Liquidating a Not-so-Hot Inventory
By Steve Nye, eBay Certified Consultant
During a recent weekend getaway, I stopped by a small sporting goods store. As I pulled into the parking lot, I noticed a bunch of tables lined up in front of the store. My wife screamed for joy, "A sidewalk sale!" I thought, "Oh great—we´re going to end up buying a bunch of stuff that we don´t really need but feel obligated to buy because of rock-bottom prices."
Well, I´m happy to say that my fear was soon turned to joy when I found a pair of water sandals I´ve been eyeing for quite some time. And the cost—65% off regular price.
Why do retail stores have sidewalk sales, liquidation sales, or even going-out-of-business sales? (I remember a furniture store in my hometown that was "going out of business" for five years straight.) These big sales allow stores to liquidate their inventory. In my case, the new summerwear such as sandals had just arrived. In an effort to not lose out on the excess inventory from the previous year, the store was liquidating their left-over inventory from last year by having a sidewalk sale.
This same process also occurs on eBay. Seasons and holidays bring about changes in the market, and if you´re not careful, you can end up with an inventory of not-so-hot products. How can you most effectively get rid of this inventory with minor losses?
Why Liquidate Your Inventory?
For a small-business owner, liquidating is often a hard thing to do. Let me re-phrase that statement. Coming to grips with the fact that you need to liquidate is hard, while actually liquidating your inventory can reduce stress and alleviate unneeded pain and suffering. Huh? Most of us are worried that we are going to lose money if we liquidate, so we want to hold on to our inventory as long as we can. However, the longer we wait, the more money we lose. Through HammerTap market research, you can effectively liquidate excess inventory and sometimes even come out ahead.
Liquidation, or dumping your inventory, is not a bad thing. Often, retailers liquidate because:
- They made an error in purchasing decisions while building their inventory
- They are reorganizing the business and are headed in a different direction
- They need cash flow for upcoming hot items
- They need to clear their shelves for new inventory
Sidewalk sales and liquidation sales are a common part of many retail businesses—even businesses on eBay. The only real threat you face in eBay liquidation process is not doing your homework. It is amazing to me how many sellers base their big business decisions, such as inventory liquidation, on their gut feeling instead of accurate market research.
So, to make sure you have more information than what your gut is telling you, I will take you through a four-step process on effective inventory liquidation.
Step 1: Determine the Liquidation Value on eBay
Liquidation value refers to the amount you can expect to recover in a sell-off type situation. Generally, this amount is at least 20 percent less than normal retail value. To determine the liquidation value, use HammerTap to research your product within the current eBay marketplace. What are the Listing Success Rate and the Average Sale Price per item?
Once you know the LSR and ASP, apply these to your current inventory. For example, let´s say I bought a semi-truck load of disposable cameras to sell throughout the summer. Now that summer is winding down, I need to get rid of these fast. But I still have 1,000 cameras. So, my Listing Success Rate is 65%, which means I can sell 650 of my cameras to start off with. The Average Sale Price for each camera is $0.99, bringing me a total of $643.50.
Why do you need to know those numbers? Because you need to determine how much you are going to lose if you liquidate, or if you can break even. This number will be carried with you through the next steps.
Step 2: Determine Your Costs of Liquidation
How much will liquidation cost? How many hours will you spend on a particular liquidation process? How much time can you afford to spend? What fees will you have to pay? How much will you spend on shipping and handling? How much will you make on shipping?
Keep these factors in mind as you plan your liquidation strategy. Let´s say for example that you are selling those 1,000 cameras. What if you could make $1.50 more per item if you sell them one at a time (rather than selling them as a wholesale lot)? Sounds great, right? However, let´s say it takes you 15 minutes to list each item, package it and ship it after the sale. Let´s also assume that the associated listing and collection fees are $0.50 per item. That means you could sell, package and ship only four items per hour, (making an additional $6 per hour), but have to pay $2 total in fees. In the end, you really only make $4 more per hour for your efforts!
Determining the true cost of liquidation is very important. Without market research, you may not be able to accurately determine the cost of liquidating your particular product. Remember—your main objective is to make your losses as small as possible. Trying to increase your profits can sometimes also increase your losses, so keep a watchful eye on these figures.
Step 3: Choose the Best Listing Type
Next, decide what type of listing to use. One or more of these listing types may be appropriate:
- Individual item sale: Selling off inventory one item at a time with an emphasis on low or no reserve to ensure listing success
- Small lot sale: Combining products into groups of 3, 5, 10, 20, or whatever number is appropriate and is acceptable to your customer base
- Large wholesale lot sale: Selling off an entire inventory in one or more very large lots
Let´s go back to our 1,000 disposable cameras we need to get rid of. I did some research, and specifically looked at the best listing to use in our liquidation.
||Price Per Camera
|Water & Sport
We can see, for example, that if we had 1,000 Water and Sport cameras, we would definitely want to sell them in bundles of four cameras. Not only does this increase our Average Sale Price per camera, but it also decreases listing fees and time spent packaging and shipping.
Notice how different lot sizes vary between different brands of disposable cameras. What works for one brand may not work for another. See how doing your homework pays off? Relying on your gut feeling or on guesswork will never give you the exactness of market research.
Step 4: Choose the Best Time to Liquidate
Now to the final (and most important!) step. Choosing the best time for your sale can be the biggest determining factor in its success. If possible, the season should be appropriate for the type of merchandise being sold. Snorkels, for example, will sell better in July than they will in December, when you´d be better off liquidating gloves and mittens.
How do you know when to liquidate? Using HammerTap´s YearAgo trending, you can look ahead to see what the market holds for the future. In my case, I would use YearAgo trending to see how cameras were doing one year ago. Doing this would tell me when sales of cameras start to decline, and when they start selling as lots instead of individually. This is I want to being my liquidation. However, I can start a liquidation sale early and still be successful. Think of your favorite retailer—a liquidation sale often brings in a greater cash flow AND more people into the store to buy other items at regular price.
So, go out there and use these steps to create an eBay sidewalk sale for your products. But remember, DO YOUR HOMEWORK! Once you know how much inventory you can dump and how much you can make, you will be able to sleep better at night, enjoy the taste of food, and savor the life you led before worrying over the liquidation of 1,000 disposable cameras!
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