Yeah, so I spent the early part of my career working for some of the 3PL giants, right? DHL, GEODIS, Radial, and the problem was there, but it wasn't as exposed as it was when I started working at the 3PLs that serviced the small and medium sized Shopify brands. Now, these 3PLs also service a lot of the very large brands, but they have in their networks,
a really diverse mix of brand size. And so when I was at Deliver, when I was at Flexport, when I was at ShipMonk, what we saw was a higher rate of smaller brands going out of business and leaving their inventory with their warehouse. And so really when I, when, okay, so from an operational perspective, I saw that, Hey, every month there are brands going out of business and we're throwing away this inventory.
It might be one pallet, six pallets, two truckloads, whatever, but we're paying waste management to back up dumpsters to the dock doors and we're forklifting pallets of brand new inventory into the trash. And I had said, hey, I have some connections in my personal network at nonprofits. I would love to be able to help move this inventory into those nonprofits. ⁓ We can do it faster almost than you could do donation or than you can do disposal and definitely at a much cheaper rate with much more benefit.
And so ⁓ once I made that connection of we can do something better with this inventory, that's when I really started to dive in to understand how big the problem was, right? And when I started to look at the numbers and started to see, is this only happening for a certain set of three PLs, a certain set of brands, or is this at a larger scale? That's when I came across there are 4 million brands that sell on Shopify.
90 % of those brands will go out of business within the first three to four years, right? It's a really hard thing to do to build a DTC brand. And Shopify has made it incredibly easy to give access to anyone who wants to try, right? But there's like so many nuances and so many difficult hurdles you have to reach to be able to become a brand of a certain status and stature. And so with that being said, I thought, okay, it's not just our warehouse.
It's not just our brands. There are 3.6 million brands out there that are trying to become household names that will also go out of business and have ⁓ absolute inventory or abandoned inventory with their 3PL. Now we built the solution for that. And then once we started getting really good at that and moving inventory for these closed businesses, ⁓ we had brands who were incredibly healthy and who were growing at scale who also still have excess inventory.
Right? Excess inventory isn't just a problem in warehouses from brands that go out of business, but it's a problem that literally any business faces if they have physical goods. And so we see, depending on seasonality and vertical, that healthy brands will always, will have anywhere from 8 % to 15 % of excess inventory. Whether again, that's seasonality and apparel, or that's flavor changing in CPG or ingredients that, ingredients that change or flavors that flop.
packaging and artwork changes, et cetera, you're always gonna have some subset of excess inventory. So we started servicing those brands as well. And the solution for donation just became an integrated part of all of that ecosystem. And so for me personally, it was like, hey, I learned logistics early on, I learned warehousing early on, I learned ⁓ supply chain. And then I came into this very specific use case. And then I understood a grander scale that's actually happening.
for a lot of people and there's a problem here that we could solve.
Yeah, no, think having worked at the companies that you said deliver, think ShipMonk, ⁓ those companies really see that problem at a very extreme large scale. They see them at a scale of ⁓ managing hundreds and thousands of smaller brands that are showing up into the US market. Some of them are doing it for the first time. So there's a lot of inventory and as you said, 90 % failing. So I am guessing in this equation,
You're looking more at ⁓ inventory that is brand new, not returned goods. You're looking at more of the brand new goods and the SMB and the mid-sized retailers and brands that went out of business, right? Like that is the core of donations.
Yeah, and so that's where we started. We've moved into returns and it's actually incredibly interesting because I think the use case is just so relevant in so many different areas and I'll go through some of them that we haven't even touched yet, but we could potentially touch in the future. And so to answer your question directly, yes, 90 % of what we transact is brand new inventory. Somebody says, I'm gonna open a Shopify store. I'm gonna make the world's coolest pencils. These pencils are gonna be insane. Everyone's gonna wanna have them.
and I manufacture 10 pallets of pencils. I put them on a Flexport, you know, a container that Flexport helps me manage across the ocean. It gets to my 3PL, which may also be Flexport, it may be ShipMonk, maybe Shipbob. And then I decide, oh, this is really hard. I don't want to own a pencil brand anymore. I can't do the marketing and I can't do, and that's what we help move. But what we can also do is returns, right? And returns is $850 billion market.
completely separate, but that also has an incredible use case ⁓ and opportunity for donation as well. Now there are some players in the return space already who will do disposition and redirection to nonprofits. And so that's one of the reasons why we didn't start there, but ⁓ there's always space and availability in the returns ⁓ sector for more accessibility to nonprofits and more ⁓ optimized process flows.
for moving inventory from a returns Gaylord in a warehouse to a nonprofit. Two of the other use cases that like sometimes blow my mind that would be so interesting to solve are ⁓ sort centers for parcel carriers, final mile delivery. They have in their sort centers, sections of their warehouse that pile up with return to sender or labels that are ripped torn that they can't read, ⁓ could not deliver packages that end up back at the sort center.
and what are they doing with those, right? Do all the sort centers for all the carriers across the US have a solution for moving that inventory to a nonprofit or are they throwing it away? Are they disposing of it? The other use case that I think is incredibly interesting is ⁓ when large brands, when large brands ship to retailers and they're, depending on their terms for their freight,
Let's say L'Oreal, for example, is shipping a full trailer of goods to Costco and it gets to Costco and somebody opens the trailer and the first two pallets are damaged. They might refuse the load and they might say, hey, we can't take this load. The inventory is damaged on this load. And L'Oreal might say, it's already off of our books. You cannot return it here. Where does that go? Sometimes they're giving it to the drivers. The transportation companies are giving it to the driver and asking the driver to do something with it.
find a place to dump it or take it, ⁓ whatever it might be. I don't know the specific use cases, but I think that's a really interesting space as well to get into is the actual transportation of goods once it's left the custody of the shipper, but before it's gotten into the custody of the buyer.
Yeah, I mean, with the bigger brands, challenge over there is they have a very strong custody. ⁓ So I think even in this case, if blackmail brands like those, those would need a signed paperwork of, hey, this was destroyed or this was taken care of as expected. think ⁓ returns are a bit of a challenge, I feel like, for the donations world. I'll tell you why, because ⁓ reused goods are essentially ⁓ things that are hard to kind of process. You're sending it to a donation, you're expecting consumption on them.
And it kind of becomes when it's returned goods versus brand new goods, because then it's more like, hey, these are brand new goods. Nobody touched them. So I think that's one thing I have seen as a challenge of kind of using donation as a channel in the returns world, because those goods are used. Especially works in categories like tools or like, you know, Lowe’s and brands like those. But I think it kind of definitely is a struggle to kind of have returned in apparel, small appliances, small consumer electronics.
But yeah, definitely. think donation in general, I think has a lot of advantage sometimes from the recovery point of view, because even if you are donating, you're getting higher recovery. like, how does like, how does that value proposition work from a retailer's perspective or a brand's perspective or a 3PL's perspective? How is the brand involved when when the brand has left or has gone out of business? How do they still use the tax points and how does that?
Yeah, and just before I jump into that, I love your thought on the returns. The other thing that makes it incredibly hard is the unit per order. Like when we're dealing with closeout and we're shipping to a nonprofit a full pallet of cosmetics that they can redistribute to their community, like that's really valuable in one fall swoop, right? Versus a return where it might be one, two units. It's like, how do you consolidate that and make it as valuable?
to the nonprofit as possible. And then to your point, of course, like just because they're a nonprofit doesn't mean they're a second, you know, second, you know, class group of people and like they still deserve product that's not damaged or used. So yes, those are both very great call-outs. In terms of the tax part of the situation, this is like the hottest topic that everybody wants to talk about when I'm, you know, talking and onboarding new brands, but it's incredibly complex.
Let me first start by saying I am not a CPA. I am not a certified tax professional or accountant. And so I can only give my opinion and everybody should consult with a professional before they do anything from a tax perspective. However, that being said, the variables are endless and it's important to understand first and foremost what type of corporation you are. So the tax rules are different for C Corp versus an S Corp versus an LLC.
and how you manage your revenue or your income. And that can be super, super valuable or limiting in this scenario. So first you have to understand what type of corporation you are. And then you have to understand the fair market value of the goods and the good category. Because certain things can be deducted at a higher rate, like a parcel of land can be deducted at a higher rate if donated than say ⁓ toothbrushes or clothing. And so,
First, what corporation are you? Second, what is the actual inventory that you're donating? What is the value of that inventory? And then you can start to create a simulation around what that tax benefit may be. Now, in the liquidation space, we see on average that liquidators will return 8 to 12 % of the retail value of the goods, right? And so with donation, if you're recouping even the cost of goods sold,
it's potential that you're getting more value in your tax deduction than you would be in a liquidation situation. Now, of course, you're not getting cash in your pocket, but essentially you are getting cash in your pocket because what happens here is that whatever is deductible is deducted from your revenue, from your income, and then you have less tax liability, you're paying out less. It's also important to say that some VC backed 3PLs are not profitable.
So there is no tax benefit for them, right? What is beneficial for them and where we drive value is the space in the warehouse that we're freeing up to generate more revenue, right? Because when you're looking at the cost of commercial real estate increasing to $12 a square foot in the coming years in certain markets, it can be really expensive to have pallets that are just sitting there, not generating any revenue other than $15 a pallet in storage per month.
So I think we generate a lot of value, a lot of values derived from clearing space very quickly, but also to your point from a tax perspective as well.
Yeah, no, I mean, that's the opportunity cost getting it out as soon as possible so that new inventory can come in. Yeah, the tax base is definitely a little bit. I have also felt like there's not a lot of clarity and that is why I think the hesitation to not see the donation as a channel ⁓ because somebody has to figure out the paperwork, which category, what would be the exact form and things like that that would be up to be filled and provided. And I see that as a big.
opportunity as well in the industry because as you said it's a simulation where once you kind of figure out for this category this is the kind of ⁓ paperwork you need to do if you're this kind of a C Corp, S Corp then this is the benefits you get I think more brands would look at it as like all right let me release some of the inventory I anyway have to cover my taxes but yeah I think the bigger I would completely agree with that it's the space it's the space itself
that it's taken by and I think your estimates like 8 to 15 percent are amazing. I would say I would even add that I've seen even like 40 percent, 50 percent for brands especially when they're going out of business it increases and it sits for longer and longer. yeah, mean ⁓ donation I think is a channel which is underexposed for sure.
Yeah, and one of the other interesting pieces from a macroeconomic perspective this year is the tariffs, right? And if you donate internationally and you ship back out of the country, there is a potential to have a duty drawback and bring in some of the revenue that you lost when you paid tariffs to import that stuff. So when you imported it this year, if you were paying 100 % plus in tariffs and then you didn't end up selling it during Black Friday, Cyber Monday,
Try donating it, try donating it to Jamaica where there was just a hurricane or wherever there is aid or relief or support needed. There are tons of organizations in the US who can support you from a nonprofit perspective in moving that inventory internationally and then you get those tariffs, those duties and drawbacks back. So there's like a lot of ⁓ very beneficial structures to donation.
That makes sense. I think there's an element of timing as well in donation when you're donating, how you're kind of helping somebody in need. think as you were speaking, how do you kind of handle that kind of a challenge in this industry where you want to find a new like a right nonprofit for a need, but there are so many needs and so many inventories. So how does the matching aspect of your business, like how do you kind of approach that? Because timing can be everything in this thing in donations, I believe.
Yeah, that's cool.
As an operator, that's one of the things that brings me the most joy in the business is when I see inventory that was listed match with like a very niche, very specific nonprofit who needed that specific inventory. And we have had things listed because we accept everything and we will do our, with like a 99, we have a hundred percent success rate right now. I don't suspect that will scale forever, but maybe in terms of matching inventory with a nonprofit, we've donated everything from industrial lighting.
that ends up at a university or a school to 180 gallons of Dr. Pepper that goes to a homeless shelter in the bags for a fountain machine to, you know, we've had people list before ⁓ RV parts, OEM RV parts, right? And it's like, we've had people list, we've had beverage brands who are in the THC space who are doing alternative to alcohol.
and you think like, ⁓ who would want to accept a donation from a brand in this space? Like somebody who's doing cancer research or somebody who's doing, you know, like trial. And so it's incredible to watch all of the donations and how they match. Basically the nonprofits will give us a profile of their mission, of where they're located, of what they're looking to accept from an inventory perspective, what their capacities are.
And then that helps educate the system that drives the matching so that when inventory is listed, we can say, okay, we have the SKUs and quantities, maybe we have images, we know where it's physically located. That would make most sense if it went to a nonprofit in this category, whether it's environmental or it's youth or it's ⁓ emergency preparedness or it's whatever that might be. Like I said, it's universities or ⁓ it's research, et cetera. ⁓
We have a bunch of lab equipment right now that's going to go to Northwestern in Chicago for research. regardless, that's what informs and does the matching. There was one great one that I always love to highlight, which was like a tactical apparel brand. Okay. And they have all these t-shirts and the t-shirts have a pineapple holding a grenade and a banana holding a rifle. And it's like, that's not going to go to the Youth Foundation Against Crime and Drug in LA, right? Like that needs to go to a veterans nonprofit where
Veterans would probably love these shirts. They probably know the brand very well and they would much appreciate these types of logos. Yeah, so it's like, it's making sure that that's what makes it hard today and that's what stock is helping to solve. It's like, what's the right nonprofit for this?
the human.
Yeah, I think we're doing something similar in the liquidation world. So I totally relate. It's very hard to find it because there's so many different needs and so many different kind of products out there when we kind of actually look at the kind of things and there's some cultural nuances to it. Then there are some also nuances of a you can't sell jackets in Arizona. That's really not a useful donation to make. How do you like look at it?
All right.
from a costing perspective, right? At the end of the day, if it's the BPL slash brand or the charity, somebody has to bear the cost of transportation. So how does that work in your business model and in your general philosophy? Like how should that work?
Yeah, that's a great question. in terms of our revenue streams and how our models work, ⁓ the three PLs and the brands have two options, which is great. They can either pay a monthly membership to the platform and have unlimited donations at that rate, right? Or they can pay on a per unit basis if they want a use model. We see all across the board brands who want the monthly subscription because they just, you know, they're
constantly donating or they have very small items and they donate in high quantities and so they don't want to do pay-per-use. And then we have brands who do pay-per-use and they pay one, you know, they use it once per quarter, et cetera. ⁓ And then the nonprofits pay for the transportation for the goods to be moved into their network. So it's actually incredibly valuable for the brands and the warehouses, which is, you know, we are trying to incentivize them to donate as much and not throw so much away. ⁓
So they're, you they should always try liquidation and donation first, but they aren't paying for transportation. The nonprofits are. This is another reason why when we look at it systemically, we try and keep the donations as close to the warehouse that they're physically sitting in as possible. So if we have stuff in Dallas at a warehouse, we're looking at San Antonio threads or we're looking at Texas Wounded Warriors Fund, right? Because we want to keep the cost of transportation around $300 or $600 for multiple pallets being shipped.
to nonprofits who also might need lift gates and they're in residential areas. And so costs add up, but yeah, it's a monthly membership or a per use for the brands in the warehouses for moving inventory within 10 days, for managing all the logistics, for no cost of transportation. And then it's just the cost of transportation for the brand, for the nonprofits. They don't pay an administration fee or a percentage of the value of the goods or anything like that.
That's a good way to do it, especially with both the parties kind of having to kind of part away with the inventory, having a monthly plan on the supply side and then having just the cost of doing transportation, which is anyway expected if you procure anything for your charity. I really like the geofencing aspect of it, which is, you know, like how do you have it proximity so that you're not saving on cost because those can double the cost very easily as it expands.
What has the like I think from a from from the donation community versus like charities perspective I think this is something which is not quite new to them. So how what has been the response with respect to can someone help us do that because I'm guessing so far they have been working on their own to gather charity and know kind of goods working through individual CPLs and what not. So what has the response been to this business model?
From what I can tell, the response from the nonprofits has been good, has been spectacular in the sense that it gives them more visibility and allows them to make smarter choices on behalf of their nonprofit. So to your point, the nonprofit is perfectly capable of going out and creating relationships with 3PLs in their area, with warehouses, with brands, with other organizations, but this allows them to have a one to many throughput in the sense that they can log in
they can see all of the listings in their area or in the US and they can determine based off of those transportation costs and based off of the actual inventory if it's going to be valuable to them. Whereas they might say, hey, we need apparel and so we're going to go out and we're going to try and sell or pitch into the apparel brands that we know and it might not be the right apparel or it might not be, you know, it might not be the right vertical for them. And then they've wasted all that time trying to capture a new logo or a new brand.
where this is more so they can see all the listings. They can say like, okay, here's 10,000 pairs of underwear from step one. ⁓ Here's 183 sweatshirts from Chalkline Apparel. I think this week we need or this month we need XYZ. So again, it just gives them that flexibility, that agility in the process.
That makes sense. They now have visibility what is available to them versus them being ⁓ more situational that hey, this is what we want. What should we do with it? So I think that's really helpful from a charity's perspective having to be have like a shopping list sort of a thing in terms of what they need to run their charities. That's really awesome. In terms of like business model, I mean, think as we discussed in the beginning,
Definitely the market is big, you more than 800 billion dollars of overstock and then 850 billion dollars worth of return separately. So in total there's a lot that gets collected like overseas as well. So how do you think of it as an international, like global, at global scale like what are the applications of it and ⁓ because this overstock problem and this return problem is like global in general as well and lot of charities can use things from one place to the other.
Yeah, so of course we're trying to conquer the US. The US is one of the largest sets of consumers in the world. And also just from a geographic perspective, it's very difficult for us to get product because the country is physically so big ⁓ from point A to point B. But we work with warehouses in Mexico and in Canada right now. And we work with nonprofits all across the globe, Honduras and Africa, et cetera. ⁓ But yeah, I think there's a lot of opportunity globally.
the barriers to entry for me globally and for stock are going to be understanding the tax systems and just the revenue systems in each independent country and what the benefit and value is there. And also just understanding the networks between nonprofits, recyclers, liquidations, and inventory, the shippers, right? The brands and the 3PLs. Because to your point, everything is so nuanced, right? Everything has cultural diversity and awareness as you enter new markets.
But the possibilities are endless and they definitely don't stop at the US in terms of going out and capturing more inventory and rescuing it from the landfill.
Yeah, no, definitely. I I'm guessing there must be some hotspots like every like, like, think there are some areas where it has more charities that can use, I think, global locally itself. But I know a few folks who are like, ⁓ during the COVID time, so much surplus medical supplies are collected over the US and now they're leaving the country. And medical supplies are very easier to kind of import into Asia, in South America, in Africa, because those have the limited number of regulations. So
Medical supplies has been moving out of US into other countries very easily. from what I know and I've tried, food and things in apparels and all that, the export customs, all of that can slow you down to a point where you need to introduce a freight forwarder. And that itself can ⁓ take away the cost of basically doing a charity. But I wanted to get your insight on what are some kind of use cases that you're seeing.
Well, what we see too in the nonprofit world, which is pretty cool, and I'm just learning a lot about the nonprofit space is there is a lot of consolidation at the top from a nonprofit perspective when it comes to international, and then they'll do redistribution. So nonprofits who have a really good foothold on how to do import export and how to manage freight forwarders and how to get inventory out of the US in the best way possible will do that at scale and then redistribute when they get to wherever they're going.
If there are smaller nonprofits that need help, they can usually anchor on to some of the larger ones who will support them in moving product and then, like I said, redistributing it when it gets to where it needs to go.
That makes sense. makes a lot of sense. it's like logistic itself of any charity, any kind of movement, wholesale movement, any kind of movement, think, cross border itself kind of has its own challenges. How do you see like what, like kind of switching gear and kind of coming closing the problem itself? Like how do you see like brands and 3PS? Like what would be the main thing they would be gaining out of, you know, donating their inventory so that they can kind of think of it like, Hey, this is what I'm exactly.
looking to solve for my business. like I guess my question is what metric do you kind of see 3PLs and brands looking at when they're making the decision whether to donate or not.
I think for the three PL, it comes down to a carrying cost on both sides. For the three PLs, it's the space. And for the brands, it's the cost to store that inventory, to move that inventory, but also the cost to not be optimized from an inventory perspective across the network, all the extra work that it adds. like, yes, all of the additional benefits are the branding on sustainability and the tax incentive. Those are all additional, right? The transportation, all of that. But really the core of this is,
⁓ space. It's all about space and cost of that space.
That makes sense. mean, space has been increasing a lot for three PLs. ran a three PL like last year in Austin and it was like, I had to kind of charge a $35 a pallet and then two, was making a loss on that pallet and I was hoping to make through like fulfillment. yeah, I know space itself, think. and, and discard, think is a very common thing in three PLs in general, like every two weeks. ⁓
Yeah.
waste management would come and some things are going out. So there's a ton of potential of used goods that should not be going to landfills. I think the number is about 40 % still go to landfills. that is usable inventory that is going. So I also see like there should be a path for somebody to be able to monetize it more from the tax perspective for sure. Because I think ⁓ from an environment perspective, we should encourage that, hey, you really use the used goods. Maybe somebody can.
buy them, something can happen about them. But I think it's just a, it seems like a loophole in our way of looking at retail where destruction is awarded.
Yeah, and that's true. In some cases, destruction is actually more financially lucrative than ⁓ donation. And so to your point, yes, hopefully we can get legislation to be implemented that'll support the circular economy and the movement of goods, the ability to keep goods in use and valued for both.
brand and user, right? For both manufacturer and user or shipper and user, however you want to phrase it. Because right now, yeah, sometimes you are incentivized to throw it away, which is nuts.
Yeah, there are more would more would try to move that inventory from discard to like donation and other channels and that's obviously better for the planet. ⁓ That gets good accessible goods into the circulation for people who want to afford them. ⁓ E-commerce businesses are going to keep sprucing up right and left. So that product needs to go somewhere other than.
Yeah. Well, mean,
Shopify made it incredibly easy to enter the market. can't imagine what AI is going to do. I can't imagine what there we were, we're backed by Forum VC and there's some other really awesome companies that are coming up that literally will run your whole DTC business, not just like, your Shopify store, but like your whole DTC business with AI. Like they'll do all, you know, all your rev modeling and all of your marketing and all of your op, it's like, what? There's going to be so much more.
Yes.
Excuse me.
accessibility. We don't need to manufacture anything more. Just buy the stuff that's already here and play around with that first.
Yeah, I think there's also like looking at it, there could be a module where new entrepreneurs can buy like this inventory. Like I'm just thinking about it like, it didn't work out for you. Maybe it will work out for somebody else who has more time or like do like charities. Like I think the last question from me, think because I really had a good time kind of learning about the model and kind of what are the challenges and whatnot.
Do charities also see this as a business model? Charities also have lot of incentive to getting this inventory and being able to sell it to others and get the cash back and using that to get their objectives met, whatever they want to use the inventory. Do you see that as an opportunity for charities also to see that?
I cannot use all the things that are donated to me. I can monetize it and I can use it to basically fund my needs. So I see there, you worry if I was on it.
Yes. There's a large
percentage of nonprofits who have thrift stores and those thrift stores are well renowned in their small communities of the communities that they're supporting physically with their nonprofit, but also the communities that they live and operate in. And so it's this again, circular economy, you know it all too well of like the people who are financially well off in those communities are willing to shop at that thrift store.
because they know it's supporting other members of their communities. If we can get those thrift stores better goods, that can, to your point, bring in monetary value for those nonprofits. Think of it as like a Faire, faire.com for thrift and free goods, right? You have the manufacturers of the goods and then, or the sellers of the goods, selling into boutique storefronts. Now all of the nonprofits become new boutique storefronts.
and they have their thrift stores and we're injecting inventory into those thrift stores. So yeah, definitely.
Yeah, no, ⁓ that would be like squeezing up of those kind of more friends would be amazing. I didn't know that those existed. Goodwill isn't one that I know existed, but it's really good to see that others are also working. I can see that model really working and that's the thing. This has been a pleasure, Abby. I really appreciate the time. ⁓ Any last words from you? And then I'd love the viewers to know like how they can reach out to you.
No, thank you for having me. I always love I could geek out on talking circular economy for hours. I appreciate your insights and the questions you pose and also like honing in on tough stuff like taxes. Like that's not that's always a hot button question and it's very complicated to ask. So thank you. And yes, if anyone who's listening wants to reach out, they can email me directly at abby @ stock it better.com or they can go to our website at stock it better.com. Thank you.
Thank you. Thanks a lot for your time, Avi. Thank you, everyone. Take care.
