Resale 101: Part 1: How to Start a Liquidation Business

So you want to start your own business and become a millionaire?

That’s a great dream to have, but did you know that most new businesses fail? That is a fact. 20% fail within their first year, and by year 10 over 70% have failed. To make matters worse, 77% of small business owners who apply for a bank loan from a big bank get rejected.

This leaves you with two problems: there is a good chance your million-dollar idea won’t work and even if it does you can’t get the capital you need to start the business in the first place.

There is a solution, however. One that doesn’t require a big bank loan to start. Reselling items people return to retail stores.

Have you ever returned an item to a retail store and wondered what happens to it? Well, it may interest you to know that people just like you can buy this inventory by the pallet and then resell the individual items for profit online, through retail space, and even out of a garage to people from Craigslist.

It is easier than you think to become your own boss, and you don’t need to quit your current job to get started. If you have some space for storage, and some free time, you can get started for a few hundred dollars as an initial investment, and work from home.

Why Liquidation Resale?

Liquidation reselling really works, but it’s not a get-rich-quick scheme. Many people just like you, from a variety of backgrounds, have made profits and grown a business reselling customer returns from big box retailers.

If you’re willing to follow the steps that we will lay out, and put the work in, you will have all the tools you need to be successful. This is a business you can manage from home with an internet-connected computer; you have the flexibility to grow without having to make major changes to your current lifestyle.

In the following guides, we will walk you through the process of finding inventory to sell, teach you how to build a business around this merchandise, as well as give you the 411 on important topics like shipping, taxes, and helpful tools to help you manage your business.

Overview: How to Start a Liquidation Business

Let’s explore the world of resale. In this article, we will explain the basics of buying and reselling liquidated merchandise, as well as some of the factors that impact your profitability.

You can source merchandise for resale in a number of ways, but this article will concentrate on one that allows you to buy heavily discounted stock: liquidation marketplaces.

Buying Liquidation Merchandise

Liquidation marketplaces allow you to buy customer returns, overstock and closeouts by box, pallet or truckload. This merchandise is sourced from manufacturers or retailers. These marketplaces sell these lots by auction, or for fixed prices, oftentimes well below the original retail price.

Let’s take a look at the types of liquidated products available.

Customer Returns

Merchandise is returned to retailers for all sorts of reasons. Items could be unwanted gifts, the wrong size or color, or the customer could simply change their minds about the purchase within the free returns period. Only 20% of these returns are due to the customer receiving a damaged or non-working item.

This means that a majority of returned items were returned for reasons other than being in non-working condition. Some simply need repackaging and relabeling in order to be sold again, while other items may need new documentation, accessories or cables. Of course, any buyer of customer returns merchandise should expect some product to be damaged. This is the nature of buying returns. You need to factor this into your pricing model when acquiring goods.

As more people shop online, the volume of customer returns is increasing as well. Figures show that more than 30% of online purchases are returned, compared with only 8.89% in brick-and-mortar stores. This contributes to the large and growing volume of returns that large retailers don’t have the capacity to sort through, test and repackage themselves. A simple inspection will be done in most cases, and if the item cannot be put back on the shelf, or relisted online, it is liquidated.

This liquidation can take place in several forms. Large retailers will either sell the items directly to other companies or discount retailers, or the merchandise is sold through liquidation marketplaces, such as Direct Liquidation.

Overstock, Closeouts and Shelf-Pulls

This category represents merchandise that has never been sold, and is in brand-new condition. As stores go out of business or new product lines come in to replace older ones on store shelves, these products are liquidated, as the retailer no longer has the space or the logistical capacity to warehouse them. This merchandise is also sold for less than the Manufacturer’s Suggested Retail Price (MSRP). However, this category of inventory tends to sell for more than the customer returns, as the product is brand-new and retail-ready.

Affordable Merchandise Stocking

The great thing about buying liquidation merchandise is the cost – you don’t need a fortune to start a liquidation resale business. This means your exposure to risk can be controlled and you won’t need to get in debt with a bank or credit institution to try out a business idea. You can also further limit your risk exposure by buying small, working with the space you already have, while testing the market.

Finding a source for this merchandise is only the beginning – you need to know what category types are right for you, and where you can sell them for a profit.

Where to Sell Liquidation Merchandise

When it comes to selling this merchandise, you need to consider your options – are you planning on selling locally, non-locally, or both? There are benefits and drawbacks to each.

Selling Locally

When selling locally, you have the option of leasing or buying retail space, if you haven’t already. You can also sell from your own home using local advertising such as community classifieds, radio, magazine ads or flyering, or through local groups online, such as on Facebook, Craigslist, or OfferUp.

The benefits of selling locally include getting to know your local market, engaging with customers in your area, and reducing or eliminating outbound shipping costs. However, whether selling locally is a viable option for you depends on a number of factors, including local population density, the demand for the product in your market, availability and affordability of retail space, and more.

Selling Nationally

Non-local sales allow you to reach a much larger audience, with the ability to sell items across the country or even internationally. When selling over large distances, you will also need to take outbound shipping costs into account.

The easiest way of reaching a large audience is online. Online selling platforms such as Amazon or eBay also charge fees for listing and selling items, which can run from 5 to 15%, that need to be factored into your purchasing decision when determining what you want to sell.

Building Your Own Website

There is a range of other online selling opportunities for you to pursue. If you’re tech-savvy, you may want to build your own website. Using a site builder such as Shopify, you can customize thousands of plug-ins to tailor your website and also push your product listings onto Amazon and eBay, should you desire to do so. You can advertise your website locally as a place that people near you can order and pick up discount products.

Of course, you can also use your own website to sell nationally or internationally, though if you’re going to take this route you will need to budget for marketing expenses to drive traffic and exposure. Online shoppers today are on the lookout for sites that offer “free shipping” and you should consider this in order to compete factoring this into your pricing.

How to Structure Your Business

Before spending any money purchasing inventory you will need to craft a business plan and model you believe will be profitable. This will depend on your circumstances, skills and experience (including knowledge of what you can sell the items for), investment, and access to storage.

You need to decide what type of items you are going to sell. If you have past experience selling- play to your strengths and know-how. This should be the starting point for your product and market research.

If you’re new to selling, you’ll need to start with some market research. This means looking into past sales and sale prices, using online tools to discover trends on online marketplaces and finding out how long it takes products to sell on them, or looking around your local stores – what types of merchandise are they stocking, and what do they sell out of?

There is a range of tools and tricks to help you do this, and I will go into more detail in the upcoming articles in this series. If you decide to diversify, you can also buy general merchandise to try several product lines out at once.

You need to consider several factors when choosing merchandise to buy.

  • If you have access to a spare room, garage, retail space, or other storage, this is an excellent opportunity to put it to good use. Having more space available means you can purchase bulkier goods and in greater quantities, increasing your options when choosing products to sell. Buying more products at one time helps keep inbound shipping costs lower per item, and simplifies your logistics.
  • If you know the products well, use this to your advantage. You will find it easier to sell items that you know a lot about. Being passionate about your products will make your business easier to manage, as well as make it easier to address your customers’ questions or concerns.
  • Don’t forget that the internet can also be used to sell locally. Make use of local facebook groups, Facebook Marketplace, OfferUp, Craigslist and online local classifieds to sell locally, as well as an opportunity to set up your own website. This allows for your buyers to come to you, removing any forward shipping costs.
  • Shipping costs can make or break your business. learning ways to minimize your inbound and outbound shipping costs should be a primary concern, and should be included in every calculation you make.
  • Find liquidators that ship from warehouses located close to you. This leads to lower procurement costs and a higher resale profit margin. Ask the liquidator if they allow self-pickup, to save even more.
  • Finding out what items to buy and where to sell them may take some experimentation, so you may want to consider general merchandise to start with, as these contain a range of mixed goods.

Now you have an overview of buying liquidated merchandise, but there are many more factors to consider that will maximize your profits and minimize your costs. We will teach you about these factors in more detail in the upcoming articles in the series, so stay tuned.

What’s Coming Up?

In this series, we will guide you through 8 main topics:

  1. What liquidation products are, and where they come from.
  2. Developing a business model
  3. Selling locally vs non-locally
  4. Taxes and incorporation
  5. Sourcing the inventory
  6. The process of buying the merchandise
  7. Shipping considerations
  8. Growing your business and Hiring

You should read the full series of guides before you begin so that you are as informed as possible, and more likely to succeed in your business.

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