What Is Surplus Liquidation?

Why Liquidate Surplus Inventory?

Any business that manufactures, distributes, or sells physical goods sometimes ends up with excess inventory to dispose of, and may use surplus liquidators. For example:

  • Retailers overestimate demand for a product and buy more of it than they can sell, resulting in an overstock situation.
  • Customers of manufacturers and distribution companies sometimes cancel orders before the items are shipped.
  • Customers of retail or wholesale businesses may return items for a refund or credit.
  • There may be excess building materials left over after completion of a construction project.
  • While not strictly considered inventory, office furniture and store fixtures may be left behind when businesses move out of commercial rental spaces.

Excess inventory has value and can be converted into cash through liquidation. “Liquidation” simply refers to the process of selling physical items to recapture as much of their cash value as possible, usually through surplus liquidators.

Sounds easy enough, right? Not necessarily. Liquidating surplus inventory can be more difficult than you might think.

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Why Not Do It Yourself?

Sure, it’s possible for businesses to liquidate their own surplus inventory. Cutting prices might increase sales of slow-moving items. Manufacturers and distributors that sell in bulk might contact their best customers and offer them a deal. Businesses can also try to sell off their surplus inventory through an online marketplace like Amazon or Shopify.

The problem is that these liquidation methods are labor-intensive. It takes time and effort to advertise and run liquidation sales, call customers, or create online product listings with photographs and detailed descriptions and to pack and ship goods all over the place.  Many businesses lack the resources to undertake such activities on their own, or don’t want the expense.

The alternative is to engage the services of a surplus liquidator.

What Are Surplus Liquidators?

Surplus liquidators sell off the surplus inventory of the companies that hire them to do so. They vary in terms of their approaches and methods, or the kinds of surplus items they handle. So if you decide to use a surplus liquidator, make sure it’s one that has the right kind of experience and uses an approach you’re comfortable with.

Your primary concern should be getting as much value out of your surplus inventory within what is a reasonable timeframe for your particular need for cash. Your timeframe will depend on your purpose in turning your surplus inventory into cash, for example:

  • Paying off creditors
  • Eliminating storage, handling, and perhaps transportation costs associated with surplus inventory
  • Replacing older, slower-selling merchandise with fresh, new items
  • Getting rid of surplus items before relocating your business
  • Expanding your business in the current location or moving it to another location
  • Investing in new equipment or financing other upgrades
  • Retiring or closing your business for some other reason

In general, the less time a liquidator has to look for buyers, the less value you’re likely to recapture through the sale of your surplus inventory. With the luxury of more time, you’re likely to get higher prices for the liquidated items.

Bear in mind that liquidators are essentially wholesalers. The liquidator you choose will resell your surplus inventory for a profit, which means the price you receive will be at a substantial discount from the price you paid to acquire the goods in the first place.

Approaches to Liquidating Surplus Inventory

The most common approaches to liquidating surplus inventory are:

  • Single buyer consignment—The liquidator solicits offers from their network of buyers and dealers, negotiates the most favorable price for all the items with a single buyer, and is paid a commission that is a percentage of the sale proceeds.
  • Multiple buyer consignment—The liquidator offers the surplus inventory in smaller lots and is paid a commission on each sale.
  • Purchase by the liquidator—The liquidator purchases the surplus inventory outright, paying cash up front, then resells it and is paid by the buyer(s). This approach puts cash in your hands faster than in a consignment situation.
  • Auction—The liquidator serves as auctioneer, either online or in a live auction. Preparing for an auction can be labor-intensive, as the surplus inventory has to be divided into lots. And there’s the risk that your surplus inventory won’t fetch the prices you’re hoping for. But the liquidator’s commission should be lower than with a consignment approach.

Final Thoughts

You’re not likely to recover all the money you spent on the items you’re now seeking to liquidate. But there is one very compelling reason to liquidate surplus inventory rather than simply discarding it—it keeps it from ending up in a landfill, which is good for the planet as well as your bottom line.

Contact RepurposedMATERIALS today to find out how we can help you find a new home for the unwanted materials.