Brands have excess inventory that they are unable to sell at full-price (or even at a slight discount) in stores, and in order to have proper cash flow and be successful in business, they have to find a way to sell this surplus inventory. They typically look to closeout wholesalers to purchase their product at 40-60% off of the wholesale price, usually taking whatever they can get for their unwanted goods. Selling excess inventory can occur for many reasons, such as canceled orders, off-season product, overproduction, closeouts, manufacturing errors, among other things. It is inevitable in the retail industry.
Off-price retailers selling closeouts and surplus inventory were among those that analysts expected to fare particularly well in the wake of the COVID-19 pandemic as they have been known to thrive in times of market uncertainty. Economic downturns work in favor of closeout wholesalers and discount retailers. The Great Recession, the 2007-2009 financial crisis, turned millions of Americans on to shopping at T.J. Maxx, Ross, Burlington, and Marshalls, and they never looked back. Businesses selling excess inventory, company liquidations and closeouts have done well during the past two decades. Reflecting on the success of the segment during the striking market slump almost 15 years ago, the Wall Street Journal reported that “the S&P 500 lost more than 14 percent of its value from December 2007 to December 2010,” and yet, “TJX and Ross Stores gained 55 percent and 147 percent, respectively.”
Off-price retail’s success can be attributed to their vastly different sales strategy and business models. When a designer overproduces, or when other stores overbuy, off-price retailers swoop in to buy these closeouts at a discounted price and pass those savings on to their consumers. These retailers have thrived as e-commerce has become a larger part of their overall volume. Closeout wholesalers provide off price and heavily discounted goods to chains selling excess inventory of both name brand and generic products. When manufacturers and importers need to get rid of old inventory and sell dead stock, they turn to large National off-price discount chains who love closeout merchandise. To a large brand like Levi Strauss or Homedics, surplus inventory may be a problem. But to an off price retail chain this can represent a buying opportunity to load up on liquidation inventory below cost.
Falling sales for off-price retailers have turned around as the economy has reopened and as pandemic-fueled digital sales surges continue to normalize and discount-seeking consumers return to stores. And while off-price chains may be faring much better than this time a year ago (TJX, for one, reported revenues of $12.53 billion in net revenue for Q3, up 20 percent on a year-over-year basis), the potential post-pandemic boom for these chains looks a bit different than what many had previously imagined. Liquidation stock will continue to be an important part of retail sales, and companies liquidating inventory can expect strong demand for closeouts and off-priced goods. Today’s consumer has become a value oriented buyer looking for specials on overstock inventory, closeouts and excess inventory. With the cost of fuel rising quickly, their disposable income will diminish and closeout merchandise will become even more important.
Demand as the amount of some product a consumer is willing and able to purchase at a given closeout price. That suggests at least two factors in addition to price that affect demand. Willingness to purchase suggests a desire, based on what economists call tastes and preferences. If you neither need nor want something, you will not buy it. Ability to purchase suggests that income is important. Professors are usually able to afford better housing and transportation than students, because they have more income. Income inequality plays a role in consumer spending for closeouts vs regular goods. Closeout brokers that sell overstock inventory to large retail chains can tell you how demand for these goods has increased since 2019. Prices of related goods can affect demand also. If you need a new car, the price of a Honda may affect your demand for a Ford. Finally, the size or composition of the population can affect demand. The more children a family has, the greater their demand for clothing. The more driving-age children a family has, the greater their demand for car insurance, and the less for diapers and baby formula. But almost every product category has done well post-COVID. Closeout merchandise available on deal sites like Groupon and Amazon are often sold out, and closeout websites in general are flourishing. Liquidations of inventory have become a popular way of generating consumer excitement and demand (think online flash sales to promote closeouts and excess inventory specials).
Liquidation buyers can help clean out your 3PL warehouse if you are moving or shutting down your warehouse. A simple online search for buying closeouts, getting rid of overstock, selling old inventory, or closeouts will turn up many different options for closeout buyers and closeout brokers.
Undoubtedly, off-price retailers will continue to use supply chain collaboration as the biggest way to inspire innovation and creativity. Their varied product lines of overstock and closeouts keep consumers coming back for more, despite there being few bright spots in traditional brick-and mortal retail. With seemingly fool-proof strategies to survive the retail apocalypse and Amazon’s retail takeover in place, off-price continues to boast tier one retailers, and will for the foreseeable future. Consumers want deals and closeouts. They want liquidation inventory specials and online liquidations. Spending shifted to goods from services over the course of the COVID-19 pandemic, straining supply chains. The rotation back to services, such as travel and dining out, has been slowed by a resurgence in coronavirus infections recently driven by the Delta variant. Hopefully, we are approaching the end of Pandemic stage.
Most retailers have been focusing on growing closeout sales, online sales and offering services like buy online pickup in store. But companies like TJX — operator of TJ Maxx, Marshalls and HomeGoods — and Ross Stores, that have benefited from consumers appetite for bargain hunting to draw them into the store, continue to focus on in-store purchases as their post-coronavirus strategies. Closeout furniture has become popular, as well as brand name closeouts of housewares and home decor. Meanwhile other stores like Burlington have focused on rebranding and refreshing merchandise as a path forward. As other traditional retailers like department stores continue to falter, these off-price stores are focusing on different fundamentals to weather the retail storm. They view an opportunity to sell name brand surplus inventory as a way to gain market share and thrive in retail while providing their bargain hunter customer base with closeouts, excess inventory and other warehouse liquidation opportunities.
Merchandise USA is a closeout liquidator in business 37 years. We specialize in closeout of toys, housewares and overstock lawn and garden products. If you are selling surplus inventory or want to find out more about the closeout process we can help you.