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Albert has been in the wholesale and distribution business for the last 17 years, building a strong logistics network in the United States, South America and Europe. When people start out selling online, their biggest challenge is often which products to buy and where to buy them from. There are a number of easily accessible products sources that many online sellers start with: But people need to do their research before they jump into the world of liquidation.
A lot of sellers start completely blind and with very high expectations. Retailers and internet sellers across the industry liquidate stock for a number of reasons. When these products come back, they need to be accounted for then they need to be resold or liquidated. Retailers like Walmart, for example, have a tremendous amount of reverse logistics products that come into the Walmart returns center.
These products need to be moved on. Walmart and other large retailers have a system of selling them by the truckload. The peak season for liquidation stock usually comes in the first quarter of the year — January through March. A lot of Christmas returns are coming back then, such as unwanted gifts and buyer remorse returns. The more liberal return policies that the large retailers have, the more returns that come back, and the more products that float into secondary markets — the various outlets where clearance stock is sold.
The big liquidation companies buy products in bulk — 30 to 40 truckloads — and then resell it to smaller liquidation players. The retailers often agree contracts with the big liquidators. Whether they get truckloads, two truckloads or one truckload, they have to take all the product that comes in based on their contract. The contracts switch every year, with different players winning different contracts. Other than information from previous purchases, a lot of the buying is completely blind.
Every retailer works the liquidation business differently. Some retailers and online sellers will buy whole truckloads of clearance stock, either direct from retailers or from large liquidation companies.
In this case, the buyer will come in and agree to take a load with a brief description, then go and pick up the trailer full of product — 24 pallets. Some of these buyers have retail stores, some are online sellers that sell it on eBay or other platforms, some sell on flea markets or garage sales. There are a lot of different venues to sell these types of product. Depending on the load that they get, there can be a lot of profit to be made.
It all depends on the products in the load, and the best channel to sell that load through. Smaller sellers can get overwhelmed by the sheer volume if they buy an entire truckload. Successful buyers at this scale have normally gained a lot of experience by buying smaller lots over a number of years.
Some of the larger liquidation companies will break down the stock they receive, grade it, categorize it, group it into lots, and create a detailed manifest so they can sell it on to smaller retailers, online sellers and other businesses. However, the lot sizes are much smaller and there is a detailed manifest listing the exact products included in the lot, along with their condition or grade. There is much lower capital investment and risk involved in buying this way. Shelf pulls are a major reason for goods going to liquidation.
A shelf pull is a product that was on the shelf in a retail store, but was never sold to a customer. It can be a real profit center if someone is willing to buy all the Christmas lights and then wait until October or November of the following year to sell them. When people think of liquidation they often think of bankruptcies. The biggest player in the US is a company by the name of Gordon Brothers. They go to the courts and acquire the stock of bankrupt companies. When Circuit City filed for Chapter 11 bankruptcy, for example, their inventory would have gone to a company like Gordon Brothers.
The typical methodology for bankrupt stock is to liquidate it at the store level, rather than through the wholesale liquidation business. You have to buy the products, receive the products, process the products. Typically, those prices are very high. The true value of the product is the lowest price that a consumer can find it for sale, not the suggested retail price.
The reality is quite different. Big retailers normally only sell new products in their retail stores. Processing returns and shelf pulls is a difficult and time-consuming process. They just want to write off the problem, take the loss, and let a liquidator handle all the logistics.
That way they get it out of their warehouses to make space for more profitable new products. Even if they did go to all that trouble, only a small fraction of the stock would be in good enough condition to be sent back to stores and sold as new. A resale certificate is something that you need in order to purchase from many liquidation companies.
My company, for example, will not do business with you unless you have one. Some liquidation companies will allow you to purchase without a resale certificate, but generally you do need to have one.
A resale certificate registers with your state that you are a business, and do not need to pay sales tax on the products that you buy. I am registered with the state and I intend to buy product at a wholesale level. It takes a few days to register, and every state has its own process.
We have a lot of information about how to get a resale certificate, and separate links for each state on our blog. If you are a newcomer to the liquidation business, I recommend that you only buy manifested product. The manifest is extremely important because it allows you to analyze the contents of the lot that you are thinking about buying. Even if you purchase a manifested lot, you will still have to take a detailed inventory yourself before you sell it — go through and scan every single barcode to find out exactly what the contents are.
So the market is absolutely huge. Retailers are getting massive quantities of product filling their returns centers and they need to clear it out fast. You pay a higher price for manifested loads, because it requires a lot of labor. So always read the fine print before purchasing any liquidation product. A lot of our customers miss various costs. They might miscalculate marketplace fees, or shipping costs, or the cost of processing the inventory.
In that time, they might lose out on other opportunities, because their funds are tied up in this one truckload. The time-value of money is probably one of the biggest factors that even experienced sellers neglect. A lot of people get very excited in the auction atmosphere — the winning concept becomes a very big deal for them.
All that can easily get forgotten in the excitement of the auction. I recommend that auction buyers decide their highest bid, allowing for all costs and fees, in advance of the auction — and do not go any higher, no matter what. In most cases you cannot rely solely on the manifest to determine the quality of the contents. Liquidation products might be classified in other ways, such as ecommerce returns and retail returns.
Even when liquidators do provide a grade, the accuracy of the grading will vary very widely. If you can, inspect the goods in person. Some liquidators have live auctions, so you can look at the pallets yourself and bid on a specific one that you like. You have to make sure that you factor in the shipping costs when you purchase a pallet. If you cannot get a good rate, a lot of liquidation companies can help you move the product.
They all have good relationships with trucking companies. Find out their rates beforehand and factor it into the cost of the product. If you specialize in a specific category, the likelihood of getting a higher return on investment will be a lot better. Every liquidation company has contracts with different retailers. Clearance products can be in the supply chain for a long time — in warehouses, retail stores, returns centers, liquidators and so on.
The likelihood that they are close or even past their expiration date is much higher than a regular store-bought product. You might be surprised by the variety of products that have expiration dates.
Food expiration dates are easy to spot, but products like ink toner, baby wipes, diapers and make-up also have expiration dates. If you can, go back to the same liquidator and buy a little bit more. Build it up in a nice slow style, where your risks are all calculated. I also recommend diversifying your sources. While you build that piece, look into other segments like online arbitrage, retail arbitrage and standard wholesale.
The world of liquidation is changing very rapidly. Ecommerce is still a young industry, and online sales are growing in more and more product categories. Ten years ago far fewer people were purchasing clothing online than there are today.
Things like that are going to change the nature of the liquidation business over the coming years. The amount of product coming through is going to grow, and the quality of the product is going to change. Best Buy just opened up a website called CowBoom to sell a lot of their clearance stock directly to consumers. Other retailers and e-tailers are also starting to resell returned products themselves. Some are trying to liquidate returns via auction sites.
The model is going to change constantly until they figure out the sweet spot. That might be through retail, liquidation companies, auction sites, warehouse auctions, outlet stores or other channels. There will be a lot of trial and error until they really figure it out. To participate in the liquidation business successfully, you need to get the processing part down to a science.