Buying wholesale liquidation merchandise can be an inexpensive way to stock your online store or auction listings. Retailers and manufacturers facing bankruptcy or a relocation often find it cheaper to sell off their inventory in bulk instead of paying to move the goods to a new location.
In fact, buying and selling liquidation merchandise is one of the most profitable businesses people can get into, reports LocalLiquidation, a directory for sources of wholesale liquidation, closeout and surplus merchandise.
"Most liquidation merchandise can be purchased for below wholesale, which allows you to resell the merchandise at a great price and, at the same time, [make] a decent profit,"
the site reports. "If you ever wonder how eBay sellers can offer such low prices, this is one way they do it."
It's sometimes possible to resell liquidation merchandise for two to three times the purchase price if the items are in good condition, according to Joel McLaughlin, founder of Dataflurry, a marketing and SEO company.
But before you go online to buy a crate-full of jewelry, iPod skins or whatnot, let's take a closer look at wholesale liquidation and what it entails. This "cheap" fountain of potential inventory maybe a little more complicated than you expect.
The bottom line
Wholesale liquidation merchandise usually consists of overstock items, goods that have been returned, items that have been discontinued or inventory bought from companies going out of business. Goods may be damaged or have some other imperfection. The degree of this will vary, but these circumstances allow for cheap prices because retailers need to unload the merchandise.
Keep in mind that wholesale items are sold in bulk—which means you're going to have a lot of items to store. You can typically buy goods by the truckload or by the pallet, although it's possible to find smaller crates of 50 to 100 items or so. With so many products, it's essential to think carefully about what goods will perform best. Is children's apparel more likely to sell than water toys?
Consider purchasing low-cost liquidation goods to use as 'loss leaders,' or bargain-priced items that entice shoppers into your online shop
You also need to consider the value of the items. Be realistic here. Liquidators will often quote a manufacturer's suggested retail price, but the actual retail price almost never matches this inflated number. It may seem like a great bargain to snap up a container of items for $2 or $3 a piece, but will those T-shirts really sell for $25—and is there enough of a demand in the market to sell all of them? Remember that other sellers are buying from wholesale liquidators, too, and may have similar products. If you're not careful, you could find that someone else is offering customers a better deal.
Mixed lots, mixed results
Sellers should keep in mind, too, that when they purchase from an online liquidator, they may not be able to reorder the same products they bought the first time around. So your products could be changing constantly.
"Most people who sell liquidation usually deal with an ever-changing supply and selection," LocalLiquidation reports. "In some people's eyes this is a good thing since it keeps your customers coming back to you."
Although it's true that shoppers like choices, you face the potential of snapping up a hot item only to sell out of it and not be able to find more of that product. It may be possible to find similar goods, but these items may or may not sell as well as the initial product you bought for resale.
A sound strategy that many PowerSellers follow is to consider purchasing low-cost liquidation goods to use as "loss leaders," or bargain-priced items that entice shoppers into your online shop where they can browse your other, more profitable offerings.
Most of the garments were anything but name-brand, as the description promised
A cautionary tale
Before seeking out wholesale liquidation merchandise online, be aware of the potential pitfalls, cautions Rebecca Miller, a PowerSeller and Auctiva product analyst. She learned this important lesson first-hand when she purchased a liquidation lot for the first time last year.
Miller, who goes by "bertthedog" on eBay, used Liquidation.com to buy a box of what was presented as 50 pieces of designer children's clothing. The purchase came to $220 after taxes and shipping fees—or roughly $4.50 per unit. With names such as Calvin Klein, Guess and Ralph Lauren, Miller figured she could sell each item for a minimum of $10 to $15, more than doubling her initial investment.
According to the Web site, the items would be shipped in five days. But after a week and half of waiting—and no further communication from Liquidation.com or the seller—Miller contacted Liquidation.com to inquire and was told the items had shipped days before.
"Well thanks for letting me know," she recalls telling the person on the phone. "That was the first sign something was wrong," she says. The next day her package arrived in less than optimal condition.
"It looked like it had been run over," Miller remembers. "The corners were torn and everything was just thrown in the box. There was a hanger sticking out. They didn't even fold the clothes."
The package did contain the full 50 pieces, but they were not what she expected. Miller found a women's sundress in the mix and a pair of girls' jeans that still had the security tag on—which meant she couldn't sell the item. Most of the garments were anything but name-brand, as the description promised.
"It was a just a mish-mash of items and that was a little disappointing," she recalls.
Miller wrote a complaint to Liquidation.com, but got a response saying the package was similar enough to the description to comply with the company's standards. She was also told she should have included photos of each item with her initial complaint.
It was a "disappointing" experience all around, she says.
"I think the seller really, really misrepresented what the lot consisted of," she adds.
Tips to prevent disappointment
Although Miller's first experience buying liquidation merchandise was less than fulfilling, she knows there are some reputable wholesale liquidators out there. And there are steps shoppers can take to make sure they know what they're getting.
She suggests buyers get in touch with the liquidators they are thinking of buying from to get full descriptions of each item in a package. Some sellers offer a manifest, which lists all the items and a description of each item and its condition. It's a good idea to ask the liquidator where the items came from and to get close-up shots of the goods you're considering buying.
"If I had seen a manifest with a description of the items, I wouldn't have bid on the bin," she says.