Stores are built to sell new goods in perfect boxes. Anything that falls off that path becomes a problem for the retailer: a return, an extra truckload of last season's model, a washer with a dented side panel. It takes space, staff time and money to hold. Selling it off in bulk, at a discount, solves the problem.
That off-channel stock is liquidation inventory. Buying it is how many resale businesses get their goods. Knowing what kind you are buying is the first protection you have against a bad load.
- It is goods the original seller couldn't or wouldn't sell through its normal channel.
- It is usually sold in bulk, by the pallet or the truckload, at a discount.
- The type matters. A return, an overstock unit and a salvage unit are very different things.
- There is no universal grading standard. Each seller defines its own terms.
- You make money only if you can get it sellable and sell it for more than it really cost you.
Where liquidation inventory comes from
Most of it starts at a retailer or a manufacturer, for one of a few reasons.
- Customer returns. Someone bought it and brought it back. Retailers often can't resell a return as new, and testing each one in the store can cost more than it is worth to them.
- Overstock. The retailer or manufacturer has more than it can sell at full price.
- Discontinued and seasonal goods. A model is replaced, a season ends or packaging changes.
- Damage along the way. Units get scratched or dented in warehouses and on trucks.
- Store closings and resets. Stock is cleared when a store closes or a department is rearranged.
The original seller may sell directly to buyers, use a liquidation company, run online auctions or sell to large wholesale buyers who break the loads down. Each step in between can add cost and lose information about the goods.
Common types of liquidation stock
These are the common terms. Treat them as starting points, and check what each seller means by them.
- Customer returns: items bought and brought back. Condition ranges from unopened to broken. Some were returned because the buyer changed their mind, some because they didn't work.
- Overstock: excess new units. Usually new in the original packaging.
- Discontinued: models no longer made or carried. Often new, but shoppers may compare them with the newer model, and parts can get harder to find later.
- Shelf pulls: items taken off store shelves for a reset, a packaging change or a similar reason. Typically unused, sometimes with worn packaging.
- Scratch and dentScratch and dent Scratch-and-dent goods are new or nearly new items with cosmetic damage that does not affect function, sold at a discount.: new or nearly new items with cosmetic damage that does not affect function.
- Factory seconds: units that didn't meet the manufacturer's standard for full-price sale and were sold off instead. Ask what the flaw is.
- Open box: opened, often unused or barely used. Many sellers fold this into returns.
- Salvage: goods with significant damage, missing parts or unknown function, often sold for parts or repair. Lowest price, highest risk and the most work.
How it is sold: pallets and truckloads
Liquidation inventory is usually sold in bulk.
- By the pallet: a single shipping platform of goods, usually shrink-wrapped. A smaller commitment, and the right place to learn.
- By the truckloadTruckload A truckload is a full trailer of inventory, typically customer returns, overstock or open-box goods, sold as one lot at a per-load or per-unit price.: a full trailer, sold as one lot.
- By the case or the unit: some sellers break loads down further, at a higher price per unit.
Some lots come with a manifestManifest A manifest is the supplier's list of what is on the load, typically model, quantity, condition and a retail reference value., the seller's list of what is on the load, typically model, quantity, condition and a retail reference value. Others are unmanifested: you buy without a list and accept the unknown. A manifest is the seller's description, not a guarantee. Its retail values are reference numbers, not what you will sell for.
Sellers quote price per pallet, per load, per unit or as a percentage of the retail reference value. None of those tell you what you will make. That depends on condition, mix, freight and how fast you can sell.
Condition and grading
No outside body sets liquidation grades. One supplier's Grade A is another's like new or tested working. Some loads are sorted by condition. Others are raw, meaning untested and unsorted.
Before you buy, ask:
- What does each condition code mean in practice?
- Was anything tested? How, and by whom?
- Are accessories, parts and manuals included?
- What happens if the load doesn't match the description, and how long is the claims window?
Then grade everything yourself when it arrives, the same way every time. Your own grades, tied to your own sale prices, are what you will use to price the next load.
Who buys it
A wide range of businesses, from one person selling online to companies buying trailers every week.
- Marketplace resellers who list items one at a time.
- Bin stores and discount stores with rotating stock.
- Appliance and furniture stores, often focused on scratch and dent.
- Repair shops and refurbishers who can fix what others can't.
- Wholesalers who buy large lots and resell to other businesses.
What they share: they buy below what someone else will pay, make the goods sellable, and sell before holding them costs too much. That is a resale businessResale business A resale business buys finished goods from suppliers and sells them to end customers or other businesses without manufacturing them.. The guide on how to start a liquidation business compares these models side by side.
There is no typical price, recovery rate or margin for liquidation inventory. It depends on the type, the category, the condition, the seller and your sales channel. Be wary of anyone quoting one number for all of it.
The useful math is the same for every type:
- Total cost = purchase price + freight + handling + parts + disposal.
- Sellable units = units that arrived minus units you can't sell.
- Landed costLanded cost Landed cost is what a unit really costs you once it is in your building and ready to sell, purchase price plus freight, handling, parts and the cost of what could not be sold. per unit = total cost ÷ sellable units.
- Compare landed cost with what you have actually sold similar units for, after fees and delivery.
Unsellable units are not free. They can cost money to dispose of. Some of those costs may be deductible as a business expense, but a write-offWrite-off A write-off is an ordinary and necessary business expense deducted from income, which reduces taxable profit. It does not make the purchase free. only reduces taxable profit. It does not get your money back. Ask your accountant how to handle it.
- Assuming every seller uses words like returns, shelf pulls or Grade A the same way.
- Treating the retail value on a manifest as your revenue.
- Buying salvage when your business can't repair units or sell them for parts.
- Skipping tests on returns because the load was described as working.
- Selling a returned item without checking it against product recalls.
- Buying a type of inventory your sales channel can't handle.
Terms in this guide
Sources
- U.S. Consumer Product Safety Commission: Recalls
- CPSC: Resellers guide to selling safer products (CPSA Section 19)