What happens to home improvement products that shoppers return or ship back to stores or Amazon?
Retailers won't risk that a cordless drill, circular saw or dorm fridge could have been abused or be missing a part. Instead, they sell them to people like Jimmy Vosika at 15 to 35 cents on the dollar.
Vosika founded the TV parts and accessories site ShopJimmy.com. After friends in the corporate returns division at a national retailer persuaded him to buy some of their returned goods, he opened MN Home Outlet three years ago in Burnsville. From a start in a 1,500-square-foot space, it's now the size of a Cub Foods.
"We're Home Depot without the lumber," Vosika said. Contractors, remodelers, flippers, DIYers and cheapskates are frequent customers for products that were sold and returned to firms like Amazon, Home Depot, Target and Walmart.
Vosika is one of the recent successes in the reverse logistics or liquidated returns business. The amount of goods that U.S. consumers are returning has become so large that entrepreneurs are buying them up to resell them at a profit.
In the Twin Cities, five liquidation stores have opened in the last several years, including Dock 1 in Hopkins, Brand Name Deals in Brooklyn Park, KX Real Deals and Mid Metro Discount Warehouse, both in St. Paul. Vosika plans to open a second MN Home store in Coon Rapids in December.
In its first year of business, MN Home sold $870,000 in merchandise. This year, it's on track for $11 million in revenue. In some months, sales at the outlet store exceed those at Shopjimmy.com, which has about $20 million in annual sales.
Amazon alone feeds the need by accumulating hundreds of trailer loads of returns each week, said Irwin Jacobs, founder of Jacobs Trading in Hopkins, which specializes in opportunistic buying. He just opened Dock 1 Bargains with a large assortment of furniture, hardware, TVs, patio sets and appliances. An assembled, 19-inch two-burner Member's Mark gas grill was $140 last month, compared to $200 new and unassembled from Samsclub.com.
Even entrepreneurs with no retail experience are getting in on the action. Any hobbyist intent on making "beer" money can buy a pallet of returns from a website such as Liquidation.com, a local auction house or a reverse logistics company such as Event Sales in Hopkins.
Alan Barringer of Big Lake purchased several pallets of Home Depot items from Auction Masters in Maple Grove. "We'd get Swiffer WetJets and sell them at flea markets and garage sales and make a little money," he said.
Debbie Johnson works in Burnsville and shops MN Home Outlet over her lunch hour twice a week. "I've had more luck finding deals here than anywhere," said the Cottage Grove resident. "We shop often because the inventory changes so much."
She and her brother, who also works in Burnsville, have bought tile, bamboo flooring, patio furniture and bathroom faucets to furnish a cabin their two families share.
Gregg Boysen of Savage shops once a month. "The best deals are when the store takes an additional amount off everything," he said. On a weekend in July when parts of Interstate-35W near the store were closed for construction, everything was an additional 35 percent off.
Like any treasure hunt, shopping at a liquidator usually requires time and patience. Similar items are usually grouped together, but shoppers may have to comb through the store like a garage sale. "My son is finishing his basement and he may need to spend two hours to find matching light fixtures," Boysen said of MN Home.
One of the problems with buying retailers' returns is condition. Wholesale buyers sometimes know what is in their shipment, but they are clueless about whether electrical or mechanical equipment functions properly. Consumers won't usually take a chance on an electrical item, even at 50 percent off, without a money-back guarantee. That puts liquidators in a position of deciding whether to test each electronic item.
Vosika gives customers a 14-day return policy on defective electrical or mechanical items. Others give seven days or charge a 20 percent restocking fee.
Mohamad Khouli, who owns Mid Metro Discount Warehouse in St. Paul, found that testing each mechanical item took a toll.
"We changed what we are getting," he said. "We stopped carrying tools and saws because they require more labor and expense to test them."
His store focuses on bathroom and kitchen remodeling and decor. Although his stores are a fraction of the size of MN Home Outlet, he offers a higher-quality product, he said, in a well-organized space.
He buys returns from regional warehouses of Home Depot, Lowe's and Costco. Business is good at his St. Paul location although he recently closed a store in Columbia Heights.
Bob Bushey of DealSmart liquidation in Mounds View, said the business is having its best year since it opened 2008. "The supply of merchandise in all categories is better than ever before thanks to the dot-coms," he said.
Nearly 30 percent of purchases made online are returned, according to Worldwide Business Research. That's triple the return rate for items purchased in stores.
Bushey thinks that consumers are realizing that shopping liquidation can be a better deal in physical stores than online. "People assume that buying on the internet is always a better value than what you can get in stores," he said. "That's so far from the truth. There is so much more product available to us now that we can be more selective and more creative."
Vosika said customers don't have to take his word that liquidation prices are lower. He often sees customers using their smartphones to compare MN Home's prices with other retailers. "We expect it," he said.