighting the stories of people who bartered for advertising and then couldn’t use it,” said Arthur Wagner, president of Active International who lists beauty firms such as Dana Perfumes and Calloway Golf as customers. “Our repeat business speaks for itself and proves we can be a profitable alternative to liquidation.” The beauty business — where launch schedules are brisk, but failure rates are as high as 80 percent — is ripe for his business, according to Wagner.
Health and beauty care and cosmetics are a monumental portion of the Active’s business and one that Goldsmith thinks will swell in the next few years as beauty sales compress. He has a good vantage point on the business — he’s been an executive with companies including Coty, Revlon, Faberge, Yves Saint Laurent and Almay.
Active has worked with many top beauty care suppliers. For example, one health and beauty aids company bartered 68,000 cases of a product, 45 different stockkeeping units with a wholesale value of $12 million. Making the deal especially challenging was the fact the products were current — not outdated — so Active had to ensure they wouldn’t show up in competitive markets.
On a recent visit, Goldsmith’s office was littered with items he’s looking at. Although he won’t allow companies to be mentioned, a quick look suggested where there are some slowdowns in sales. The array of items includes a bath line, fragrances and skin care. In the past, the barter industry has helped eradicate missteps of the beauty business such as Ralph Lauren’s venture into cosmetics and select Chanel toiletries.
The products run the gamut from discontinued merchandise to works in progress that have had the plug pulled. Many lines are tests that “didn’t fly,” said Goldsmith. The breakout of merchandise is about 60 percent class and 40 percent mass. The caveat is that Active does not repackage and does not accept damaged goods.
Where do the items end up? Some are distributed abroad, but many are sold at the nation’s off-price stores ranging from Marshall’s to Consolidated Stores. MacFrugal’s and Marc’s Deep Discount drugstores are also prime retail doors. These stores are a fast-growing portion of off-price retailing. And, as the economy sputters, many experts think these merchants will flourish. A recent inspection of an off-pricer — Odd Job Stores — reveals beauty items from Coty, Conair, Colgate and Pierre Cardin. Howard Snyder, vice president of Odd Job, believes retailers like Target and Old Navy have helped make it hip to be a bargain hunter at his stores. In fact, Odd Job brazenly opened a store last May smack across from Bloomingdale’s. Burt Flickinger 3rd, a consultant with Reach Marketing, thinks customers hit both stores. “There’s tremendous cachet when a consumer can outsmart a full-price retailer,” he said.
Skin care marketers, said Ray Francis, chief executive officer of University Medical Products in Irvine, Calif., all rave about helping women eliminate “tiny” wrinkle lines. He hopes to go to the next step with the launch of a skin care regimen created to reduce deep wrinkles. The five-stockkeeping-unit line is an extension of University’s Face Lift Collagen brand and includes an intensive wrinkle-reducing cream, an intensive eye repair, a refining mask, a cell-regeneration cream and a treatment patch. Called Collagen Face Lift 5 [to the fifth degree], the collection, which took two years of research to develop, ships in April. The suggested retail is $14.95. As in keeping with the firm’s tradition, Francis said there would be clinical trials to lend credence to University’s claims. Television advertising will borrow a page from the television hit “Survivor” by tracking women week to week as they try to conquer their wrinkles.
Reaching the tween customer — those 6 to 12 — is often harder than hitting teens. Stuck between childhood and the teenage years, tweens are often looking for magazines or products that address their needs. Scholastic Books has a powerful reach through schools with the young shoppers. It is now mailing an offer for girls who have purchased Scholastic books to join a new club called Just 4 Girls. Part of the package is a subscription to Bonne Bell’s Smackers magazine.
Although Bonne Bell has offered Smackers magazine for some time, the new magazine is an updated and trendier version. One feature is Smackers Star of the month. In the current issue it is Justin Timberlake, the heartthrob of boy band ‘N-Sync. Smackers gets its name from Bonne Bell’s signature Smackers lip gloss.
Retailers said it is all part of Bonne Bell’s efforts to meet the competition head-on from the growing array of manufacturers vying for the tween audience. “Bonne Bell had that market to itself, now there’s Caboodles and hundreds of tiny companies. This shows Bonne Bell won’t let its business walk out the door,” concluded one drug chain buyer who said she anchors her youth department with the line and takes occasional promotions from other tween wannabes.