Lending Club Blog

Liquidation Sales: Not Always A Great Deal

Circuit City’s loss is a gadget collector’s gain.

When the nationwide electronics chain announced its going-out-of-business sale, wide-eyed guys and opportunistic gals took notice and flooded their local Circuit City stores with the big sales starting last weekend.

Were there deals to be had? You betcha. Was there that aroma of sweaty people fighting over discounted electronics? Sure thing. Circuit City’s untimely end was a rare opportunity for consumers to stock up on the gadgets and toys they had been frugally pining after. In many locations, the savings started at 10 or 20 percent, which was more than enough of a drop to get the Rock Band crowd out of the house and back among the living. They needed a new drum kit, apparently.

It is a wild world we live in where the failure of one can be celebrated by many, yet it is a reality that could very well be par for the course over the next several months. Slate’s Daniel Gross outlined an alarming trend of retailers gone under, including such fixtures as Linens ‘n Things and Sharper Image. With the state of the economy the way it is, business as usual is out. Liquidation is in.

With this in mind, it makes money sense to be patient as a consumer and plan before you spend. Going broke for an item today will look irresponsible if the same item is marked down in a liquidation sale tomorrow. But save up in hopes of a steep discount, and you very well may be rewarded for it.

Liquidation sales are perfect for frugal consumers. The discounts typically start small with prices marked down 10 or 20 percent, but as the days drag on and the businesses get more desperate to dump their inventory, the savings will increase exponentially. A month or two later, there could be anywhere from 50 to 75 percent off deals storewide on the remaining products, and there will never be a better time to buy.

Still, it pays to shop conscientiously. Just because everything is cheaper doesn’t mean that there are no strings attached or risks involved. Yahoo’s Ben Patterson has his own list of buyer-beware truisms that make sense for closeout sales like Circuit City’s. Among the best are:

  • Remember: All sales are final. No returns.
  • Markdowns might only be canceling out markups.

The first liquidation rule makes a lot of sense. You had better make sure that the item you’re buying is the item you want because there is no going back once you leave the store. Sometimes this can scare consumers away from liquidation sales because there is a finality and pressure that typically doesn’t come with big-box store shopping. Returns, exchanges, and refunds make the shopping experience easy and regret-free, so don’t be surprised if an itchy trigger finger rears its ugly head when you’re mid-Blu Ray player purchase in the Circuit City checkout line.

Patterson’s other tenet is the one that really should strike a chord with careful shoppers. Another way of saying it: Just because it’s a liquidation sale doesn’t mean it’s the best price.

On the surface it seems like the opposite should be true. Liquidation sales are, by reputation, notoriously cheap. But if there’s still a buck or two to be made, these stores are going to do everything they can to make it.

The big discount signs draw people in, and they have a mystical power of making a consumer gloss over a price tag. “Thirty percent off a $40.00 Animal 2 DVD? That’s amazing!” The allure of saving money can simply overpower the reality that the prices might not have been all that competitive to begin with. Marking down a steeply marked up product is not going to equate to the savings you would expect. Saving 10 percent on a $20.00 movie only makes the final price $18.00, and there are plenty of other stores that are selling flicks for cheaper than that.

Need proof? The prices from Circuit City’s opening days of shopping nirvana were not even as cheap as some of its competitors (Best Buy and Wal-Mart, notably). The 10 to 30 percent savings storewide was more like 10 percent storewide and 30 percent in the Christian/Gospel music section. Consumers who came looking for steals left empty-handed.

However, just because shopping at liquidation sales has its downsides, there are still plenty of reasons to try your luck and find a deal at these stores. For starters, many people who were disapopinted with the Circuit City experience did not have the proper expectations going in. Circuit City employees were not going to be handing out iPod accessories as door prizes; expecting huge savings is not the right approach.

The people who left the happiest were the ones who knew what they wanted and had done their research. Take, for instance, the Rock Band crowd. Video games and video game accessories are more or less the same price no matter where you shop. Let’s assume that the Rock Band drum kit was $30.00 at Best Buy and $28.00 at Wal-Mart. If Circuit City were selling the kit at a 20 percent discount from its listed price of $30.00, the sale would have made the price an affordable 24 bucks. No doubt the Rock Band fan would have left a happy customer.

Another way to not be disappointed with your liquidation experience is to wait a few days before you hit the sales. When the doors open on the first days of liquidation, the stores will be packed with folks looking to save a few bucks. And that’s really all they’ll be saving. But if you wait a few extra days, you’ll have a better chance to save a greater amount of money because the discounts will be steeper and there will be less demand for what’s on shelves. Provided you didn’t have a particular product in mind, this alternative works great. You can stock up on gifts and even find some super cheap items for yourself.

The best advice to give as it relates to liquidation sales is to simply be smart. Going-out-of-business sales do not give the consumer a free pass to not think through their purchases. They give the consumer a chance to get ahead of the game by saving on desired items and scouring for good deals. Liquidation can be your gain if you let it.

Tuesday, February 3rd, 2009 at 11:20 am

Comments (1)

  1. Thanks, Kevan, for this valuable info. I was shocked by the *lack*
    of great deals when I stopped by my local Circuit City. Is 10% off
    on a TV enough when you know there’s no back-up at all, except
    potentially pricey repairs, selling on eBay for a pittance or
    donation to Freecycle, if your ‘bargain’ turns out to be kludgy or
    non-functional? Many of the signs screamed: Final; no more
    discounts ever.’ The faithful among us will still haunt the store
    till the bitter end, hoping they’ll slash further. Here’s another
    question: How shopping at a bankrupt store help get the economy
    revved up? Sure, it gives employees another couple of weeks pay but
    shouldn’t I spend my money at Best Buy, which needs our money to
    keep functioning? Thanks again for your thought provoking blog.

    February 7th, 2009 at 8:11 am

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