Understanding Liquidation

Is liquidation a good thing or a bad thing? Before we answer that, it’s a good idea to talk about what the word actually means. When we drive past a store with a huge banner that says, “ENTIRE STORE LIQUIDATION,” that typically means the store is going out of business. But before it can close its doors for the last time, it has to get rid of as much merchandise as possible. It seems like companies are forced to liquidate fairly regularly in the United States. For instance, at the time of this writing, Toys ‘R’ Us was in the process of liquidating merchandise at more than 700 locations around the country. To the outsider, something like wholesale liquidation may seem like an easy way to slash prices and move merchandise quickly, but the reality on the ground is rarely that simple.

Wholesale Versus Retail

If an average person walks in off the street to a liquidation sale and buys a single appliance at 50 percent off, they’re probably planning to take it home and use it themselves. If a person who represents a reseller comes in and buys an entire pallet of appliances at 50 percent off, though, then they’re a wholesaler. They may take those items to a warehouse to await the day another seller picks them up, or they may take them directly to a reseller. Wholesale liquidation can be great for dealers, which is why you sometimes hear store closing sale ads include a “No dealers, please” statement at the end of the ad. Wholesalers can typically get a better deal because they’re buying in bulk.

Sometimes businesses that are closing will only sell to individuals. Sometimes they’ll only to wholesalers. It’s common, though, for businesses to use a hybrid approach. They keep the store open and welcome customers for a few more weeks in an attempt to get as much money as possible for whatever is left in the store. Companies will often bring in an outside company or companies to oversee the liquidation process. When Hastings Entertainment liquidated in 2016, two companies ended up running the show together.

Customers and Employees

Customers tend to react in one of two ways when they hear a store is closing and liquidating its merchandise. Some customers will be sad and mourn the loss of a valued business. Other customers will be excited to go hunting for cheap products. It’s important to remember that the sales won’t all be great, especially not at first. The first wave of sales may only provide a small discount, like 10 or 20 percent off. By the end of the sale, the deals are often better, but there’s usually less to pick from. The “everything must go” mentality often extends to office furniture, fixtures, and even the very shelving products are on. At the end of the whole ordeal, all that’s left will be the walls and maybe a few signs, unless they can find a way to unload the signs as well.

So what’s a customer who wants to check out some bargains supposed to do? Don’t be too gleeful about things, for one. Remember that the employees who are helping you are about to lose their jobs, so they may not always be smiling and cheerful. Don’t complain that something is priced too high, since the remaining staffers likely have very little control over that. You can try to haggle over a price if you really want to, but be polite about it, and if an employee says that they can’t change the price, you should believe them rather than badger them incessantly. It might also be easier to just wait for some of the merchandise to appear at a local wholesale shop. Stores are going to close sometimes. Entire chains will also go under occasionally. It’s a fact of life, but don’t go in expecting to drive too hard a bargain. Getting back to the original question: are liquidation sales a good or a bad thing? It really depends on who you ask. A customer shopping at a going-out-of-business sale is likely going to have a very different answer than a longtime manager wondering what their next job will be.

David Jackson

David is a personal finance expert, a professional male model, and an entertainment writer.