Liquidation Auctions and the Growth of Ecommerce

The growth of online sales has been responsible for the growth in the number of customer returns being handled by retailers. This increase in returns has also led to an increase in product liquidation.

Over the last few years, the volume of stock moving through liquidation auctions has grown alongside the popularity of Ecommerce. In the United States alone, there are 220 million online shoppers, a number that keeps increasing every year. Ecommerce has reached a number of $396.7 billion in the U.S. in 2016. In 2020, sales are expected to reach over $684 billion.

This growth in online sales has attracted more businesses and individuals to offer their own products for sale online through established marketplaces such as Amazon and eBay. However, competition has been growing as more and more sellers find innovative ways to source merchandise at low prices enabling them to offer products online below the usual retail price. So how does it make any financial sense to sell at such low prices?

The traditional way of sourcing merchandise for small businesses has been through new-product wholesale suppliers. They buy in bulk keeping the price as low as possible, often working with a number of wholesalers. This gives them the chance to stock a wide range of products at prices that allow them to earn a markup on resale. However, with this growth of independent sellers creating more and more competition, it becomes harder to undercut other resellers. So, is it time to turn to new sources to procure your merchandise?

One of these sources is liquidation companies that, like many other businesses, have taken to the internet to expand their reach and engage a larger audience. For a small online business owner, liquidation auctions and liquidation platforms represent a great opportunity to source quality merchandise at prices below the typical wholesaler’s price. Products range from brand new (overstock, closeouts, shelf pulls) all the way through raw uninspected returns or salvage. If you’re a reseller, it’s incumbent on you to learn what is required to prepare, market and sell the product condition you intend to buy.

However, before bidding on any liquidation merchandise, there are some guidelines you need to follow to make the experience more profitable.

Liquidation Auctions and Platforms

Doing proper research is half the job when it comes to securing quality merchandise at the lowest prices.

When looking for a liquidation auction, make sure you find one that has been around for a while, and that has built a formidable reputation. One way to do this is to make sure you go with a Better-Business-Bureau accredited service.

Once you find a suitable company to work with, it is time to look at the merchandise available and prepare to bid. Platforms such as Direct Liquidation are essentially a bridge between retailers, or manufacturers, and end buyers. Working with these larger liquidation platforms allow you to work with merchandise from the likes of Amazon, Walmart, and Target, and often this means working with bigger brand-names as well.

In order for manufacturers or retailers of this size to work with you, you would have to enter a bidding process and agree to a large volume of inventory that a smaller operator simply can not handle making it impossible to buy from the retailer direct.

The liquidation platform already has a “ready-made customer base” that the retailer can utilize to sell their product through. So if branded merch is what you are after, find yourself a liquidation platform to work with.

Types of Liquidated Merchandise

You can bid on merchandise or buy it immediately, as many lots use a buy-now function.

Many lots will be completely manifested, allowing you to see exactly what’s included in a lot, and in what condition they are in. Platforms such as Direct Liquidation have a dedicated sales staff that can assist you in getting the merchandise you need, and also arrange shipping, where needed.

Overstock merchandise, as well as customer returns and refurbished products, are sold at liquidation auctions. Let’s explore what all of these terms mean, where they come from, and what you can do with them.

Overstock

Overstock products are Products that have been over-stocked, and not sold. This may mean ordering too many toys and games around Christmas, some of which may go unsold. The same is true of any seasonal merchandise, as summer clothing and garden items are removed from shelves at the end of summer, for example. These items have never been sold. A company sells overstock for one reason: To get rid of product that is not selling fast enough to free up space for new product.

These items are liquidated to free up storage space for more in-demand items depending on the time of year. Another possibility of the origin of overstock is retailers selling off older electronics when a newer model comes out, that retailers would prefer to sell in its place.

This process is often taken with physical, rather than online stores, where shelf space is at a premium, but it happens with online sales as well. You’ll see discounts from marketplace sellers on eBay and Amazon after the holiday periods, in much the same way as you’ll see in physical stores, as the businesses prioritize their own storage space. Larger Ecommerce businesses, such as Amazon will also liquidate these types of products through online platforms such as Direct Liquidation.

This type of product is very popular with resellers, as you know the condition of the product is brand-new, in the original packaging, and has never been opened or used. As a result, these items usually sell for higher prices in liquidation auctions than other types of merchandise.

You can identify overstock when you see lots listed as ‘Brand-New’ on Direct Liquidation, though not all platforms use the same terminology. These can be pallets of mixed new stock, or pallets of a single product type, with items all in their original packaging.

Refurbished Stock

Refurbished stock is customer-returned merchandise that has been through testing and, if necessary, repaired. Between 45% and 70% of these items have been returned in an unused condition, perfectly working, and no further work is required after testing. This can be done either by the retailer that the stock is returned to, the manufacturer, or by the liquidator.

However, whether a product is refurbished by the manufacturer or the liquidator, it is submitted to strict tests to ensure it is functioning as good as new. They will review the products, refurbish those that can be refurbished and repackage them again. It is not uncommon for them to offer warranties and a money-back guarantee on such products. Direct Liquidation offers a full 90-day warranty on any refurbished products on the site.

There are grades on refurbished products. All refurb items will be fully-working, that is guaranteed by Direct Liquidation. These grades refer to the cosmetic conditions of the items on Direct Liquidation’s website, other companies may vary.

Grade A items have been restored to meet manufacturer quality standards.
Grade B items are fully-functioning and in “retail-ready” condition, but have SLIGHT cosmetic defects (minor blemishes and/or light scratches).
Grade C products are fully-functioning and in “retail-ready” condition, but have SIGNIFICANT cosmetic defects (significant blemishes and/or significant scratches, dents, or frame damage).

All refurbished products have been inspected, tested, and restored to the original manufacturer’s operating specifications, and are packaged in cleaned original boxes, or new boxes that are retail-ready. They are fully accessorized using new/ original accessories and include all the original product documentation, with the exception of the original warranty card. Direct Liquidation provides a 90-day warranty from the date of product pickup.

Customer Returns

Untested customer returns are untested pallets or truckloads of stock that has been returned to retailers for a variety of reasons. This is an issue that’s growing quickly, as Ecommerce becomes a larger sector of the retail world. Items are returned for reasons such as the wrong item being shipped, or the wrong color – something that doesn’t happen in physical stores.

Clothing may be the wrong size, which can also be difficult to gauge online.

However, products may be returned because they are faulty, or sustained damage in transit. The latter is a growing problem with more and more items ordered online to be shipped. Although it is not unusual for just the packaging to be damaged. There are plenty of reasons people return their products, some just try to take advantage of generous warranty or money-back guarantees. Whatever the reason is, and whatever condition the returned product is in, the retailer can’t sell it as new and it ends up on the secondary market. 

There is growing pressure from public demand for retailers to make the returns process as easy as possible, offering free returns, and printable labels, which in turn encourages more returns, but keeps consumers happy with the experience of shopping with that retailer. Retailers are also under pressure for environmental pressure, consumers want to see retailers take back products to be used elsewhere, rather than contribute to landfill – this means retailers are increasingly taking the reverse logistics side of the business more seriously than they may have done in the past.

These lots typically go for a steeper discount, from their MSRP, than other forms of liquidation mentioned above. These items have not been tested, and for ease and speed of removal, just packaged up at the retailer’s distribution center, and sent on for liquidation as the items come in.

Untested returns, for obvious reasons, do not come with any warranty, and it is up to you the reseller to sort through the items and add as much value to them as you can.

Much of the product may be in a completely unused condition and is ready for the business purchasing to sell immediately. Some stock may need repackaging, after being opened before being returned. These items will need an inspection, grading and, for certain classes of products, additional technical and functionality testing before you can sell them as working items.

You may need to add back in cables, batteries or accessories in order to complete the package before resale. Businesses that buy untested returns will need a mechanism to deal with broken or damaged product they do not have the skillset to repair.

As such, it is more of a gamble buying customer returns, than buying a fully manifested lot of guaranteed working products, where you can see every item that you will be getting. This is why the price point is lower. However, just a few fully working products that may have been returned in original packaging, unopened, can fully return your investment. And even if there are damaged, used or non-functioning items in there, you can replace parts, packaging or bundle together in order to add value to your items as well.

Low Prices and Market Competitiveness

The growth of ecommerce certainly helps liquidation resellers. It has provided a continuous and growing flow of customer returns, providing the stock to resell, but also the diversity of options for resellers for sales.

While you will find lower prices on the price of the merchandise compared to retail and traditional new-product wholesale, you should make sure your math is right when buying. Profit is not guaranteed but there are things you can do to boost your chances of making a profit.

The price is one of the advantages. But let’s look into a few more things one can do to cut the overall purchase costs, including shipping. One way of securing the delivery of merchandise is to arrange it yourself through a trusted company. However, any reputable source like Direct Liquidation already has business relationships with reputable shipping companies and can always offer you a quote, which due to the volumes involved, is likely to be a better quote than you would get elsewhere.

Direct Liquidation and the retailers it works with have a network of warehouses and distribution centers. When trying to find merchandise, try locating the distribution center nearest to your location and buy from there, cutting delivery costs. It is even better if the distribution is so close that you can go and pick the merchandise up yourself – if you’re interested in doing this, mention it to a customer service advisor before placing a bid, to ensure that is possible at your location.

Additionally, it is advisable to acquire a resale certificate from your local tax office. Businesses with resale certificates are exempt from the purchase tax if the merchandise they buy is strictly for resale, so there is another way you can increase your margins. All this leads to more wiggle room in the market and the rest is down to you to try and utilize the options at your disposal to secure market competitiveness. Check out the competition – what are their price points for similar items, for example.

So, if you’d like to secure your spot in the growing Ecommerce world, which is becoming increasingly popular as a second stream of income, or even as a full-time job, make sure you look into sourcing on liquidation platforms.

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