Last year’s serious dip in consumer demand gave CFOs headaches over bloated inventory levels and forced companies to absorb big discounts — to the benefit of their customers but to the detriment of their earnings. But just as one person’s trash is another’s treasure, the dilemma for CFOs with swollen balance sheets was good for the margins of Bill Morrison, CFO of Genco Marketplace, which liquidates other companies’ excess inventory.
The recession has given Morrison’s company more options to buy better-quality goods to sell to wholesalers, which in turn sell the products to discount retailers. Higher-quality products “generated higher recoveries, and oftentimes that brings with it a little higher margin,” he told CFO.com.
Morrison became CFO of privately held Genco Marketplace two years ago, after holding various finance roles for its parent company, Genco Supply Chain Solutions, since 1994. The subsidiary, which supplies about 15% of the parent’s revenue on its consolidated financial statements, liquidates more than $5 million worth of merchandise every day. The parent company generates more than $788 million in annual sales. Morrison declined to publicly disclose Genco Marketplace’s financial results.
To be sure, the finance chief also has to deal with inventory issues himself, particularly now that companies like his are increasingly agreeing to purchase products outright from the retailers and manufacturers that desperately want to get rid of slow-moving items — rather than cutting commission deals with these sellers. With decisions over whether to purchase another company’s inventory coming up every day, Morrison has to act as both a budget taskmaster and risk manager.
In a recent interview with CFO.com, Morrison talked about the risk of taking on other companies’ inventories and the common mistake businesses are making when it comes to managing their own inventory levels.
What are some of the issues the downturn has created for you?
Keeping up with it. There’s been a different kind of growth in that there are new sources of product available to us. And there’s more of a shift toward owning some of the product as opposed to more commission-based selling, so we’ve had to take an inventory position [in those cases].
Is most of your business still based on consignment?
It’s now approximately 50/50, where for years it was 90% commission-based. In the past couple of years, we found it to be advantageous for the buyers and sellers — as long as we can manage to a particular model that gives us a recovery once we’ve taken the inventory. We don’t want to be in the liquidate-after-liquidation mode, either, so we want to have a pretty good idea of what the financial model looks like before we take a position. We work up a financial projection for every deal that we purchase.
Do you take a role in these transactions?
I’m kind of a business partner. My role is making sure our sourcing people and sellers are aware of the risks. A lot of times there’s a freight component to consider. Who’s paying the freight? Where are the goods located? Where do we think the ultimate market will be? We have to make sure we’re prepared to consider how limited our buyers are when we have to export goods — that can change the whole outlook for the recoveries through the secondary market. I can trump some deals and say it doesn’t look good. But most of the time, I’m along to provide support and make sure everybody’s thinking about the right risks.