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For online liquidators, the times are both promising and challenging.
The promise comes in part from the dim economy that, for many consumers, may only barely brighten over the next few years. Online liquidators say consumers are becoming better at shopping for bargains, including through closeout and liquidation sites, which tend to buy items in bulk after retailers sort out products that cannot be sent back to vendors.
Estimates put overall sales in what is commonly called the secondary market at up to $500 billion annually. And customers of the closeout and liquidation sites show loyalty. Marc Joseph, the president of DollarDays International Inc., which operates the closeout site DollarDays.com, says 40% of his business comes from customers such as bricks-and-mortar stores, non-profit groups and home businesses that have made at least four purchases on the site.
But the economy also is presenting challenges. Retailers, fearful of having to unload excess products, are maintaining the tightest slack possible between consumer demand and inventory. “Most retailers and manufacturers are a lot smarter about inventory quantities,” says Bob Auray, who oversees reverse logistics and product liquidation business units for Genco Marketplace, an online business-to-business liquidator that is a subsidiary of Genco Supply Chain Solutions.
Making the most of supply chain inefficiencies isn’t the only concern for online liquidators, a space where such companies as Carolina Rustica, ShoppersChoice.com LLC and eBay, through its online marketplace, also operate. When it comes to selling excess or used inventory online, retailers must weigh the financial return against the potential for harming how they are viewed by consumers. “We don’t like the message we convey if we list a product for too much off the retail price,” says Corey Tisdale, chief operating officer of ShoppersChoice, which sells such products as grills as online closeouts. And retailers have to consider relations with suppliers, who may have rules against disposing of excess goods on outlet sites.
Retailers and manufacturers have options when it comes to selling excess goods, says Michael Blumberg, president and CEO of Blumberg Advisory Group, a consulting firm that focuses on liquidation. They can use their own networks of wholesale liquidators, sell through their own secondary channels, strike deals with wholesale outlets or, like ShoppersChoice, establish their own online liquidation portals. Generally, retailers can expect to recoup 20% to 40% of wholesale costs on liquidation and closeout merchandise, he says.
At the same time, advancing technology is helping online liquidators become more efficient to ensure those types of margins. Genco, for instance, has software that can analyze the bar codes of excess goods and separate the products that can be returned to vendors from the merchandise that must be liquidated, Auray says. The company can sort products according to category—such as apparel or consumer electronics—to further evaluate which items will bring the best financial returns.
No matter the path to online liquidation, consumers are clearly responding, says Richard Sexton, president of home furnishings retailer Carolina Rustica. Between 5% and 8% of Carolina Rustica’s sales are from clearance items, Sexton says.