Why 3PL Warehouses Are So Expensive For Storing Closeouts.
Third-party logistics (3PL) warehouses can be expensive for storing closeouts, excess inventory and liquidation stock due to several factors. Here are some of the reasons why 3PL warehouses are an expensive option for closeout companies who need alternate options for storing old inventory and dead stock.
- Labor Costs- Labor costs are a significant component of 3PL warehouse expenses. Warehouses require employees to perform various tasks, such as receiving, storing, picking, and packing orders. These tasks can be labor-intensive and require skilled labor, which can be expensive. Additionally, warehouse employees often require specialized training, which can further increase labor costs. Closeout companies often work on small margins and sell liquidation stock for a fraction of the original cost. Excess inventory only retains 20% to 30% of its value, and often has to be sold for even less just to get it out of the warehouse. Businesses that specialize in buying discontinued inventory and closeouts have a limited amount of time to move dead stock before losing the ability to make money on it.
- Facility Costs- Facility costs, including rent, utilities, and maintenance, can be significant expenses for 3PL warehouses. Warehouses require large facilities with specialized equipment, such as racking, conveyor systems, and forklifts. Maintaining and upgrading this equipment can also be expensive. Sometimes it is better to get rid of old inventory or closeouts, rather than pay extra money to store dead stock. When you weigh the options of selling vs holding merchandise, it is often better to get rid of old merchandise that is sitting in the warehouse collecting dust. You can liquidate excess inventory with the use of closeout brokers and excess inventory buyers or you can list it on deal sites and closeout websites where somebody acts as a closeout broker.
- Technology Costs- 3PL warehouses require advanced technology to manage inventory, track orders, and perform other tasks. Implementing and maintaining this technology can be costly, especially for small or mid-sized warehouses.
- Security Costs- 3PL warehouses must maintain high levels of security to protect the goods they store. This may include hiring security personnel, installing surveillance systems, and implementing access control measures. These security measures can add to the cost of running a warehouse. Closeout companies are always buying different types of inventory and one day may look entirely different from the next. Today we may buy closeouts of housewares and solar lights, but tomorrow may be closeout pet products and excess stock of lawn and garden merchandise. These are special needs that require control measures above and beyond simple storage facilities.
- Insurance Costs- 3PL warehouses must carry insurance to protect against loss or damage to liquidation stock and closeout goods stored in their facilities. Insurance costs can be high due to the high value of the goods stored in the warehouse. If anything were to happen to the inventory there would have to be a way to pay out insurance to closeout websites, closeout liquidators or other closeout brokers that were storing inventory in these facilities.
- Regulatory Compliance Costs- 3PL warehouses must comply with various regulations related to the storage and handling of closeout goods. This may include compliance with food safety regulations, hazardous materials regulations, and other industry-specific regulations. Compliance with these regulations can be costly, both in terms of time and resources. Excess inventory buyers that don’t have their own warehouse, or need additional warehouse space, require such compliance so there liquidation merchandise is safe.
3PL warehouses can be expensive due to a variety of factors, including labor costs, facility costs, technology costs, security costs, insurance costs, and regulatory compliance costs. However, many businesses find that the benefits of outsourcing their logistics operations to a 3PL provider, such as increased efficiency and reduced overhead costs, outweigh the expenses associated with using a 3PL warehouse.
While outsourcing logistics operations to a third-party logistics (3PL) warehouse can provide numerous benefits to businesses, there are also several potential problems that can arise. Here are some of the common problems faced by businesses when using 3PL warehouses:
- Communication Issues- Communication is critical in logistics operations, and poor communication between the closeout business and the 3PL warehouse can lead to several problems. Miscommunication regarding orders, inventory, and shipping can lead to delays, mistakes, and unhappy customers. Closeouts are often messy to begin with because they don’t always come in original cases, and if it is Amazon FBA liquidations then most certainly it will be in repacked boxes. Selling surplus inventory is also more challenging when the merchandise is not in original, clean cartons.
- Lack of Visibility- Lack of visibility into inventory levels and order status can be a significant problem when using a 3PL warehouse. Businesses need real-time information to make informed decisions, and if they don't have access to this information, they may struggle to manage their operations effectively. This can lead to too much inventory sitting in the warehouse, closeouts due to order cancelations you were not made aware of, or even liquidation stock for sale that is not showing up as obsolete inventory in your computer system.
- Quality Control Issues- Outsourcing logistics operations to a 3PL warehouse means entrusting the handling and storage of products to an external party. If the 3PL warehouse doesn't have effective quality control measures in place, it can lead to damaged or lost products, which can harm the business's reputation and bottom line. In addition, if the company is not familiar with handling overstock inventory and closeouts they may not know how to effectively manage it.
- Inflexibility Some 3PL warehouses may not be flexible enough to meet the specific needs of a business- This can include limitations on order volume, packaging requirements, or shipping methods. If the 3PL warehouse cannot accommodate these needs, it can create additional challenges for the business. This is particularly true when it comes to closeouts, discontinued merchandise and obsolete stock. These goods are often packed poorly, not properly palletized, or loaded wrong in trucks. Companies that buy overstock are accustomed to this, but 3PL warehouses are not.
- Cost Overruns- While outsourcing logistics operations can provide cost savings to closeout businesses, if not managed properly, it can lead to unexpected cost overruns. Hidden fees, such as storage fees or additional handling fees, can add up quickly and eat into the expected cost savings. Margins on closeouts and discontinued inventory are low to begin with, but to find margins are eroded even more when liquidating stock is an unpleasant surprise nobody wants to deal with.
- Security Concerns- Security concerns are always a consideration when storing and handling valuable goods and other closeouts. Businesses need to ensure that the 3PL warehouse has effective security measures in place to protect their products from theft or damage. Liquidation companies that sell dead stock require this.
In conclusion, while using a 3PL warehouse can provide many benefits, it is important to be aware of the potential problems that can arise. Communication issues, lack of visibility, quality control issues, inflexibility, cost overruns, and security concerns are all potential problems that businesses may face when outsourcing their logistics operations. However, these problems can be mitigated through effective communication, careful selection of the 3PL provider, and regular monitoring of operations.
Merchandise USA is a closeout liquidator in business more than 38 years. We specialize in buying obsolete and closeout housewares, overstock pet products, discontinued stock of toys, sporting goods and excess inventory of lawn and garden products. We are closeout distributors and inventory liquidators that buy and sell overstock or obsolete products whether you are closing your business by the end of the year, or just moving wherehouses