It is exactly how it works for physical retailers. In most cases, they even delay payment for a few months to account for returns and the cost of returning unsold products.

Costco, to my knowledge, is actually one of the more strict retailers with IIRC 6 month delay between a product sale and the vendor being played. Mostly due to their generous return policy.

I don't know of any large retailer that eats the cost of unsold goods. It's typically the retailers who pressure the supplier/brand into offering discounts and coupons in order to keep product moving.

I’ve never worked in large consumer goods retail, but smaller retail outlets, food, clothing, etc. do not commonly operate like this. Most don’t have the storage to pre-buy even two months worth of merchandise. In food, purveyors won’t hesitate to ask for cash up front if you’ve been late a couple of times or have a bit of an outstanding balance. The places you describe sound like they act as both distributors and retailers and are large enough to have leverage in their negotiations with suppliers.

I think it's certainly a matter of leverage, and could also be why smaller retailers struggle to survive. For suppliers, getting involved with one of the big retailers is a calculated risk. The retailers work their suppliers against one another, and if you don't play along, you vanish from the shelves. I worked with one of those suppliers long ago.

It's interesting that food is an exception, perhaps because it's perishable, and if you don't pay for a delivery of ingredients... no soup for you. And restaurants may actually be competing for access to high quality materials. Of course the larger chains can manage their supply chains differently, partly by using less perishable ingredients in the first place.

Food isn't an exception— it's just the example I used because I'm most familiar with it. Restaurant purveyors are particularly strict because a restaurant with a 1% or 2% profit margin is considered pretty successful, and that's why 60% of restaurants fail in the first year, and 80% fail by the fifth. But my non-restaurant experience suggests any retailer not required to own their inventory is the exception.

I personally have been a chef and a manager in retail food businesses from movie theaters to coffee shops. I have a friend who owns an upscale boutique that sells many types of products, another that sells products through her salon, several more that own vintage stores (admittedly entirely different supply chain,) a friend who discussed his well-researched, in-depth business plans to open a gun accessories retail shop, another who sells wood crafts and other products direct to customers, a couple full-time artists who sell their art either through galleries or from the walls of businesses, and several food purveyors that only sell to businesses for resale.

In that entire pool, only the artists selling their art through galleries and coffee shop walls, and one of the vintage shops that does consignment sales, differ from the norm of retailers owning their inventory. Some wholesalers or manufacturers will afford well-behaved businesses lines of credit— but that's not the same thing as not owning your inventory. You can't just return it if you don't sell it. Once you sign that delivery sheet, it's pretty much yours.

I've heard of retailers selling new products on manufacturer consignment. I wouldn't be surprised if some specific industries operate like that as a norm. Maybe phone vendors? Maybe software/computer game stores, possibly, because the content is license-based and the material cost is relatively small compared to the price? (Amusingly, as a long-time software developer and someone with a lot of experience in the retail end of business, I have no idea how retail software sales work.) But there's no way Nordstrom is going to order a skid of this spring's collection from major brands and designers and be like "sorry, we decided to give the floor space to other items, so either mark these down to bargain rack prices or we're not paying for them." If that were the way it worked, nobody would sell them anything.

I get the sense that the original commenter just extrapolated based their understanding of business practices that weren't as common as they thought.

I don't know if JC Penneys counts as a large retailer anymore or if petsmart ever did, but both of those stores do eat the cost of unsold goods to my knowledge. Lowes does as well, except for certain types of products such as live plants from certain suppliers. Clearance is almost always the store trying to recoup any money from a product that they can't sell and is taking up shelf space. That certain suppliers take on the cost if unsold product is why you won't see Bonnie Plants tomato plants on clearance at the end of the year. The supplier eats the cost if the product isn't sold.

Edited to make it clear that I'm saying the retailers I'm well-acquainted with do not get reimbursed for unsold items except from a few specific suppliers.

I was under the impression unsold plants were taken out back and destroyed and evidence returned to the vendor (usually a photo and the UPCs). When I worked at a store that sold books and magazines we would rip the covers off and send those back, the rest going into the trash.

Plants and produce work differently. If you buy a farmers crops you dont get to send the rotten food back to them and ask for a refund. Only very large sellers even offer that to begin with.

Also "return it back" doesnt mean the company got the same value. Some companies only give credits for the returns and sometimes those credits are less than MSRP.

If you ever see something on clearance it means A) they cant return it to get credit or B) the credit amount they will get is less than what the clearance price they are offering is

Depends on the contract and what the supplier can do. I know of a greenhouse that did take the plants back, then put them on sale there. I don't know if that is normal for plants though, or just how that one operated. Plants can also be composed to make better soil. Or they might need a few to come back which they grow for next year's seed?

For books some can go to half priced books type stores, but if there are a lot unsold it probably isn't worth the shipping.

I honestly don't know the details of what happens to the physical plants. I can't imagine they're worth the shipping to physically send back, especially for dead plants which the company was also reimbursed for. They were likely destroyed. Generally, part of the deal with the supplier reimbursing the retailer for unsold product is that the retailer then needs to prove they didn't sell the product.

> In most cases, they even delay payment for a few months to account for returns and the cost of returning unsold products.

You may be conflating payment terms of trade with sales/revenue recognition.

In general for consumer goods (unless it's a consignment model), revenue is recognized by the manufacturer the day products are billed and shipped to the retailer. In other words Store inventory is usually on the retailers balance sheet.

The retailer may actually pay the manufacturer 30/60/90 days later (I've never heard of 6 months but it's possible) and that's subject to negotiation. But that's cash/working capital management, not P&L.

I worked for a manufacturer of outdoor product with a short season. We didn't have warehouse space to hold an entire season of product and we did not have manufacturing capacity to build as needed so we used 180 day terms to let our customers buy throughout the year. It smoothed out the demand curve and was a win for everyone.

Yeah. A 90 day line of credit is very different from "I don't pay for this if I don't sell it in 90 days."

Yeah, even I was under this impression. OP should cite a source if they know otherwise as from their comment it seems like Amazon is the only one abusing their position like this.

Fry's at the end went consignment model and none of the big brands would do it so their shelves were empty. So highly doubt Target or Walmart are using consignment model for the majority of their goods.

> I don't know of any large retailer that eats the cost of unsold goods.

Trader Joe's does this. Though they also rebrand the products they sell.

Depending on the retailer, yes.

There are a few different models. What you're describing (stocking a product owned by another entity and giving them a cut of the sale price) is frequently known as consignment. It has minimal risk for the retailer, and typically involves non-perishable goods (clothes, electronics, etc).

Other retailers purchase the product at a discounted price from another entity and then sell it at their location for a higher price. This is the wholesale model where a producer is selling so much product to a retailer that they'll give them a discount on the price.

Wholesaling comes in 2 main forms: As described above, or "buyback". With a buyback contract, risk is shifted back onto the producer, as any unsold stock at the end of the contract term is "bought back" by the producer, typically at price they sold it to the retailer (possibly minus stocking/shipping fees).

I have no idea how the specific places you mentioned run their shops, but having been involved with several companies that produce physical goods for market, it's VERY common to sell to major retailers, and not just run consignment contracts (in fact, we ran VERY quickly away from anyone offering such deals because we would have to tie up inventory on their shelves that we may never be paid for).

This is a great summary, thanks!

That was how it worked in the US with software retailers back in the days when most of us got our consumer software from the local Egghead, CompUSA, etc or from mail order companies like PC Warehouse, CDW, etc.

The stores were really more like real estate companies and payment processors than what most people think of when they think "retailer". They rented shelf space to manufacturers/distributors and handled the money when someone bought something. (For the catalog companies, replace "shelf space" with "page space").

This was why when after you decided in late 1995 to upgrade to something better than Windows 3.1 and walked into Egghead to buy a new OS you'd see Windows 95 somewhere prominent visible from the door, probably with banners touting how great it is, and OS/2 Warp would be on the bottom row of some shelf in the back of the store with poor lighting and enough dust to suggest that not even the person who is supposed to vacuum bothers to go back there.

Microsoft paid for prime real estate in the store and in-store advertising for Windows 95. IBM did the minimum possible that would get OS/2 Warp to be somewhere in the store.

I worked a route at Frito Lay. The store bought the goods, but was rebated on anything that didn't sell. We bit the bullet on product that didn't move.

But merchandising and stocking the shelves was also 100% our responsibility.

It's somewhat similar in books IIRC, if the books don't sell you send back covers of the books and get reimbursed? (based on info from 20 years ago, pretty static industry so probably still the same)

on edit: of course book stores don't compete with publishers.

Not all industries have buybacks, and many producers won't take on contracts that involve them.

(Fun Fact for anyone not familiar with this practice: in publishing the covers were shipped back as the proof because whole books are heavy/costly to ship and take up a lot of space/costly to warehouse so the retailer with them on hand would just have the rest of the book pulped).

I used to love browsing through books at the local flea market that were $0.25, had the cover ripped off, and of course the notice “don’t buy this book if the cover is ripped off!”

Enjoyed a lot of cheap sci-fi and fantasy that way.

I would expect it's pretty uncommon sure, I mean how would you do buybacks of canned goods. It works because of the many historical features of publishing, and the physical realities of books (removing cover to send back) and doesn't seem like it could work in most industries.

Peel off the label and send that back. As for destruction, there's the easy option of making the expiration untradable (marker or alcohol) so anyone opening it doesn't know what's inside or if it's good, and the more time consuming option of puncturing it (this option would work on most food items). Working at a grocery store, if the outer packaging of an item is damaged by a tear or even a dent, nobody will buy it unless it's the only one left and they're desperate, even if the contents are in a stronger inside container (microwave meals, cereal, multipacks, etc). I was asked to replace an item for someone once because the package coloring was off. Cosmetically damaged product sits on the shelf until it gets scanned out, and customers only touch it to move it so they can get the item behind.

Most products in stores today that aren't sold in bulk have a bar code on the packaging, which can be sent back as symbolic proof the item was "destroyed" (about as meaningful as the; for smaller objects, send back the entire front of the package.

I'm not saying this is a good idea. (I think this is a terrible idea, and that we create too much waste already) I'm just saying it's entirely possible.

It is. Fun fact: when Harry Potter 7 was published in the United Kingdom, the publisher didn't allow this, so bookstores had to purchased the stocks from the publisher. This wasn't that bad because most people preordered it, but independendt bookshop had to took the risks to order a few extra copies.

No, that is pretty rare. It os mostly books which works like that.