Refurbished Equipment - How Does It Work?

By: Mark Redetzke
Second Act
Copyright 2006 - used with permission

Refurbished Goods Overview
Manufacturers all end up dealing in 4 categories of goods: A, B, C & D. A = brand new, B = Factory Refurbished to look and perform as-new, C = cosmetically blemished (scratch & dent), and D = dead, junk. Generally speaking, major manufacturers have a well-defined support structure for factory refurbished goods. They run the products either through factory facilities or factory-authorized third party facilities and they warrant those products for a defined period of time, which is commonly less than the “A Goods” warranty (typically, it’s 90 days for a refurb and 1-year for a new product, although the coverage of the product is identical, i.e., in-home service for TVs, etc). They reduce the warranty period because they have already re-invested in the unit and fully tested it. This helps them mitigate further financial exposure but also makes logical sense as the unit has been tested prior to release for sale to people like us.

Second Act only purchases goods that are factory refurbished, although refurbs do exist that are a product of a third-party, non factory authorized refurbisher. We do not recommend that category of goods as they are unlikely to hold a manufacturer’s warranty and unlikely to have original factory parts used in the refurbishing process. We see these as ‘gray market’ and we stay away (and suggest that consumers also stay away.)

How does a product become labeled as “refurbished”?
Typically, a TV that has been labeled as refurbished was sold at a major retailer (e.g., Best Buy, Circuit City , etc) and was subsequently returned within the first 30 days of ownership by the customer. They might have returned it because it didn’t work right, it didn’t fit right, they wanted a bigger one, a smaller one, someone in the house didn’t approve, etc. Because the retailers have liberal “no questions asked” return policies, the TV gets accepted back and gets moved back to the manufacturer. The manufacturer runs the item through the refurbishing facility and addresses any performance issue that exists. They also clean the item and make sure all original accessories, manuals, etc are present. Finally, they do what is called a ‘burn-in test’ which is basically where they let the TV run for 48-72 hours to ensure there is not a recurrence of any performance issues and during which it is tested to make sure the factory specifications are met. Once it passes the testing it is packaged up in a new factory carton and made available for sale.

TVs can become labeled as refurbished in a handful of other ways, as well. In some rare cases a manufacturer has an overstock of TVs and in order to avoid channel conflict with their retail partners, they label them as refurbished and sell them for a fraction of the cost of new goods simply as a way to move the inventory. Another way is if a shipment is compromised in some way, such as if a truck trailer had a leak and all the cartons got wet. Or if there were some damaged cartons that a retailer refused to accept. Those are cases where the TVs could get sent to the refurbishing facility for processing. That said, the individual histories behind each set are not made available to us as it is really impractical for the manufacturer to track that information.

How do refurbished products get to market?
Most manufacturers do not sell the TVs directly as they do not have a sales division in place for B goods. As such, they use what they call Master Distributors. Most manufacturers have one or two Master Distributors that sell all of their refurbished goods. For example, Sharp Electronics has one in place that sells 100% of their goods. Samsung & Toshiba each have two Master Distributors and so on.

The refurbishing facilities are running every day of every week and the items they produce are totally dependant upon what gets sent back by the retailers. As such, each week new and different items are available from most manufacturer facilities. The Master Distributors send out updated inventory to their sales contacts (like us) and we buy what we think makes sense. We have the items shipped to our warehouse for distribution to our end customers.

You have probably heard stories of people buying refurbs only to have them on backorder for long periods of time. That occurs when a retailer gets the list of available product from the Master Distributor and does not buy anything. Rather, they advertise the products as if they own them. If a customer buys an item, then the retailer goes back to the distributor to buy it from them. Many times, the product is no longer available so they have to wait for the next refurbishing cycle to buy one. Those retailers are drop shippers. We try to buy everything and resell it because it allows us to ship faster, and in most cases buy better since we are buying truck loads at a time vs. one piece at a time.

Why can’t I find refurbs from some manufacturers?
Sony does not sell their refurbs through retailers. They have 10 or 11 Outlet Stores nationwide through which they sell 100% of their factory refurbished TVs. Mitsubishi claims to be able to sell 100% of their B goods to their own employees, therefore you never see any on the open market. Other manufacturers that have very few available TV units: Pioneer & Panasonic. We are not sure why.

What are the advantages to buying refurbished?
The item should save the customer 20% or more while delivering a product that should be indistinguishable from new. The items have been tested so they should, in theory, be better than new. In most cases a customer should be able to get more TV for the money in size, features, etc by going with a refurb. All refurbs are eligible for extended warranties as well. Some swear against warranties, but the fact remains that a customer should be able to add a 3 year warranty to a TV purchase and still save hundreds over new. The peace of mind is nice for some people, although we do not really take a position on whether or not you should add a warranty. Some people are predisposed to want insurance and others are not. It’s the customer’s call.

Line Separator

Second Act (www.secondact.biz) was founded in 2003 and is located in a suburb of Minneapolis,Minnesota. Our mission is to offer our customers great deals on brand name consumer electronics, primarily HDTVs. All of our deals are of limited quantities.

We work to find the highest quality products available, offering great brands at deeply discounted prices, with a hassle-free shopping experience. We can offer these low prices because we focus on sourcing closeouts, overstocks, open box items and factory refurbished merchandise. If we are going to sell a product, it is our goal to be the lowest priced provider of that item in America. Every item comes complete with a factory warranty. Virtually all HD Televisions come with an in-home warranty.

It is our great passion to find, talk about and deliver High Definition TVs. We own, and use, these products ourselves. Our founders are direct marketing veterans. They have founded, worked for, and built, some of the most successful catalog, television shopping, and e-tailing companies in America.

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