Distressed Merchandise and Liquidators
Many online auctions sellers turn handsome profits selling distressed merchandise purchased from liquidators.
Liquidators buy distressed merchandise by the truck load from sources such as retail chains, manufacturers, wholesalers and catalog companies.
A typical 48-foot semi tractor-trailer generally contains between 22 to 24 pallets of merchandise. 53-foot tractor-trailers will typically hold 26 pallets of merchandise.
Distressed merchandise can include unwanted merchandise, overstocked merchandise, shelf-pulls, buy backs, returnsirregulars, seconds, less than perfects and insurance salvage.
The liquidator then turns around and resells the merchandise to smaller buyers such as retailers, wholesalers, jobbers, auctioneers, flea marketers, pawn shops, outlet centers and retailers.
Types of Distressed Merchandise
Customer Returns:
Most retail chains, catalog companies and wholesale clubs send items that have been returned by their customers to their back warehouse, where they are packed up with hundreds of other items onto pallets. The pallets are then sent to the retailer’s customer return center.
Shelf-Pulls:
Products that have not sold within the expected time just take up shelf space in a retail operation and can cost a fortune in lost profits. It is far more profitable for the retailer to pull these products from the shelf and replace them with faster moving products that do turn a profit. These are called shelf-pulls. They are sent to the retailer’s customer returns center along with other distressed merchandise.
Overstocks:
Retail outlets may overstock a particular item or may have inventory that has become obsolete or replaced by newer makes or models. This merchandise is often just written off and sent for the customer returns center to be liquidated.
Closeouts:
Large retail chains buy in massive quantities. Sales of the merchandise is usually brisk at first, then taper off, and the retailer is left with small quantities that move too slowly or have too low a profit margin to bother advertising. Sometimes the merchandise is replaced with a newer line or different brand of merchandise. These are closeouts, which are no longer profitable.
Seconds and Irregulars:
Seconds and irregulars are itemsthat have failed the manufacturer’s quality control process, but the item is still servicable. This type of merchandise is sold at pennies on the dollar, usually by the manufacturer.
Insurance Salvage:
Merchandise can be damaged during shipping or because of accidents or fires in warehouses or retail stores. As an example, a cargo ship may encounter rough seas, causing the cargo to shift in the ship’s hold. Some of the merchandise is only lightly damaged and may be re-packaged or sold as-is.
Liquidators versus Brokers
Real liquidators usually purchase the merchandise direct form source and ship it to their own warehouse for inspection and distribution. They typically either purchase on contract or they prepay the merchandise. They key here is that they have their own warehouse and they purchase direct from the manufacturer, retailer or catalog outlet.
Brokers usually obtain their merchandise from from liquidators or other suppliers. They do not actually purchase the merchandise. They locate merchandise and sell it to their customers without ever inspecting or handling it.
A broker finds the merchandise, then sells it, collects payment on it. Then the broker pays the liquidator a lesser amount than the price they sold it for. The brokers commission comes off the top of the sale price. The liquidator drop ships the merchandise directly to the buyer.
Be cautious when working with brokers. There are brokers that are honest and reputable but there are also many who have no compunctions about misrepresenting the quality or content of a load of merchandise or have little idea of what exactly they are selling. Since they do not control the merchandise, they usually cannot help if problems arise.
Good liquidators will usually try to correct problems and work with you to investigate and solve problems, often by directly contacting the original source of the merchandise to resolve the issue.
Getting Started With Distressed Merchandise
You will need capital to get started, enough to buy at at least a pallet of merchandise. If you can’t afford to lose that money, then distressed merchandise is proably not a viable product source for you.
You will need to fid good liquidation companies from whom to purchase your merchandise. Check their references, visit their warehouse. In other words, do your homework.
The best scenario for you is finding a liquidator in your local area so you can actually go and see the warehouse and the merchandise.
Research what types of distressed merchandise the liquidator is handling. Retail store customer returns, catalog returns, seconds and irregulars are likely to be better selling products than overstocks and closeouts. Don’t forget that the reason overstocks and closeouts are available is because the retailer either could not sell them or the profit margins were too small on the sale of the items. You could have selling them too unless you can acquire them at a price that allows you to offer very deeply discounted prices.
If the liquidator operates their own retail or auction operation, this could spell trouble for you. Unethical liquidators might be cherry picking the merchandise, pulling the best for their their own operations and selling the poorer items to you.
Make sure you have a written contract and read it carefully. Make sure you really understand what you are comitting to. Don’t let the dreams of millions of dollars in sales from online auctions blind you. Keep your eyes open, do your research, ask lots of questions and proceed with caution.
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Article by Sharlee Plett. Used by Permission. Sharlee Plett is a published author, web designer/developer and is the webmaster of: http://www.smartwebcenter/. More online auction-related articles are available at: Smart Web Center. Permission is granted to reproduce this article provided this byline is left intact, including the links.
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Keywords:auctions distressed merchandise liquidation liquidators online auctions
