How To Liquidate A Small Retail Business – One of the top questions we get in our private member areas is what is the best way to liquidate inventory?
Come across a stockpile of duds that you need to get rid of. Either the price competition makes the product no longer viable, you can position it further, or you just need to free up cash flow.
How To Liquidate A Small Retail Business
Before we discuss the best way to liquidate stock, we need to do a gut check.
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Stock is often the best choice. Yes, throw away all that gear you paid thousands of dollars (or more) for.
If you’re accumulating long-term storage fees, disposal is almost always the best option. If you’re still paying regular short-term storage fees, try to get the most value for your inventory by all means. But as you approach the point of long-term storage, you have to face the reality that you may need to get rid of your inventory.
You usually pay $0.50 + $0.20 per pound to remove or dispose of your inventory. However, once you factor in significant price discounts, pay sales and/or fulfillment fees, storage fees, and most importantly, factor in time, you can easily pay a lot more to get rid of your inventory. In addition, inventory depreciation often comes with some tax benefits.
Getting rid of the mental burden of stagnant equipment will free your mind and allow you to focus on other things, and this always has a positive effect. However, contractors can be irrational creatures, and sometimes we’d rather slowly sell off a few stocks, eating a small fortune in storage fees, than hit the eject button.
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In Spring 2021, Amazon launched a new liquidation program where Amazon sells your inventory to third-party liquidators, and you receive an average of 5% to 10% of the average selling price.
This is a voluntary program that can be used in lieu of throwing away or disposing of non-redeemable or non-redeemable inventory. Amazon already sells your inventory to liquidators who lost and damaged the inventory they refunded to you (and later found), except Amazon keeps the proceeds and refunds you almost the full value of the inventory. See an example of a third party selling liquidated Amazon inventory in the image below.
Amazon will charge you a weight-based fee AND a referral fee (identical to the regular referral fees for the category, i.e. typically 15%) on the portion of the revenue earned from your inventory (between 5% and 10% of the average selling price).
For example, if you’re selling a 1.5 kg item that normally costs $10, your potential earnings would be as follows (I use a median earnings rate of 7.5%, but it can vary from 5% to 10%):
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So for a $10 item, liquidating it through Amazon will net you around $0.29, or 2.9% of the average retail price.
This may sound awful, but it’s not unusual for what you usually earn from most liquidators, who will usually give you between 1% and 10% of the item’s retail value (and you’ll often be responsible for shipping to them). Also, if the option is to get rid of the item, where Amazon typically charges $0.25+, you’ll actually be ahead.
It should be noted that part of the contract of the buyer who buys the liquidation of your inventory is that you are not allowed to resell it on Amazon. However, they can sell them through other e-commerce channels such as eBay or otherwise.
To create a deletion order, simply create a deletion order and select Eliminations as the deletion method.
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If you have exhausted all other self-liquidation methods (see section below) and are facing the possibility of disposing of your inventory, using Amazon Liquidations is a good choice. The percentage of your inventory you receive from Amazon will almost certainly be greater than if you were trying to sell directly to a liquidator.
While the company prohibits buyers from reselling your liquidated inventory on the platform, it’s not out of the question that some of that inventory may end up on Amazon. Also, even if it doesn’t make it to Amazon, if your customers can find refurbished/pre-owned versions of your item on eBay or other sites, it may have some impact on your sales on Amazon, although it’s likely to be fairly minimal.
Here’s another gut check: at the end of the day, you’re the ultimate liquidator of your inventory. Most of the time, no one else in the world will be able to sell your stagnant inventory for what you can. You will be paid accordingly for this fact.
Now a word from a wise man (or at least someone who has made the following mistake all too often).
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Many people prolong the pain and store their items with 3PL and collect monthly storage fees of $25 per pallet (or more) and end up disposing of inventory (or worse, slowly selling inventory at a loss). 3PLs are full of such clients. Don’t be one of those people. At some point you have to walk away from your inventory.
Liquidating inventory is one of the hardest things about being a retailer, and most of us have sad heartbreak songs about losing money over dead inventory. I have a great story (OK, not so great) about a $10,000 marine product order mistakenly for US boats that were only compatible with European boats. (But after more than 3 years I think I found every American with one of these European boats!)
You can take comfort in knowing you’re not alone. Every entrepreneur loses money on inventory at some point, and even the world’s largest retailers have a discount box or two in their stores. What’s your sad heartbreak story? Let me know in the comments below.
Dave Bryant has been importing from China for over 10 years and has created many product brands. He sold his multi-million dollar e-commerce business in 2016 and built another 7-figure business in 18 months. He is also a former Amazon warehouse employee for a week. Explore case studies and sales data of some of Wingate Sales Solutions’ most successful liquidation sales from across the country. Since 1916, Wingate Sales Solutions has been helping store owners close, liquidate or market
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. The return you get from a sale depends on many factors, but the most important factor is the state of your inventory. Stores that are fully stocked with good current items tend to have the highest returns. Stores with sold out, sold out or old inventory tend to get the worst returns. Either way, our sales plan is designed to give you the best possible return. Wingate Sales Solutions advises that the store be available until the day of the sale.
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It was one
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