Surplus Inventory Moves to Markets Where It Won't Cannibalize Sales

01 /The Concept

Faro is in the business of moving excess inventory – overstocked goods, factory seconds, and returned merchandise – from brands, distributors, and major retail chains to new markets.

The South African startup, founded in 2023, already works with Guess and Levi's. The reason these brands are interested isn't complicated: Faro sells their goods in markets outside the brands' primary territories, where dumping last-season overstock at steep discounts could cannibalize sales of new collections and damage brand perception. Africa – where Faro is currently building its distribution network – is exactly that kind of adjacent market.

Faro also buys factory-defect inventory and returned merchandise, which may have cosmetic damage or simply not look new. The startup refurbishes these items in its own workshops and then sells them alongside the standard overstocks. In total, overstocked goods account for 60% of sales and refurbished items for 40%.

This supply model gives Faro very low acquisition costs – sometimes as little as £1 per item. Rather than pocket the extra margin, Faro deliberately holds its net margin at 45% after costs, which allows it to price aggressively. As the founder puts it: "If we bought something cheaply, better to sell it cheaply too – and reinvest the extra margin into customer loyalty rather than our own pockets"

Faro sells through its own physical stores – currently four of them. The ambition is far larger: the plan is to open at least 1,000 stores across Africa, South America, Asia, and the Middle East over the next decade.

The company's first retail experiments in 2023 were pop-ups inside other stores. After generating $100K in revenue in the first month, Faro moved quickly to open standalone locations.

The original plan required seven stores to hit $2M in annual revenue. Faro hit $2.3M with four. Revenue grew 4x last year, and the company is targeting 5x growth this year.

Faro has invested heavily in automating its operations through a proprietary software platform. Items arriving at its warehouses are scanned by phone; the platform automatically identifies the item, writes a description, and logs it in the inventory system. It then suggests pricing based on predicted demand, recommends when and how to adjust prices based on local or seasonal signals, and advises which stores should receive which items to maximize turnover. The platform also handles marketing – personalizing outreach to shoppers about new arrivals to drive foot traffic.

Faro just raised its first significant outside capital: $6M.

02 /Why It Matters

Faro is tackling two of the largest and most persistent headaches in retail simultaneously: excess inventory and merchandise returns.

In the US alone, roughly $500B worth of goods flows through retail warehouses annually, and globally the figure is four times that. Approximately 20% of inventory sits "slow" – taking far too long to sell. Category-by-category, according to Shopify data, stores sell only 69% of their apparel and 48% of their beauty products within a year. Most other categories leave 10–20% of inventory unsold.

To address the surplus problem, B2B marketplace Ghost ([related review](/review/proshhe-vsego-zarabotat-samomu-esli-dat-vozmozhnost-zarabotat-drugim)) lets brands and chains list excess inventory for sale to other retailers, chains, and distributors. Last fall, the marketplace had over $2B in inventory (at retail prices) listed for sale. Ghost then raised $40M, bringing total funding to $95M. Max Retail ([related review](/review/razmoroz-500-milliardov-ih-dollarov)) runs a similar marketplace and raised $15M in a first significant round last April, reaching $20.9M total.

On the returns side: shoppers send back roughly 17% of everything they buy, which translates to an $890B problem in the US alone. Stores have to do something with that merchandise, and selling it as new is not an option.

Hemster, originally in the business of altering e-commerce clothing to fit buyers better, launched a B2B service called (Re)vive ([related review](/review/kogda-rynok-bolshoj-nuzhna-pravilnaja-biznes-model)) to help retailers deal with returned inventory – restoring items to sellable condition and either returning them to the store or listing them on secondhand marketplaces. It raised $3.5M at launch.

(Re)vive receives the returned goods directly, handles the restoration, and either sends them back to the retailer or sells them independently – the retailer doesn't even need to touch them.

What makes Faro distinct is threefold. First, it handles both problems at once – overstocks and returns – so brands only need one partner rather than two. That's a real competitive advantage; simplifying the counterparty count matters to large retailers. Second, the geographic arbitrage model means brands can clear inventory on secondary markets without risking cannibalization on their primary ones. Third, while most startups in this space are building B2B marketplaces, Faro is building its own retail distribution network – a fundamentally different structural bet.

Ghost itself mentioned international distributors as a promising client category in earlier rounds, but demand from that segment apparently didn't materialize at scale. Its current focus has shifted to smaller local stores looking to buy in smaller quantities at steep discounts. The implication: there is demand for these goods on developing markets, but serving it requires building actual retail infrastructure – which is exactly what Faro is doing.

03 /Opportunities

Many startups want to build global businesses. Most assume that requires a unique, universally appealing product.

But there's another path: geographic arbitrage – redistributing goods between markets. Take what's in surplus in one place and sell it where it's scarce. Overstocked or returned branded goods from mature markets, sold at accessible prices in emerging ones, is a clean version of this thesis – and it's exactly what Faro is executing.

The critical question in any geographic arbitrage play isn't finding the goods; it's building the distribution system. Without it, the arbitrage never gets off the ground.

That system could be a chain of owned retail stores, as Faro is building. Or it could be a network of local entrepreneurs who handle sales in their own markets, removing the complexity of cross-border logistics from the equation. The specific model matters less than the fact that it's a *system* – not a hope that goods will somehow find buyers across borders on their own.

The most natural entry angle into geographic arbitrage is a category where the goods are bulky or perishable enough that international e-commerce doesn't already serve the destination market – leaving the field open for whoever builds real distribution infrastructure first. Branded apparel, as Faro demonstrates, checks that box. So do consumer electronics seconds, cosmetics, and certain food categories. The hard constraint is always the same: you need a distribution system, not just access to the goods.