For buyers and sellers new to the Returns marketplace: Note re-labeling, de-labeling and selling restrictions on returned merchandise. (Tips below.) First, here is a cautionary case study of how wrongly re-labeling return inventory can ruin a carefully marketed reputation and company image.

How Not to Resell Return Merchandise

While it’s not clear who is the true “perp” in this resale story from only a week ago, the situation hit regional television news and consumer protection groups. Everyone up and down the product supply chain took a hit to brand and reputation. The end retailer, discount clothing chain Burlington Coat Factory, is trying to make it right.

This Case of the Faux Designer Men’s Coats unraveled when a customer in a Connecticut Burlington Coat Factory store peeled off the second label on his designer brand Perry Ellis coat. Whooops. The coat was a resale item from non-designer Wal-Mart.

Although a real Perry Ellis coat would cost approximately $200, and Burlington Coat Factory was selling the re-labeled Perry Ellis for less than $70, this customer did not feel like a smart shopper: the original Wal-Mart fake Perry Ellis sold for barely $30.

Now it gets complicated – After a Connecticut TV station called out all but one Burlington Coat Factory location in the state selling fake designer coats by sticking a new label on the old label, it was discovered that the faux Perry Ellis’ were really a private Macy’s brand (made by George and Amalfi) that hit the Returned Merchandise marketplace. Burlington Coat Factory blamed its wholesale supplier … who claims to hold legitimate rights to the Perry Ellis and Joseph Abboud labels (so why counterfeit them?) and who, in turn, blamed a “rogue employee” for the mis-labeled coats.

As the finger-pointing and blaming continues, end retailer Burlington Coat Factory decided to face the music, guilty or innocent. Burlington pulled the entire coat shipment from all stores, nationwide. The fake-label story hit Connecticut TV, Consumerist Reports and a few activist blogs. To make it right, Burlington Coat Factory now offers all the money back for faux PE coats, plus a coupon for 20% off.

Re-Label, De-Label, Resale Restrictions

As noted above, buying liquidation and return merchandise can help resellers, retailers and auction powersellers source branded merchandise at off-price discounts, to hold profit margins stable.

Note that there are resale and brand restriction agreements that contractually bind “End Resellers” when they move wholesale liquidation and returned merchandise.

Defacing and De-labeling. Signed agreements governing merchandise sourced from a department store or chain retailer for resale generally cover protecting the brand of the original retailer. That means de-labeling. One method is to deface brand labels, original retailer identification and/or UPC codes:

DeLabel Return Merchandise

De-labeling requirements protect the reseller as much as the original retailer or brand: If you purchased a lot of returned private label clothing, originally from department store returns, and then resold the clothing at half-price discounts – but failed to remove all identifying labels – one of your customers may try to return the apparel to the original retailer for a full price credit. The original retailer is out and you, as End Reseller, may be sued for breach of reseller contract.

Other Resale De-labelling Requirements. Target Corporation — a nationwide department store retailer of clothing, footwear, jewelry, electronics, sporting good and toys – has designated the following “Delabeling and Defacing Agreement for Target Salvage Merchandise” (originally posted to WholesaleU Blog in June 2008 by Robert Cyr: Liquidation Merchandise – Reselling Restrictions?):

· All warranty cards to be discarded and destroyed
· If warranty is included with product information, the warranty section must be removed with exception of sewn in labels
· All tags of clothing, both Target and licensed brands to be removed with exception of sewn-in labels
· Black out all sewn in labels
· Discard all hang tags and tags
· Remove all Target brand products from boxes and packaging from the Target box unless packaging is necessary for the product
· Black out all UPC codes
· Black out all reference to the Target name