All-You-Need-to-Know-About-Liquidation-Sales
ESOP

All You Need to Know About Liquidation Sales

Anyone who loves a good deal knows the thrill of seeing a “SALE: Up to 70% Off” board or any similar advertisement broadcasting a slash in prices.

But, unfortunately, being a cog in the wheel of consumerism means consumers often don’t consider what plagues the businesses behind these sales to orchestrate a significant price reduction.

As it turns out, various reasons push brands to consider and execute such sales—also called liquidation sales—as will be elaborated below. Read on for a comprehensive dive into the mechanics of liquidation sales and how all parties involved can benefit from them.

Also read: All You Need to Know About Liquidation Preference 

What Are Liquidation Sales, and Why Do They Happen?

Liquidation sales are conducted to get rid of large volumes of stock and assets, in an attempt to recoup a portion of the money invested initially. The goal is to make as much money as possible in a short time.

Liquidation sales can happen over 8 to 10 weeks, with discount values increasing as the days pass by. But, of course, with the advantage of receiving the money upfront over a few weeks, there comes the considerable disadvantage of receiving less money for products than what market values stipulate.

Various motivators could fuel the decision to execute a liquidation sale, including:

  • Closing down a business: Businesses usually shut their doors when they cannot maintain expenses. Liquidation sales are advantageous since it’s a quick and easy way to liquidate assets compared to other business-closing strategies. It offers a way to bypass power transfers and long-drawn negotiations, which can often lead to delayed money transactions. Additionally, liquidation sales happen quickly but provide a large enough time window to find the right buyers and settle on fair prices.

 

  • Undertaking excess inventory clearances: Brands struggling with slow-moving stock know the pains of having capital and storage space tied up by the surplus. This could either result from poor inventory management or simply a poor public response to a certain product. However, the quick fix typically entails a liquidation sale, which frees up shelf space and injects capital into the business.

 

  • Cost savings and easing logistical burdens: Moving locations or downsizing spaces entails intensive logistical coordination and the costly task of transporting large stock quantities. Liquidation sales are a useful tactic to help ease this burden and significantly cut costs.

 

  • Updating inventory lines and systems: Businesses often need a fresh perspective or a more efficient way of getting things done. Revamping technological systems, and discontinuing product lines, often provide useful means for liquidating assets. Liquidation sales are the best way to offload unwanted and surplus inventory items at such times.

How Do Liquidation Sales Typically Happen?

The decision to orchestrate a liquidation sale is not made overnight. It involves keen consideration and analysis and is conducted according to the needs of the concerned business.

However, the standard flow of the steps taken for such a sale tends to remain the same, and usually begins with consultations with creditors, stakeholders, and financial teams.

Following this, companies prepare a detailed accounting report of all assets. Assets can include everything from products to store fixtures and fittings, packing materials, office equipment, and even furniture.

Businesses typically keep an extensive and accurate report of all items, locations, and conditions on hand. The types of liquidated products can include:

  • Inventory surplus (untouched products from storage)
  • Customer returns
  • Shelf pulls (unsold items that were removed from display shelves)
  • Closeouts (stock received from other stores)

Subsequently, companies hire liquidators to determine the best price point to maximize profits, as well as how to prepare financially for the aftermath of the sale. 

Previous liquidation data and store sales history are used to determine discount levels and incremental timelines.

Next, the company put into place the type of sale and the strategies required for the exercise. For example, businesses could choose to implement their liquidation in stores, or online if they are technically equipped to do so.

In addition, techniques such as offer-bundling, strategic product placement, gifts, coupons, etc., given out in addition to purchases, may be used to sell stock faster.

Lastly, the earnings made from the sale are then used according to the financial status and requirements of the business. For example, for businesses closing down, shareholders almost always receive nothing.

In these cases, any profits must first be distributed to creditors and stakeholders, then the government and employees. Finally, if there is anything left over, shareholders can pocket what remains.

How Can Resellers Churn Profit From Liquidation Sales?

The business of reselling salvaged stock for a profit has flourished and is a competitive market primed for further growth. However, reselling is not as simple as it may seem.

Strategic purchases and market evaluations are required to sell the merchandise, among others. More specifically, it helps to:

  1. Do research

Knowing the demand in one’s area and having a go-to list of reputable suppliers can make a world of difference. Only when resellers have genuine products that fit customer needs, can they streamline their business models.

  1. Optimize margins

Making the most of deep discounts from retailers is only worthwhile if resellers can still turn a profit, even after considering shipping charges, list prices, and lot item numbers.

  1. Choose practical reselling platforms

Depending on one’s product niche, selling locally may be the best bet to cut down shipping charges and maintain a loyal and steady customer base.

Resellers may want to conduct their business physically via garage sales and flea markets. Additionally, listing products on online platforms such as Facebook Marketplace and Craigslist helps have a wider reach.

ESOP & CAP Table
Management simplified

Get started for free

More in:ESOP