The prospect of a recession will have savvy entrepreneurs salivating. There is no doubt that the economic downturn will spell doom and gloom for some. Others will see opportunities in the slowing economy. It is entirely possible for home businesses and entrepreneurs to flourish while bigger businesses flounder.
Numerous chain stores have already filed for bankruptcy protection. In the case of Bombay, liquidators have taken possession of the goods and premises. This trend of bankruptcies will only continue as companies do not emerge from Chapter 11 protection.
Meanwhile, tightening profit margins on eBay mean that sellers need to find new ways to reduce costs. Purchasing from liquidators is one way of capitalizing in a period of flux.
Here are some strategies for those wishing to enter the relatively untapped liquidation market.
What Is Liquidated Stock?
Many people don't know what liquidated stock is. And are put off by this fear of the unknown. When a business like Sears, Macy's or Kmart stock their stores they buy in wholesale to get access to prices that Joe Public cannot. However, the stock has a shelf life. The products that don't sell in an efficient time are pulled from the shelves and liquidated, sold on, to another vendor. The store takes a small loss on this. In large retail businesses this is just a normal operating expense but with tightening economic conditions there will be a greater number of liquidations due to Chapter 7 and 11 Bankruptcies.
Decide Which Kind of Stock Will Suit Your Business
It's important to note that liquidated stock generally falls into two categories.
'Store Stock' is stock that has been pulled from shelves because the range has been discontinued, trends have changed or the store has closed down. This is the highest quality of liquidated stock.
The second main type is 'Store Returns' - items that have been returned to the store. Most returns are because of size, color and appearance. On occasion damaged goods are returned to the store. However, spoiled or damaged products usually only make up 15% of store returns.
Choose a supplier
There is a perception that to get access to liquidated stock there is usually a minimum amount of that needs to be spent. Liquidated stock usually comes in by the pallet load, and with large amounts of stock comes a large price. An average pallet is usually $900, a hefty price for many cash strapped entrepreneurs. So it's important to find a liquidator that will suit your budget.
- Buying goods that are not in perfect condition doesn't have to be a problem. With some work it's possible to clean up, fix or polish some of the goods. This is where the bargain factor comes in. A slim portion of the population can afford a $500 sheet set from Macy's. A portion that is decreasing as times get tougher, but if it's a $500 set with a tiny tear then $100 looks like a great price. Factor into the equation that the set probably cost $30 on the pallet and the profit margin is fantastic.
- Be weary of 'Cherry Picking' liquidators. 'Cherry Picking' is the practice where liquidators pick the best goods from the pallets they receive to sell themselves. This can severely limit the value of the pallets that are passed on to customers. Solve this problem by being up front with your supplier and ask, "Do you cherry pick your pallets?"
