Channel debates restocking charges

Channel debates restocking charges

Tech Pacific's recent decision to abolish restocking fees has turned the spotlight back on high-volume distributors, with many resellers questioning the nature of the charge.

According to Alexander Chernovsky, marketing manager of tier-two distributor Altech Computers, the majority of distributors introduce restocking fees as an insurance against resellers' bad inventory management.

"Smaller businesses sometimes want to utilise your funds while they try to get their business in order," Chernovsky said. "We only introduce this fee when we need to make the customer understand they can't return their stock on a regular basis just because they can't sell it."

A restocking fee is a percentage charged on the goods intended for resale that are returned to distributors for reasons other than dead-on-arrival or warranty-covered product faults. While the fee can be applied to "change of mind" or dead-stock returns, it is generally determined on a case-by-case basis depending on vendors' rotation policies.

"Most vendors have a product rotation policy that allows us to return a certain percentage of the stock currently on the price book on a quarterly basis," explained Roger Bushell, director of product marketing at Ingram Micro. "We are usually happy to pass this on to the reseller."

However, restocking policies toughen up when it comes to dead stock.

"Obviously, no-one wants to take bad stock," commented Kerry Baillie, the newly appointed managing director of Tech Pacific. "Normally, buy-backs of obsolete stock are handled on behalf of the vendor, so the way we deal with the reseller will change depending on vendor policy. Our policy is that if we ask for the stock back, resellers can do it free of charge. But obsolete stock is a different story."

Though vendor-driven, restocking terms and conditions are subject to individual negotiations, according to John Slack-Smith, general manager of computers at Harvey Norman.

"We have individual trading agreements with each distributor we deal with," Slack-Smith said. "Of course, the terms of these agreements are confidential, but they're an essential part of inventory management," he said.

According to Bushell, customers like Harvey Norman can impose fairly stringent conditions on a distributor, which is one of the reasons Ingram prefers not to enter such agreements.

Yet, while larger customers can flex their muscles by negotiating their own restocking terms and conditions, small businesses are often subject to stricter rotation rules.

"You just about have to go to management to get an RA [return authorisation] out of them," complains Frank Beverwijk, managing director of Perth-based reseller Arrow Computers, claiming that "fees for returning stock are a fairly new phenomenon."

Although most resellers understand that the restocking fee is designed to act as "an incentive to make sure you get [your inventory] right", smaller outfits complain they've been unfairly targeted.

"Despite your best intentions, you can't always get it right," said John Foxe, managing director of Sydney-based reseller IT National.

Most distributors claim to use restocking charges as a last resort in dealing with too many "change of mind" returns.

"Restocking fees ensure that resellers are prudent in how they order, " said Trevor Burndred, proprietor of retailer CD Genius in Newcastle, "but distributors have to be fair about them as well," he said.

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