An Introduction to Liquidation Businesses

Have you heard of liquidation businesses? These are the clever small businesses that found a way to make money off the same retail giants that are so notorious for hurting smaller operations.

Perhaps you know of them, but maybe you don’t know much about them. We’re here to explain exactly what’s going on and why these sorts of businesses are thriving right now.

Amazon, Walmart, and the weird world of economies of scale

Amazon, Walmart, and other big retailers are not exactly known for being good for small businesses. Because they are so big, they can afford to make very little money on each thing they sell; they sell so much that it all adds up to major profits. Furthermore, they can save money on services like shipping because of “economies of scale” — a term that refers to any way that operations save money through their sheer size.

But the size of Amazon and Walmart also has some weirder consequences. Take returns, for instance: Amazon and Walmart don’t always restock the goods that are returned by customers, even when those goods are in great shape. And their generous returns policies mean they get a lot of stuff back. Amazon and Walmart just want to get rid of that stuff at low prices to make room in their warehouses, and this creates an opportunity for small business owners.

Small business owners can actually profit off of the massive scale of Amazon and Walmart by snapping up returns and liquidations and then reselling the goods for a profit. It’s not worth the time and effort for the big corporations, but it’s more than worth it to the average American, and it’s creating a boom in liquidation businesses.

How liquidation businesses actually work

Liquidation businesses sell the goods that Walmart and Amazon don’t want at a profit. But how does this all actually work?

It starts with auction sites that companies like Walmart and Amazon sell their goods to. Auction sites will purchase a whole pallet of returns or liquidations goods from Walmart and Amazon at a very low price, then list that pallet for liquidations and returns businesses to bid on. The businesses place their bids and the winner gets the whole pallet.

Then, the liquidation and returns business unpacks the pallet and takes inventory. Some stuff won’t be worth selling at all, but others will bring in cash — enough, ideally, to make back what was paid for the pallet along with a healthy profit. Keep doing that and build up the scale, and you have a thriving liquidation business.

Risks, success stories, and managing your business

Of course, there are risks to starting up a small business and buying big pallets of returned goods. Some liquidation and returns pallets are messy and confusing collections of goods in all different conditions. Sometimes, bidders aren’t sure what sort of stuff is on the pallet at all.

A given pallet could lead to a big profit, a small one, or even a loss, depending on what’s on it. Smart liquidation business owners are careful to work only with trustworthy liquidation auction sites, so that they can have a better idea of what they’re actually getting. The more details that are available about a given pallet, the safer of a bet it will be.

Liquidation businesses can get leaner and more efficient if they specialize, too. For instance, if all you sell is electronics accessories, you’re going to get better at buying the right pallets and accurately pricing your resales.

Managing risk is always important to a small business, and liquidation businesses are no exception. You should work with lawyers and tax experts to set up your business wisely, and you should be methodical as you build your business up. If you do things right, you could meet with a lot of success as the owner of a liquidations and returns business.