Sellers of Wholesale Overstock, Closeouts, Liquidation And Customer Returns Having Problems Finding Products

When you decide to close down a store, a systematic and well-thought-out approach needs to be followed. It is a known fact that people do not pay enough attention to the liquidation of their businesses and when the situation arises, they suffer disastrous consequences.

When the decision is made to close down a store, everything has to be let go, and that can be done in two ways; either through a systematic loss-avoiding approach or through a hasty approach that compounds the losses.

The Importance of Liquidation

It is important to note that the process of liquidation and its efficient handling is extremely important for two basic reasons.  

Firstly, efficient liquidation allows for efficient innovation because it ensures that new firms can enter the market. This, in turn, ensures that a vacuum is not created where one firm leaves the market and there is no one to replace it, which on a much larger level can be extremely detrimental to the industry as a whole. 

Secondly, efficient liquidation goes a long way in reducing a retailer’s cost of capital by leveling with the bank and boosting their confidence that a retailer’s inventory, no matter how bad the situation, can always be used as collateral.

Store and Product Liquidation

It is essential to note that store liquidation differs significantly from product liquidation. Product liquidation is a much more widely researched topic and therefore offers considerable solutions for businesses.

The same cannot be said for store liquidation, which is why, at the very least, the following issues have to be kept in mind during closeouts and liquidation. During any process of store liquidation, the most key decision that is made is regarding product markdowns.

Markdowns

Where product markdowns are concerned, business managers usually place heavy discounts at the termination of the closeout process in an attempt to achieve 100 percent sell-through of inventory. This is primarily because it is a widely held belief that leftover products are a clear sign of poor performance.

However, such beliefs are the very drivers of poor performance. Instead, if a business uses much more conservative markdowns at the end of the liquidation period, regardless of the fact that it might lead to leftover merchandise, it can lead to a significant increase in net recovery on the cost value of the inventory sold.

Another recommendation regarding product markdowns would be to place higher markdowns at the start of the process of liquidation than is usually expected. This ultimately results in gaining higher profits due to the generally high level of foot traffic seen during the beginning of a closeout process.

Lastly, keeping in mind that the length of a store closeout is constrained by significant legal statutes and various lease agreements, generating maximum profits during the time a store is open and accurately predicting demand is another major factor.

This can be seen by the fact that even keeping a store open for merely two additional weeks can adversely affect operating costs which consequently serves as a major hindrance to profit generation.

Share on social networks