Liquidation pallets businesses are gaining more and more entrepreneurs seeking a business opportunity nowadays.
But how exactly does this kind of business work? If you have been wondering how liquidation pallets come to market, you came to the right place.
Before we get started, you must get a picture of the liquidation process of a company as a whole.
Well, we all know how to return something, right? We walk to the return counter or, if we buy on the internet, or we get a return label and stick it back in the mail to get back our cash or store credit. Oh lets not forget those fancy new lockers you can drop the item off in. When an item is returned it is given a disposition by the asset management.
The asset disposition of the item will determine where the goods will go. For example, if the item is unopened, it often times is returned to the shelf.
However, if it is open and unused, the item may go to a clearance rack and sold as open box item or could be sent it to liquidate, depending on the store.
The rest end up in one of the following other reerse logistics processes, Donation’s, Recycle/Destroy, RTV (Return to Vendor), or liquidate which is often reffered to as Store Returns.
The bottom line is companies have to find a way to resell or give another purpose for these returned goods. So let’s understand these processes better!
As you can see, we have places where we could channel these products. Whether through Donation’s, Recycle/destroy, Returned to Vendor (RTV), or liquidation. Check some details about each channel:
- Donation: it is precisely what it sounds like. Businesses’ have yearly donations they can max for tax credits. Nonprofits get most of this merchandise.
- Recycle/Destroy merchandise: items with a disposition of recycle or destroyed. Some brands do not want their merchandise on the secondary market, so they elect to destroy it. Which equates to all overstock and returns being destroyed. Some of this merchandise can be recycled, going to a recycling company.
- Returned to Vendor (RTV): this option is usually for manufacturers that have a process to reuse parts or pieces and want the merchandise back. They can use it as cost savings or refurbish the items and then sell them for a slightly lower cost than retail, or they may have a company that does it for them.
- Liquidate: liquidation encompasses almost everything else. The items are collected at customer service and inspected. After that, all liquidate is either stacked on a pallet or thrown in a Gaylord. Then, it is sent to a return facility. The return facility deals with contracted companies where the merchandise is shipped.
The liquidate process is where liquidation programs begin at the store level and where things get interesting.
So, now that you have a clear picture of the key elements of the possible ends of return goods, check how the liquidation pallet process works!
Basically, products get shipped to a companies that take Donations, a recycler, a reverse logistics company, a 3PL (third-party logistics), or a consumer that won a contract.
The focus here is on reverse logistics companies. These companies offer the retailers several services, including scanning to determine the value and manifesting, proposing recovery rates based on data collection, and warehousing and logistics services.
This is when programs where you can buy liquidation pallets are born. The reverse logistics companies do everything from selling raw merchandise to sorting and scanning of merchandise.
The ones that sort and scan do this for a couple of reasons. For example, so the retailer knows what value is on the load.
Then, the load becomes manifested and sold at a percentage of the scanned value. That value is based on the retail value or the manufactures MSRP.
However, these companies may inflate the pallet’s price in this process. This is a grey area where some larger companies can push the envelope of lying to you.
MSRP is the Manufacturer’s Suggested Retail Price. Which is not always what the item is retailed for. This is also referred to as list price.
As manufacturers sell to companies off the list price, this is what they base volume and buyer discounts on. This is big in the distribution side of retail.
Once upon a time, foreign companies used the U.S. distribution process to reach businesses. Not anymore, and more are trying to go direct to consumers and skipping the distribution process. However, it is still in place for the moment.
The Reverse Logisitics companies create programs to disburse this merchandise. Some can be hard to move or too big for the average buyer, so they must get creative to push it downstream. Otherwise, they could have significant losses.
Here are some popular programs for this process:
- Target GM (raw store returns);
- Target DC (Distribution Center): new merchandise and warehouse damaged product;
- Walmart GM (raw store returns);
- Walmart Dot Com Retruns (raw store returns);
- Walmart Dot Com DC (Distribution Center): new inventory and warehouse damaged products;);
- Walmart DC (Distribution Center): new inventory and warehouse damaged products;
- Walmart Apparel (new, overstock, and warehouse damages);
- Kohls GM (sorted and scanned returns);
- Kohls Categories (scanned and sorted new and returned merchandise);
- Walmart Bikes (raw store returns, sorted and sold as a category);
- Walmart Ride Ons (raw store returns, sorted and sold as a category);
- Dollar General (New Merchandise, raw store returns and store change-outs;
- Home Depot Turbo (contractors returns);
- Home Depot Tools and Hardware (store returns);
- Lowes (raw store returns);
- Academy Sports (export only);
- Dicks Sporting Goods (export only);
- CVS (sorted and scanned): generally new merchandise/box damage; can find returns;
- Lots of grocery stores.
There are more stores and ways to do it, like Amazon’s programs which we will cover at a later date, but these are some of the most frequently bought and sold. This is what truckload buyers, pallet warehouses, liquidation stores, auction houses, and e-commerce people buy.
But be careful: some companies buy this and act in one or more of the following ways:
They either sell what they buy raw or do their own merchandise processing to make unique programs marketed to the public (this where the term “cherry picker” comes from.)
The Cherry Picking process basically means that these buyers skim high-value products off the top, which can be great or not, depending on the perspective and transparency of the seller.
What we mean by that is that if you intend to process merchandise and then sell it, own that, be proud and stand behind your product and what your company does.
But don’t act like so many who say the product is raw or untouched when in fact, they’re processing the value out of loads, taking the higher value items, and selling them via other sales channels.
Lots of these loads are 20 thousand plus. So, skimming merchandise off the top is how the company gets a higher recovery for part of the load.
After that, they depreciate the rest of the load or break it up into multiple shipments, so the price point is more attractive to a larger buyer base.
Now you know how liquidation pallets come to market and how they work. You also learned some common programs to buy liquidation pallets and some factors to be attentive to about running a business in the liquidation world.
There are several other points to address on this matter. First, however, we wanted to provide you with an introduction to the subject.
But don’t worry! If you are interested in this topic, be sure to stay tuned and check our future articles on liquidation pallet businesses!