Opportunities and Perils in Liquidation

Getting by as a small-business owner these days sure isn’t easy. With massive corporations such as Amazon dominating the retail space, finding your niche and your customers (and holding onto them) can be extremely tough. Study after study has proven that, by and large, companies such as Amazon and Walmart are bad for small local businesses. But there are ways to make the scale of these companies work for — instead of against — your small business.

That’s what the small business owners that lead liquidation and returns businesses have discovered. These clever business owners have found opportunities built into the very same monsters that are thrashing other small retail operations. Of course, liquidations and returns businesses have their own perils. To make it in this line of work, you’ll need to fully understand both the opportunities and the pitfalls that can be found in this space. We’re here to help. Here’s what you need to know.

The opportunities of liquidation businesses

When massive companies like Walmart and Amazon get returns back from customers, they don’t always (or even usually) restock those products. The very same scale that gives Walmart and Amazon so many ways to save money also renders the process of evaluating and restocking new and nearly new returns products inefficient. It’s just not worth it. Similarly, Walmart and Amazon don’t have much incentive to maximize their profits (or minimize their losses) on liquidation stock. When they need to offload old products to make room for new ones, they’re focused on doing so quickly — at their size, there’s just no point to paying attention to each individual product that they could sell.

So these big-time companies tend to pile up their liquidation and returns products on pallets and sell those pallets off at very low prices. The pallets are usually acquired by auction sites like Direct Liquidation, where they are bid on by small business owners who run returns and liquidations businesses. They pallets are shipped out to the returns and liquidations business owners, who unpack them and spend the time that Amazon or Walmart couldn’t spare: These business owners evaluate each individual product for its worthiness, then resell the ones that will net them the biggest profits.

The opportunities are significant. With enough items with resale merit on the same pallet, a returns and liquidations business can easily make a big profit — sometimes a multiple of what was paid for the pallet. However, not all pallets are the same. That’s one of the risks in this business.

The risks of liquidation

When returns and liquidations business owners bid on pallets of products, they have access to only limited information about what is actually on them. After all, part of the reason that these pallets exist at all is that the companies who piled them together didn’t want to take the time to evaluate each of the individual products. Depending on the auction, resellers may know a bit or nothing at all about what is on the pallet.

Smart liquidation and returns business owners are careful about where they place their trust. They know that they need to be able to rely on their own suppliers to deliver the pallet as described. If it’s listed as a Walmart pallet, then it should actually come from Walmart; if it’s an Amazon one, it should actually come from Amazon.

Savvy resellers also know that some types of products fetch more on resale than others. And the best ones become specialists, learning the ins and outs of a given business space thoroughly so that they can make faster decisions and fewer mistakes as they price their items on online marketplaces such as eBay.

And not all liquidators and auction sites care about the quality of their products. Some can give you shoddy goods — so be sure to turn to reputable outlets.

All businesses have risks, but managing the uncertainties of liquidation is a matter of making sure you know everything you can about your business and the products you are selling. If you do, you’ll have a great shot at being successful.