Beware the Going Out of Business Liquidation Sale

Written by Nickel - 10 Comments

With all the recent news about struggling and/or failing retailers, I thought that now might be a good time to talk a bit about liquidation sales. Sure, the signs in the window claim that “Nothing is Held Back” and “Everything Must Go,” but are you really be offered the deal of the century? When it comes to liquidation sales, things are not always as they appear.

How it Works

For starters, liquidation sales are typically run by a third party liquidator who buys up the stock in failing stores and then turns around and sells it themselves. Getting rid of the merchandise is actually a secondary goal, at least at first.

The primary goal is of liquidators is, not surprisingly, to wring every last cent that they can out of their investment. This means that products aren’t necessarily priced to sell, at least not at first.

Pricing Games and Other Gotchas

In order to offer an apparent discount, liquidators often raise prices to the manufacturer’s suggested retail price (MSRP) before applying any discounts. Thus, even with a 10% initial discount you might end up paying more for than you would have before the sale started.

Because these sales typically run for several months, the liquidator has plenty of time to prey on the consumer ignorance and make a killing by offering small discounts off inflated prices. By the time they get down to serious discounts, most everything that you actually wanted in the first place will be gone. The irony here is that many consumers will happily overpay for items at a store that couldn’t stay in business by selling the same merchandise at better prices.

Another problem is that, because the store is going out of business, all sales are typically final. This means that, in the event that you have trouble with your purchase, you’ll be stuck dealing with the manufacturer rather than being able to take it back to the retailer. Is it worth saving a few dollars to deal with these sorts of headaches? In some cases, yes. But in other cases, it’s not.

Some Tips for Shopping Liquidation Sales

For those of you that are planning on braving the liquidation sale crowds, here’s a list of six tips shopping at liquidation sales:

  1. Don’t set foot in the store unless you actually need something. It’s easy to get swept up in the excitement of sale and make purchases that you’ll later regret. The problem here is that, as noted above, liquidation sales are typically final, such that you won’t have an opportunity to re-think your decision and return the item in question.
  2. Do your homework. While it’s possible to get a great deal, it’s also possible to get totally hosed. Since you already know what you want to buy (see tip #1) there’s no excuse for not knowing exactly how much you could get it for elsewhere.
  3. Be leery of extended warranties. I’ve never been a fan of extended warranties. In the case of liquidation sales, you should be even more cautious, as the warranty may or may not outlive the merchant. In most cases, you should probably just rely on the manufacturer’s warranty, which will be unaffected by the merchant’s closing.
  4. Don’t forget to spend your gift cards. Since the company is going under, the clock is ticking. If you don’t spend it before the sale ends, your gift card will be little more than a souvenir from a bygone era.
  5. Pay with a credit card.This is especially true for items that will be delivered. If your stuff never shows up, you can always go through your card issuer to get your money back.
  6. Beware the last minute sale items. As the clock winds down, many liquidators will bring in outside merchandise and sell it alongside the stuff they’re liquidating. In some cases, this is simply stuff they didn’t sell when liquidating a different retailer, but in other cases they’ll actually be pushing reconditioned goods.

Published on January 29th, 2009 - 10 Comments
Filed under: Frugality
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About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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Comments (scroll down to add your own):

  1. Those last days can be fun though. At Linens N Things, I stopped in on the last weekend and managed to snag a few pillows for around my house, a few lead dust tests and a zillion little wedding present gift tags, mostly at 90% off. It’s true, I did get one thing that turned out to be crap — a silly-looking external speaker that I wanted to plug into my laptop. But the speaker had even worse sound than my built-in speakers, so that $3.50 “investment” ended up in the Goodwill bin.

    Knowing your prices is a definite must. I ordered off the LNT Web site during the clearance too, but only because I KNEW that the Fiestaware place settings I wanted are rarely discounted below $20 each. The shipping charge brought my total purchase up to about that, so it wasn’t a jaw-dropping deal, but I didn’t have to drive to a department store sale to get them and I urgently needed them for Thanksgiving so I was happy.

    Comment by Carrie — Jan 29th 2009 @ 11:41 am

  2. Yeah, isn’t this what Circuit City is doing? Follow these steps and you might just come away with a steal.

    Comment by Jeff - StretchyDollar — Jan 29th 2009 @ 11:47 am

  3. All sales are like this. Bottom line is don’t buy unless you need, regardless. Even with a sale or liquidation you still have to spend money. And most of it like you mention are inflated prices to begin with. Do research and compare before heading in to one of theses. also, usually the sales are final, no returns.

    Comment by Craig — Jan 29th 2009 @ 2:20 pm

  4. Circuit City won’t have any deals. Accessories are overpriced because that is where the profit is. TVs, computers, and the like will never be able to compete with the online retailers. I see no point in scoping out liquidations unless you are looking for one specific item and won’t feel the need to buy other things because of a big SALE sign (I’m looking at YOU Kohls).

    Comment by the weakonomist — Jan 29th 2009 @ 9:05 pm

  5. yeah, GOOB sales are for the most part horrible. The only real discounts to find are on smaller items. That linen place (or things?) was a total crapfest but I did manage to get a funny spoon rest for $3. Stainless trashcans? those were “discounted” to $60.

    Comment by thomas — Jan 30th 2009 @ 1:04 am

  6. I’m so glad you’ve posted this! I work at a credit union in a major little shopping area and there’s a Circuit City right in the same area. The day everything went “on sale,” we got slammed with people coming in for cash. I talked to at least 50 people about this that day.

    The thing is, retailers do this almost anytime they do a sale, not just liquidation. But, most consumers don’t price their products and do their research beforehand and that’s where the problem lies.

    The only thing I would have been remotely interested in from Circuit City would have been a PS3…yeah right, like they’d discount that puppy! Regardless, they went out the first day…and they were $50 more than MSRP – at least here. I had to shake my head at all those poor teenagers that got ripped off!

    Comment by Kristy @ Master Your Card — Jan 30th 2009 @ 1:23 am

  7. Expo design center is going out of business and has several things I’ve wanted for years to redo our bathroom. I know the pre-liquidation price so I’m not worried about getting a good deal, if the price is too high I’m not buying. But I’m wondering if I should buy early when they are just a little bit on sale or wait for the bigger sale towards the end. If I wait, I risk what I want selling out…

    Comment by Miss M — Jan 30th 2009 @ 6:04 pm

  8. I guess the general rule of thumb is: a sale, discount, or limited-time offer is basically marketing; regardless of what something used to cost, or what it’s going to cost, the only useful criterion is whether or not it’s worth the price.

    Comment by taxrascal — Feb 2nd 2009 @ 12:22 am

  9. I concur with this article! I went to Circuit City looking at their MP3 players and IPODS. What a shock when I saw that the IPODs were $61.99 AFTER the 20% discount had been added! I told the clerk that at C-mas you could get IPODs for $45 anywhere. His explanation was that there was very little mark up on IPODs and the like–whatever!

    Thanks for the education on this type of thing!

    Comment by pacedes — Feb 3rd 2009 @ 8:40 am

  10. When ever I tell my husband what a great deal I got – like …”It was 75% off!” He always reminds me that it is 100% off if you don’t buy it. Good to remember when considering buying something you don’t absolutely need.

    Comment by shoppinshack — Apr 15th 2009 @ 11:30 am

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