It will be quite some time before we understand the full impact of the pandemic on closeout companies, closeout brokers and distributors that sell liquidation stock. But the history of such shocks tells us two things. First, even in severe economic downturns and recessions, some companies are able to gain advantage. Among large firms doing business during the past four downturns, 14% increased their sales. Businesses that sell overstock inventory and discounted goods have had opportunity to grow.
Second, crises create not just temporary changes but also some lasting ones. For example, the 9/11 terrorist attacks caused only a temporary decline in air travel, but they brought about a lasting shift in societal attitudes about the trade-off between privacy and security, Similarly, the 2003 SARS outbreak in China is often credited with accelerating a structural shift to e-commerce, paving the way for the rise of Alibaba and other digital giants. Alibaba has created a new distribution channel for small businesses wanting to import merchandise from China, and has lead to an increase in companies wanting to sell excess inventory and sell liquidation stock that didn't move as expected.
Your business model will be shaped by the demand and supply shifts relevant to your industry. Closeout brokers have been forced to restructure how they do business due to supply chain disruptions. Many importers, for example, will be profoundly affected by the structural and likely permanent shocks to globalization brought on by the pandemic. The need to sell excess inventory may be reduced in the short term, but as containers arrive in the U.S. Later than expected, 3PL warehouses and wholesale distributors will be forced to sell overstock and sell liquidation stock to clear excess inventory. With big markets such as the United States raising trade barriers, for example, many companies will need to reshape critical components in their supply chains—from R&D down to assembly.
For the vast majority of companies, responding to demand shifts will involve at least some digital transformation—and probably a significant level of it. Microsoft CEO Satya Nadella observed at the end of April, “We have seen two years’ worth of digital transformation in two months” among enterprise customers—and the result of those investments will persist long after the crisis. As an example, businesses with too much inventory may sell excess inventory via online platforms that they would not have previously considered. Employees at companies across the board have adjusted to working remotely and collaborating via video conferences. Many of those habits and patterns will remain viable in the process to sell excess inventory and work with closeout brokers or discount retailers.
In the current environment, larger closeout companies that are willing to entertain some risks are likely to benefit the most. Financial markets and institutions will be less ready or able to provide capital to smaller firms and start-ups that may have overstock inventory for sale. This means that large, established firms with relatively strong cash flows, and more access to capital as a result, will be well-placed to take advantage of the opportunities afforded by shifts in demand. Larger companies with clean balance sheets are already used to liquidating old inventory to maintain cash flow and eliminate old inventory that isn't selling. They will be better positioned to operate in this “next normal” where digitization and transformation will be necessary. Closeout buyers tend to avoid risk and business as usual has changed. As in any other industry, liquidation buyers will have to adapt to new ways of buying excess inventory and selling to wholesale liquidators.