My wife has been addicted to watching dumpster diving videos where people end up finding brand new expensive things thrown away by retailers. It made me remember reading somewhere that the reason they do this is because it’s cheaper for them to throw away or destroy their inventory than it is to give it away or sell at discount. HOW???
I don’t see how they could possibly save money by destroying inventory rather than putting it on extreme discount. Surely they could make more money selling at an extreme discount versus no money at all by destroying .
In: Economics
Depending on specifics in some industries (like booksellers) destroying inventory is required by the wholesaler to get a refund on unsold merchandise. This means the book store gets their full purchase cost back, and only misses out on what their profit margin would have been if it sold at full price.
I work for a company that does this. It’s all about the brand. The brand has to stay expensive and luxurious, and it would degrade the brand if poor people or people in Africa were seen wearing them on mass. So for the company it’s more profitable to have the excess stock destroyed and keep the supply low and therefore more expensive.
Besides what others have said, there comes a point where something that isn’t selling no matter how cheap has a cost since it is taking up space that a profitable item could be in. There would definitely be a cost point where it is cheaper to throw it away if it cannot be moved quickly at a certain price.
Even at discount you have to have some take the item in, look at it make sure its not deamaged/what is deamaged, catalog that, put it on a shelf, pay for the shelf space, have it sold (does matter if online or in a store), have a payment process, then if online have someone recieve the item, package it and ship it. And at least in the eu you still have to provide 2 year warranty on it. You paid for all of that just to have a very high percentage of items send back again.
On the other hand you just have the cost of putting everything in a big press.
It’s not literally cheaper. Of course getting $1 for this tshirt is better than $0 but there is an opportunity cost to getting that $1. I have to have it on a shelf where I could have something else that makes me more money, for example.
At the point a store is willing to just cut their loss and throw it away, the item has already proven to be difficult to sell, likely even already discounted. The effort of selling it costs more than the return (which is already a loss to begin with).
Donating it still requires some effort whereas just throwing it away takes very little.
Retail stores don’t consider shelf space to be “free.” There is value assigned to the space on the floor or in inventory. If a product isn’t selling, it is occupying the space of something else that will sell.
Yes they would make a little money on that bag, but next season no one will buy a $3k bag until it goes on sale for $500 and they hurt all future sales. If it never goes on sale, they can justify insane prices.
I know this is not a company, but I work for the US feds and we have to get rid of a lot of stuff sometimes. We have two options if it’s something that was rather expensive. We can put it on GSA auctions and after a shit ton of paperwork and man hours that cost more then what the item is worth, we then let a local state agency also spend more then it’s worth to come pick it up, or we can “destroy” it and throw it away.
Private businesses do the same thing. Sometimes it’s cheaper to throw something away. It’s not right, but it’s how things are in the US.
I know your question was more specifically about retail, but I’ve been in a position to throw out lots of unused equipment and supplies (working in R&D, I was managing a pilot plant). Really the trade off is simple… it takes time and resources to donate or sell things, and from the companies perspective the cost of getting end users to assume liability is high. It’s easy and free to throw them away — and I don’t have to get permission from lawyers or VPs to do it. Occasionally we would reorganize supply areas and stock rooms and simply throw away lots of unused stuff because they were no longer used in current processes and we didn’t have good mechanisms to donate to universities, or to sell equipment
Suppose you buy a shirt from a retailer for $20. You can think of the price you paid being split between the manufacturer of the shirt, who purchased the materials and sewed it together, and the retailer, who displayed the shirt and collected payment (costs that are just as real as the effort to actually make the shift). Maybe the manufacturer gets $15 and the retailer gets $5. Some retail agreements are explicitly set up this way – the shirt is “owned” by the manufacturer, and the retailer just collects a commission if any of them sell. In other retail agreements, the retailer purchases the shirt at the wholesale price and tries to re-sell it, though these agreements will sometimes have provisions that allow retailers to recoup some of that wholesale price if the item sells poorly.
Now, suppose we’re talking about a shirt that is very ugly and uncomfortable. Nobody wants to buy it for $20, or even for $5. The retailer could put it on a very deep discount, perhaps $1, but this loses them money. They are still paying employees to check out customers buying the shirt. They are still using shelf space on that shirt that could have been used on something more popular/profitable. Putting that shirt up for sale isn’t free, so you need to get back at least as much as it costs just to do the basic stuff that retailers do.
On top of all this, you don’t want to get a reputation as the place that regularly offers free or deeply discounted stuff. Not only is it counter to the image that many retailers are trying to project, it brings you into the orbit of the type of person who is willing to jump into a dumpster because they might get a random piece of dud merchandise.
Let’s say you are interested in buying a new bike and you look at the local bike shop and your dream bike is there on sale for $150. You need to save up for it so you work hard and save up $150 and go back to the shop but the sale is over and that same bike is now $200.
Once you saw that you could have gotten that bike for $150, the cost of that bike is always $150 in your mind. You will not be willing to pay $200 for that bike anymore. This is why some brands never go on sale, because the sale price is now the only price people will buy. For the producer, they will have more profits by throwing away excess inventory and maintaining high prices than lowering the price indefinitely.
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