The Ins and Outs of Wholesale Liquidation Companies
The role of wholesale liquidators in the global retail economy has expanded rapidly in just the last few years. With the accelerate growth of ecommerce and omnichannel sales, dealing with excess inventory at scale has become a major challenge across the entire consumer supply chain. Wholesale liquidators provide a solution by purchasing this excess merchandise and surplus inventory at deeply discounted rates to resell through B2B secondary markets.
In this comprehensive guide, we explore everything you need to know about leveraging wholesale liquidators, from how their unique business model operates to the types of merchandise available and expert tips for sourcing profitable inventory.
Quickly Growing to Meet Surging Demand
The wholesale liquidation industry really emerged and expanded after 2015 when ecommerce began accelerating exponentially:
- In 2015, Amazon Prime membership hit 54 million US subscribers, almost double from 2014.
- 2016 holiday sales saw a 15.1% jump with Black Friday 2016 setting a new e-commerce sales record of $3.34 billion in one day.
- In 2020, e-commerce sales grew 44% with over $861 billion in online sales, accelerating 10 years of projected growth into just 90 days.
As online and omnichannel retail sales continue breaking records year after year, there is an obvious trickle-down effect on the amount of overall returns and excess merchandise being produced. Liquidators have risen to meet this growing supply and demand imbalance.
- The secondary market for liquidated merchandise doubled in size between 2015 to 2021 to an estimated $650 billion in annual sales.
- Liquidator trade groups estimate over 5 billion pounds of new goods get liquidated to secondary resellers yearly.
- Marketplace data shows "wholesale lots" as a top 5 most searched keyword phrase since mid 2020.
All data continues to point towards booming interest around diverting new consumer goods headed for landfills over to discount resellers instead. Wholesale liquidators sit squarely in the middle of this entire reverse logistics process.
Why Source from a Liquidator?
For resellers, sourcing discounted merchandise from wholesale liquidators offers many unique advantages:
1. Ultra-Deep Discounts
Liquidators secure inventory from retailers at up to 70% off wholesale costs. These rock-bottom purchase prices allow considerable cost savings to get passed onto buying resellers. Discounts typically range from 40% to 60% off prevailing market wholesale prices.
2. Brand Name Products
Excess goods come directly from recognizable national chains and manufacturers like Walmart, Amazon, Target, Samsung, Microsoft and Mattel. With the brand recognition and trust already firmly established, liquidated products require less sales effort.
3. High-Volume Sourcing
Instead of buying piecemeal, liquidators deal in new bulk quantities by the pallet, truckload or shipping container. This allows small resellers fast access to high-volume inventory reserves typically only Fortune 500 companies could leverage before.
4. Zero Capital Risk
The liquidator handles paying the upfront inventory costs. Even when having to purchase truckloads, buyers only pay upon delivery meaning no upfront capital risk exposure before inspecting the merchandise. This creates a rare win-win transaction model.
Access to brand name merchandise in bulk quantities at ultra-discounted price points helps explain why liquidators experienced such explosive growth over the past 5 years. They unlock inventory opportunities simply not available through traditional wholesale channels.
Types of Buyers That Use Liquidators
A wide range of resellers can benefit from sourcing discounted wholesale lots from liquidators:
Online Sellers
The ability to source high volumes of product via pallets or trucks fits perfectly for ecommerce sellers needing large inventory reserves. Top liquidated categories bought for online resale include consumer electronics, home & garden, toys, apparel and power tools.
Multichannel Retailers
Homegrown online brands opening their own brick-and-mortar store locations appreciate the large volumes and discounted costs when stocking shelves with liquidated goods.
Flea Market Vendors
Both part-time and full-time vendors frequent liquidators to stock their flea market booths each season. The discounted case packs stretch operating capital allowing more overall inventory to sell.
Auction Houses
Local auctioneers regularly supplement their auction listing with bulk buys from liquidators needing more merchandise turnover especially in off-peak seasons.
Pop-Up Shops
Temporary and seasonal shops thrive on the constant merchandise variety provided via mixed wholesale lots perfect for displaying in short-term rental spaces.
This diversity of buyers leveraging liquidated merchandise combines to fuel incredible secondary market growth. Understanding all the business models thriving via liquidators better positions your own business to capitalize.
6 Sourcing Tips When Buying from Liquidators
Follow these expert tips when buying wholesale lots from liquidators:
Start Small
When first sourcing from a new liquidator, don‘t overcommit. Start with a mixed pallet, small lot purchase or LTL order. Test merchandise delivery, accuracy, and product marketability before scaling.
Vet Returns & Refunds
Clarify any inspection window, returns authorization or refunds process for unacceptable merchandise ahead of first purchase.
Question Grading Details
Press for more details if initial condition descriptions seem vague or misleading. Seek clarity around return percentages, damage rates and testing status.
Confirm Brands
Ensure manifested brands and exact product listings match what was purchased from the retailer. Prevent any bait-and-switch tactic surprises.
Compare Liquidators
Cross-shop the same or similar merchandise across 4-5 liquidators. Contrast pallet sizes, item selection per pallet, inventory depth and per unit pricing between companies before buying.
Examine Paperwork
Review manifest sheets detailing the retailer where inventory was sourced from including brands, item specifics and other product representations.
Proper sourcing techniques coupled with reasonable expectations around exact merchandise conditions will yield best end-to-end results.
Category-Specific Buying Considerations
Each retail product category carries its own unique considerations when sourcing liquidated goods:
Electronics
Ensure disclosed condition notes detail which items were returns, refurbished or overstock. Test history and warranty details give added buyer confidence with big-ticket items.
Toys & Games
High volumes of holiday & seasonal toys appear continuously making off-season buying advantageous if adequate storage allows.
Apparel
Understand sizing mix limitations upfront that may constrain bulk assortments for broad resale appeal, unless reselling to discount dollar stores.
Home & Garden
Floor model and display unit clearances offer deep discounts but inspect thoroughly for any cosmetic defects lower grades might hide.
Health & Beauty
Always verify seal condition, expiration dates and regulatory compliance adhered for liquidated supplements, nutraceuticals and pharmaceuticals.
Consider category nuances during product evaluation phases by double-checking manifest details listing exact retailer source information and product representations made.
Real Risk Examples to Be Aware Of
While liquidators present smart acquisition options for excess inventory, retailers must apply diligent buying practices. Some real examples of risks include:
Misgraded Quality
A hobby goods reseller purchased a mixed graded pallet where toys and games only displayed minor package damage. Upon closer inspection, 30-50% of items had parts, accessories or game pieces missing – greatly diminishing product value.
Deceptive Listings
A sporting goods seller bought a pallet advertised as majority fitness equipment but shoes and activewear made up over 50% of case packs. This rendered inventory almost unsellable for his ecommerce store targeting fitness gear.
Bait-and-Switch Schemes
A specialty food retailer purchased bulk quantities of high-end cookware from a general merchandise liquidator. Upon delivery inspection, mid to low-tier brands were mixed in not matching advertised listings. Without the premier brand name allure, resale value and margin sank.
Non-Compliance Issues
A health store ordered pallet loads of vitamins & supplements as returns from a major online retailer. While sealed, expiration dates were found already expired on over 40% of inventory upon delivery. This carried enormous financial sank costs and regulatory compliance risks.
By studying where other buyers went wrong, new resellers can better weigh risks before product inspection limitations get locked in. Apply extra scrutiny upfront if something seems inaccurately advertised or graded.
Maximizing Growth With Liquidators
Smart resellers realize adding select liquidators into regular inventory purchasing strategies pays growth dividends over time:
Margin Advantages
Highly discounted acquisition costs paired with retail markup pricing gives stellar profit upside. Margins in the 50-100% range make solid bottom-line impact.
Inventory Flexibility
The wide variety of excess merchandise keeps product selection evergreen. Limitless category and brand potential offers business investment hedging.
Data-Driven Expansion
Sales velocity data, bestselling statistics, and ROI metrics guide purchasing decisions on which liquidated products perform best. Data analysis spotlights growth.
Omnichannel Suitability
Liquidated goods fill ecommerce, brick-and-mortar and online marketplace channels equally well maximizing reach. All retail outlets gain margin lead over competitors.
As reseller business models continue evolving in response to ecommerce impacts, adding select liquidators as go-to inventory sources serves both near-term and long-term business goals.
Just be sure to apply the sourcing best practices covered here right from the start. Stay diligent about merchandise condition details, verify advertised product claims, start small with initial purchases and leverage competition. This builds the confidence needed to fully capitalize on liquidators merchandise opportunities over the long haul.
