Approaches to Value and Factors Considered with the Electrical Industry
It is important to remember that margins in this industry (with the exception of LED lighting) are typically slim and in the event of a liquidation, even a moderate discount would entice the customer to purchase additional stock.
For any inventory where there is copper wiring involved, even where there is slow moving inventory, there is inherent scrap value in the copper itself. Even though JCM may reserve the entire non moving inventory we do give it some value in our internal analysis. Our assumption is that much of this inventory has a significant metal content (often copper) and therefore has some residual scrap value. Our analysis takes into account that wire, cord and cable has more copper content than the other categories.
Oftentimes a company may be a member of a buying group of Electrical Distributors (such as AD – Affiliated Distributors), which affords them the best possible pricing on the purchase of their inventory. Rebates are calculated on a quarterly basis and are based on sales volume and remittance of proof of invoicing by the company.
Typically, a company may not have exclusive distribution rights on any of its products. This means that during a liquidation, inventory could be sold to a competitor without the consent of the vendor. In those instances where there is exclusivity, it is likely that the manufacturer would get involved and assign a new distributor to the area. JCM has seen other liquidations whereby the vendor purchased the inventory and re-assigned it, or the newly assigned distributor purchased the inventory in order to facilitate and easy transition.
Recent changes to California Title 24 have all resulted in an increased cost to the consumer with the long term benefit of energy savings. This means a product that used to sell for $5 now sells for $25 and, with the same percent of markup, results in a higher profit per item.
California legislation to eliminate incandescent lamps typically serves to increase the company’s business in higher priced compact fluorescent products. There is a trend currently among legislators to “think green” and pass legislation which has long term energy savings potential.
Things to remember
- Understand the operations of the Company.
- Be familiar with regional and/or seasonal market fluctuations.
- Understand the nomenclature and unit of measure.
- Determine the best market for each type of asset.
You have gone way beyond what was asked or expected. This is a long time account with the bank and we appreciate the assistance you provided in guiding them through liquidating their excess inventory.
Metal Industry Glossary