What is a Buyback?

A buyback is a sort of promise that many manufacturers and brokers add into sales deals. By offering a buyback to a customer, a manufacturer or broker promises to buy back some or all of their product does not prove to be profitable to the customer. Buybacks are often applied to sales of merchandise.

If a flowerpot vendor were to sell a chain of home stores a supply of terracotta pots, that vendor may sweeten the deal with a buyback. Through the buyback, the home store chain will be able to return the terracotta pots to the vendor in the event that they do not sell well. Buyback deals can vary greatly. The vendor may only agree to buy back a certain percentage of the goods. Alternatively, the vendor may agree to take back all of the goods. However, the vendor may only pay the customer a percentage of what was originally paid for the goods.

Buybacks are more common in some industries than others. For example, in some strata of the clothing and jewelry industries, buybacks are often added to sales agreements. For example, say a large department store were to place an order for 10,000 units of a blue plastic bangle with one of the store’s vendors. This vendor might offer the department store a buyback deal. The specifics of the buy back deal will depend on cost margins, the relationship between the buyer and the vendor, and the sales policies of each party. Often, vendors in the fashion industry have relationships with discount chains who are happy to buy goods that have been bought back.

A buyback is also a term that applies to the stock market. Whether a buyback takes place in the stock market or in a business deal, the concept is effectively the same. A stock buyback is an event during which a corporation repurchases the stocks or bonds that it has sold. In so doing, the number of shares drops, increasing the power of each individual share that is left on the market. Companies decide to buy back their shares for a large number of reasons. However, the shareholders in a company must vote to authorize a buyback. A buyback in the stock market is also known as a corporate repurchase.