Inventory Liquidation

The Limited posted a message on their website on Friday announcing that all of their 250 stores have been closed.  The company is moving its entire business online.  The company held inventory liquidation blowout sales at around 100 stores.

The company was reportedly preparing for bankruptcy in the event it failed to find a buyer.

There is unlikely to be any liquidation inventory buying opportunities here in the short run, but perhaps there will be if they manage to make a go of the online-only business.  They will certainly have to find an efficient way to dispose of returns if they expect to build a profitable business that has a chance at competing with the other online players in the apparel market.

We'll keep an eye on this one.

As reported today by Retail Dive, American Eagle Outfitters shares are dropping as third quarter same-store sales and profits have missed projections.  The company generated net income of $75.8 million on revenue of $940.6 million.  The problem came from same store sales rising only 2.0% vs. an expected 2.9%.  And, beyond that, the American Eagle stores only grew 0.4% while their Aerie lingerie brand stores were up 21%.

The bottom line here is it wouldn't surprise me at all to see a fair amount of liquidation inventory, primarily overstock product, hitting the market from them after the holidays.  We'll keep our eyes out for any developments.

The liquidation apparel market, in general, has been rebounding a bit from a low over the summer.  The quantity of product available in the secondary market continues to be at pretty high levels.  You can see the impact cascading through the B-Stock Sourcing Network.

The single most important thing to know about buying liquidation inventory is that is is always best to buy liquidation inventory DIRECTLY from the retailers and manufacturers themselves. AVOID LIQUIDATORS WHO BUY FROM THESE COMPANIES FIRST.  The difficulty comes from the fact that most of these companies will only sell to a handful of privileged liquidators. One of the reasons for this is that it is very time consuming to try to negotiate with dozens, hundreds or thousands of interested buyers. This leaves the rest of the interested buyers with no other option but to buy from those few liquidators who DO have access to buy direct.

An increasing number of retailers have opened up their liquidation sales to all qualified business buyers by creating online liquidation marketplaces. These new marketplaces are probably the single of the most innovation in liquidation in 50 years.  It is completely transforming the secondary market and creating business opportunities for millions of entrepreneurs.

Let’s examine a very important difference between buying from the retailer directly vs. buying from their appointed liquidator. A typical retailer might generate 1–2% of its revenue from liquidation sales. It is generally insignificant to them. Rather, it is a necessary evil that they must engage in to achieve their primary goal which is to avoid backed up warehouses and a bloated balance sheet. They are definitely not profit motivated when it comes to liquidation. They plan for the losses they take by pricing their product accordingly.

A liquidator, on the other hand, is very different. The inventory you buy from a liquidator is not liquidation to them. Rather, it is their primary means of generating a profit in their business. They look at it and say, “I paid $x so I have to sell it for $x + $y because I am in business to make profit”. Once a liquidator buys inventory, the sale of that inventory makes up 100% of their revenue. Making a profit on those sales is of paramount importance, otherwise, the liquidator goes out of business.

When you introduce the requirement of generating a profit, you introduce the incentive for the liquidator to behave badly. This is what drives some of them to engage in the deceptive type of behavior that has besmirched the reputation of the industry. For example, it is worth it to a liquidator to rearrange a pallet to showcase the desirable product in the front while hiding the ‘crap’ at the back in their photos. Likewise, they might ‘cherry-pick’ a load of products bought from a retailer and sell off all the good stuff first and then sell the rest as ‘untouched’ making you think it will still contain some gems.

These are just some examples of why you are much better off buying directly from the retailer. There are others (like not paying the middle-man markups that a liquidator will impose) that I won’t go into.

The single most important website that you should know about is the B-Stock Sourcing Network(http://sourcing.bstock.com). You will find inventory listings pulled from a large network of branded, retailer and manufacturer marketplaces. When you visit any of the sites represented in this Network, you will know you are looking at an opportunity to buy inventory directly from the company indicated. Your purchase will ship straight from their warehouse.

It costs nothing to register on any of these sites and you will be inundated with inventory of all types available directly from these companies. To be clear, B-Stock does not ever see or touch the inventory being sold across the network. They simply provide the tools to allow these retailers to transform their liquidation business into an open forum in which any legitimate business may participate.

Sears has joined many of the other major US retailers in a growing trend that is great for anyone participating in the secondary market.  They have launched their own liquidation marketplace within the B-Stock Sourcing Network.  Their initial lots cross four broad categories, but you can imagine the breadth of products coming will be significant.

The B-Stock Sourcing Network has rapidly come to dominate the liquidation business within major retailers.  The Network consists of around 30 marketplaces now and seems to be growing extremely quickly.  If you are a small business participating in the secondary market, you really cannot operate without becoming a part of this ecosystem.  The best part is, it is free for buyers to become members.

We will keep an eye on this Sears / Kmart site and let you know if we see any interesting developments.

Macy's announced a disappointing second quarter result.  EPS was $0.64 vs. consensus estimate of $0.78.  This shortfall was due primarily to a 2.6% decline in sales compared to the comparable quarter last year.  The company attributes the shortfall to the lack of a friends and family sale event in the quarter and a stronger US dollar which curtailed international tourist spending in US stores. 

Two pieces of information are particularly interesting for those of us in the secondary market interested in Macy's returns and overstock inventory.  First, sales were short of projections.  This will typically be a precursor to a surge in liquidation overstock inventory hitting the market.  So this is great news.

On the other side, they have been investing in the launch of a new off-price outlet concept called Macy's Backstage.  It isn't clear whether they will push returns through this off price channel, if they will manufacture for it, or if they will use it to move their new, overstock inventory.  There is some chance that this new channel will begin to reduce the inventory made available in bulk liquidation lots.  Time will tell as they roll this concept out more widely.

Back on Macy's financial performance...one interesting thing to note is that several of their competitors reported quite healthy quarters.  Nordstrom, for instance, reported 9.1% sales growth over prior year.  To me this suggests Macy's issues are bigger than simply a strong dollar.  Again, time will tell.

According to the Commerce Department Q3 economic activity slowed as companies worked off inventory that had built up in their warehouses.  According to a Reuters article by Lucia Mutikani: 

"Businesses accumulated $56.8 billion worth of inventory in the third quarter, the smallest since the first quarter of 2014 and down sharply from $113.5 billion in the April-June period.

The small inventory build sliced off 1.44 percentage points from third-quarter GDP growth, the largest since the fourth quarter of 2012."

The expectation is that activity will pick back up in Q4 because the underlying consumer demand in the economy continues to be strong.  Consumer spending increased by 3.2% in the quarter, which was very strong.

The bottom line for secondary market buyers seems to be  positive, on balance.  The economy is strong, which implies we should see strong holiday spending.  Expectations are for holiday consumer sales increasing around 6-9% over last year.  This will ensure a robust flow of returns and unsold excess in January and February.  So, position yourself now to have capital available after the new year so you will be able to buy some of the highly desirable inventory sure to be flooding the secondary market.

If your capital is tied up in inventory, consider liquidating it through one of the stronger channels out there, like BStockSupply.com.  You will get reasonable value and begin to raise cash for buying products that will turn over more quickly and at higher margins.

Every once in a long while an opportunity comes along to purchase some of the highest end brands in liquidation.  It really is quite rare to find these inventory liquidation deals because these brands are in such high demand.

There are 6 lots up at the moment, including bags from: Chanel, Coach, Burberry, Ferragamo, Prada and other high end brands.  The conditions range from pristine ("A grade") to substantial wear and tear ("D grade").  The lots are separated by condition so you can choose what suits you.

Get registered quickly to take advantage of this unique opportunity.

News out this past week included word that Liquidity Services cut 10% of its staff. This is just the latest blow to the battered company that has seen its stock drop 80% from its high of around $62/share in early 2012. With the most attractive component of the DoD contract moving over to Iron Planet, the company was left with the remaining piece (for non-rolling stock). Unfortunately for the company, they won this piece of the contract at a price roughly 3 times higher than they were previously paying. In addition, there is a significant amount of overhead needed to service this part of the contract that was previously amortizable across both contracts. On top of all this, the company has been struggling to hold onto accounts in their commercial business as well. Several of their most lucrative clients are actively exploring other alternatives. All-in-all, it has been a bad, bad year for the company.

Only folks working inside can speak to the level of distraction they are experiencing, but it undoubtedly contributed to the company's global site outage last week that lasted nearly 24 hours.

Here is their tweet about it:

In the end it appeared to be a global outage across all of their sites that lasted nearly 24 hours. Ouch.