Scaling a Liquidation Business: An Interview with Midwest Surplus Liquidators

2021-04-28

It’s the dream of every aspiring entrepreneur to have their own business one day. However, taking a startup idea and building it into a thriving, growing business is another task entirely. In this second entry in our Success in Liquidation: Leadership Series, you can follow the Midwest Surplus Liquidators founders’ story, where they walk us through their successful journey scaling their business from scrappy startup to thriving multi-location enterprise.

Chris Zorman and Rupal Patel are a husband and wife team who entered the liquidation business as a way to earn a second income. What started as a side business idea quickly turned into their main source of income out of necessity when an unexpected job loss happened. This startup has grown to operate out of four, soon to be five, warehouse locations across Indiana.

We asked them about the growth of their business, their most important tips for success include:

Find a mentor in the business, their guidance is invaluable.
Buy larger loads to save on merchandise costs – buying truckloads is more cost-effective than single pallets.
Selling locally is a great way to build a loyal customer base, and keep outbound shipping costs to a minimum.
Utilizing online methods to sell locally is hugely important – Chris and Rupal are active on Facebook Marketplace and Craigslist.
Word of mouth is a low-cost marketing method that can make a big impact on your business at the local level – talk about your business with everyone you know.
Evaluate each potential program for business value before you buy. Midwest had success acquiring Lowe’s truckloads inexpensively which helped them really scale up their furniture sale business.

Midwest Surplus Liquidators is Born

When Rupal Patel decided to quit her job in the HR industry due to health issues, her main focus was to provide their family with a second income stream.

Her first idea was to buy a pick-up full of retail store returns to quickly resell for a little extra cash. However, this soon turned into a full-time business idea after her husband Chris found himself unexpectedly unemployed on the same day their first load arrived. Chris always had the ambition to start his own business, however, this turn of events expedited his decision to start one.

They started the business out of their garage, with the pair focusing on buying and selling furniture and leveraging the reach of Craigslist to reach local buyers. It took the better part of a year for the couple to have enough confidence and resources to scale their business up to the point of getting their first warehouse.

Scaling Up Their Liquidation Business

Midwest Surplus Liquidators dipped their toes in retail at first – sorting through the pallets of retail store returns, repairing items when necessary, and then selling the items individually to local buyers.

However, after gaining more experience in liquidation, they soon turned their attention to sourcing inventory to resell to other businesses as a way to scale up their business. They went from selling individual items to consumers to selling full pallets, and eventually full truckloads of merchandise to other businesses.

“That is where we are at today, we do retail, we also do pallet sales, but the most growth has been in the semi load sales,” Chris said.

The two, however, don’t measure the growth of their business solely through the increase in their sales numbers but also through the long-term relationships they have built helping their customers.

“We understand the struggles of people starting because when we started, this industry was not really known, there weren’t many out there able to help us or mentor us. This is why we understand what those daily struggles are,” Rupal stressed.

One of the ways they developed to help their customers was to add flexible payment options for buyers who were unable to afford a full truckload.

They also help their customers who are new to the liquidation business to grow by educating them about the merchandise they are buying, merchandise conditions, expected margins, and the labor required to make merchandise saleable.

This focus on customer service and helping their own customers to grow has allowed them to have a lot of success scaling up their business. However, Chris still believes there is a bit of luck in all of it.

“Losing the job coincided with the emergence of the reverse logistics business on a larger scale. However, while partly being luck, there is that old Gary Player quote, ‘The more I practice, the more luckier I get’- and as time has gone on, we got more experienced, and we found we have been getting luckier,” Chris noted.

The lesson learned is you create your own luck through a lot of hard work. Selecting the right partners and building healthy long-term business relationships is also essential. One of the relationships that has been critical to their success is with goTRG and its sales representatives over at Direct Liquidation.

The Working Relationship With goTRG and Direct Liquidation

Ultimately, business boils down to relationships. To this Chris added that their relationship with goTRG, and sales representatives Jordan and Carlos were the driving force behind their lucky streak.

“They are different from other companies because they have dedicated sales representatives. They personalize their approach as much as possible, which has helped our growth,” Chris said.

Midwest Surplus Liquidators rely on Direct Liquidation for much of its inventory acquisition.

During their initial research, the pair sought product categories with the highest profit potential and settled on furniture as their go-to category. In the beginning, Chris and Rupal focused mainly on flipping TV stands and TV wall mounts, until they were able to scale up and diversify their business by acquiring Lowe’s and Walmart merchandise in bulk through Direct Liquidation.

Once Midwest had established a large recurring customer base, they soon realized that customers would regularly call in with requests, which helped them figure out other types of inventory they should be investing in. They realized that Lowe’s products were particularly popular with their customers. This came as great news for Midwest, as the Lowe’s program offers merchandise at a lower price point than many others.

“Through goTRG/Direct Liquidation, Lowe’s is at such an attractive price point for new buyers, making it a perfect choice,” said Chris. “It is not a big investment upfront like some other programs are for the first truckload, and that is mainly due to goTRG/Direct Liquidation pricing,”

Once the pair started sourcing Lowe’s merchandise they turned to Facebook Marketplace as a way to increase their local sales.

Midwest Surplus Liquidators have several locations that do both retail and pallet sales. Recently, the focus of their business has shifted slightly with referrals for truckload sales allowing them to open a new avenue for growth.

Scaling By Utilizing Customer Service

Customer service is one of the strengths of Midwest Surplus Liquidators. Speaking about their relationships with their customers, the pair noted that what they provide is not any customer service but realistic customer service.

“We are not trying to oversell somebody just for the sale of one transaction. We have a relationship-based model, not a transaction-based model,” Chris said.

They go to the extent of even showing their customers the potential profit with the merchandise as is, and the potential profit should the customer put some extra work into the items. They even advise customers against buying certain truckloads if it’s not a good fit.

The pair operates on the principle that honesty is the best policy, so it is easy to see why their customers appreciate them. When a customer has a problem with a truckload, Midwest Surplus Liquidators regularly offers credit towards a new truckload to the customer to make things right and ensure they buy again.

They also inform their upstream vendors when a bad truckload happens, and more often than not, thanks to the relationships they have built up over the years, they get credit which they pass on to their customers as well.

This intense focus on relationship building, and solving problems, has given Midwest Surplus Liquidators an edge that is hard for their competitors to duplicate. It means that when issues arise, the company is able to find solutions quickly. Each warehouse Midwest Surplus Liquidators operates is fully staffed to help maintain the high level of customer service they are known for and to keep their business running smoothly.

The Midwest team, which currently consists of 30 teammates, is set to expand very soon as the company is in the final stages of opening a new location in Evansville. This will bring the total staff number up to 40 members, and the company’s warehouse count to five.

Scaling the Business in the Future

With its latest addition, Midwest Surplus Liquidators will have five locations, all within the state of Indiana. They are currently viewing several paths forward for the business. One thing is for sure, though: their retail bread and butter is furniture, and that is something both Rupal and Chris agree on.

However, with their customer base expanding each day and mostly coming from their business’s brokering side, the pair intends to focus their resources on where the demand leads them.

“I am a big fan of incremental risk,” Chris says, adding that for now, the focus remains on growing the brokering side of their business in the short to medium-term.

Advice for Liquidation Newcomers

At the start, the important thing is to find a product or a product category you are passionate about, you have knowledge of, and don’t mind getting your hands dirty with, according to Chris.

Due to the nature of liquidation merchandise and products being in all sorts of conditions, there can be repairs involved if you want to get the most profit from your investment.

Rupal noted that it is essential to find a mentor in the industry, someone who can show you the ropes of the business and who can listen to your ideas and point you in the right direction when you have questions.

Luckily the pair had each other and met people within the industry they could turn to for advice. Otherwise, their journey could have been more challenging than it was.

The third piece of advice has to do with the scale you want to start at. This is a question every newcomer into the liquidation business asks. This certainly depends on your available budget and risk appetite. However, Chris noted that it is still more about finding a product category you are passionate about or familiar with above all else. If you are not interested in a specific product, you will not go the extra mile to take that item and make it work for your profit, Chris believes.

Over the years, they have seen buyers start with 20,000 square foot warehouses on one end of the spectrum and buyers who work out of their garage or a small storage unit on the other.

Starting with a big warehouse is not a guarantee of success. While over time it makes sense to potentially scale up your business into a warehouse it is possible to start with a small storage locker or from your own garage to get a feel for whether you have what it takes to be successful.

As a general rule, a buyer can expect to spend between $6,000 to $10,000 to acquire their first truckload in today’s market. However, a new buyer can start at a much lower price point by buying single pallets to get a feel for the business.

However, Chris noted that dealing with smaller loads brings in the question of freight.

“Oftentimes with pallets, you get the question of freight. How much does it cost to get the merchandise delivered to you? Are you willing to pay $500 for the delivery of one pallet, or is it better to get a full truckload delivered for $1,500?” said Chris.

That makes the decision of putting a bit more investment upfront more attractive.

During their time in business, they have seen people still dealing with a handful of pallets every week, storing them in their garages and selling locally through Facebook Marketplace or other eCommerce platforms.

Chris added that playing the volume game is currently the way to go to bring the price per unit down.

“The cost of a truckload in the past ten years has at least tripled because of more people entering the business, and the vendors realize there is more demand,” he said.

Success from Necessity: Starting and Scaling a Business

The story of Rupal Patel and Chris Zorman is an interesting one. Although Midwest Surplus Liquidators started as a way to earn a little extra income the business has grown much larger than either Chris or Rupal could have ever imagined.

One major takeaway from this story is that building relationships matters. The long-term relationships Midwest Surplus Liquidators have built with their customer base has allowed them to grow and thrive without any additional investment in marketing and advertising. As Chris Zorman puts it, it is not a single transaction; it is a partnership.

Making a success of a small business is also about how you manage your investment and reinvesting profits in order to scale. As you grow business relationships with your customers, the direction in which to head will become clearer. You will learn what your customers are looking for, and what product lines are profitable. What you learn from your customers can be an invaluable guide to the next steps you need to take to grow your own business.