PITTSTON, Pa. — Once upon a time, when parents were scrambling to occupy their children during pandemic lockdowns, bicycles were hard to find. But today, in a giant warehouse in northeastern Pennsylvania, there are shiny new Huffys and Schwinns available at big discounts.
The same goes for patio furniture, garden hoses and portable pizza ovens. There are home spas, Rachael Ray’s nonstick pans and a backyard firepit, which promises to make “memories every day.”
The warehouse is run by Liquidity Services, a company that collects surplus and returned goods from major retailers like Target and Amazon and resells them, often for cents on the dollar. The facility opened in November and is operating at exceptionally high volumes for this time of year.
The warehouse offers a window into a reckoning across the retail industry and the broader economy: After a two-year binge of consumer spending — fueled by government checks and the ease of e-commerce — a nasty hangover is taking hold.
With consumers cutting down on discretionary purchases because of high inflation, retailers are now stuck with more inventory than they need. While 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 gas.
Adding to that glut are all the things 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 an analysis by the National Retail Federation, a trade group, and Appriss Retail, a software and analytics firm.
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 annual budget for the U.S. Department of Defense.
It’s becoming clear that retailers badly misjudged supply and demand. Part of their miscalculation was caused by supply chain delays, which prompted companies to secure products far in advance. Then, there is the natural cycle of booms — whether because of optimism or greed, companies rarely pull back before it’s too late.
“It is surprising to me on some level that we saw all that surge of buying activity and we weren’t collectively able to see that it was going to end at some point,” J.D. Daunt, chief commercial officer at Liquidity Services, said at the Pennsylvania warehouse earlier this month.
“You would think that there would be enough data and enough history to see that a little more clearly,” he added. “But it also suggests that times are changing and they are changing fast and more dramatically.”
Strong consumer spending may have saved the economy from ruin during the pandemic, but it has also led to enormous excess and waste.
Retailers have begun to slash prices on inventory in their stores and online. Last Monday, Walmart issued the industry’s latest warning when it said that its operating profits would drop sharply this year as it cut prices on an oversupply of general merchandise.
Many companies cannot afford to let discounted items linger on their shelves because they have to make room for new seasonal goods and the necessities that consumers now prefer. While some retailers are discounting the surplus within their stores, many would rather avoid holding big sales themselves for fear of hurting their brands by conditioning buyers to expect big price cuts as the norm. So, retailers look to liquidators to do that dirty work.
Additionally, industry executives say the glut is so large that some retailers could 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 firm that helps retailers manage returns. “I have never seen the pressure in terms of excess inventory as I am seeing right now.”
Even before the inventory glut appeared this spring, returns had been a major problem for retailers. The huge surge in e-commerce sales during the pandemic — increasing more than 40% in 2020 from the previous year — has only added to it.
The National Retail Federation and Appriss Retail calculate that more than 10% of returns last year involved fraud, including people wearing clothing and then sending it back or stealing goods from stores and returning them with fake receipts. But more fundamentally, industry analysts say the increasing returns reflect consumer expectations that everything can be taken back.
“It’s getting worse and worse,” Johnston said.
Some of the returns and excess inventory will be donated to charities or returned to the manufacturers. Others get recycled, buried in landfills or burned in incinerators that generate electricity.
Liquidators say they offer a more environmentally responsible option by finding new buyers and markets for unwanted products, both those that were returned and those that were never bought in the first place.
“We are reducing the carbon footprint,” said Tony Sciarrotta, executive director of the Reverse Logistics Association, the industry trade group. “But there is still too much going to landfills.”
Retailers will probably receive only a fraction of the items’ original value from the liquidators but it makes more sense to take the losses and move the goods off the store shelves quickly.
Still, liquidation can be a sensitive topic for the big companies that want customers to focus on their “A-goods,” not the failures. Sciarrotta calls it “the dark side” of retail.
On a tour through the Pennsylvania warehouse, Daunt and the warehouse manager, Trevor Morgan, said they were not allowed to discuss where the products originated. But it was not difficult to figure out.
An 85-inch flat-screen TV had an Amazon Prime sticker still on the box. Bathroom vanities came from Home Depot. There was a “home theater” memory foam futon with a built-in cup holder from a Walmart return center.
The buyers bid for the goods through online auctions and then drive to the warehouse to pick up their winnings.
It’s a diverse group. There was a science teacher who stocked up on plastic parts for his class, as well as a woman who planned to resell her purchases — neon green Igloo coolers, a table saw, baby pajamas — in the Haitian and Jamaican communities of New York. She ships other items to Trinidad.
The Pennsylvania warehouse, one of eight that Liquidity Services operates around the country, employs about 20 workers, some of whom have been hired on a temporary basis. The starting pay is $17.50 an hour.
Charles Benincasa, 39, is a temporary worker who has had numerous “warehousing” jobs, the most recent at the Chewy pet food distribution center in nearby Wilkes-Barre.
Benincasa said his friends and family had gotten in the habit of returning many of the goods they buy online. But as he’s watched 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.”