There are a number of ways to dispose of excess inventory. One option is to liquidate the excess inventory with a clearance sale. Another is by selling it at an auction. In some cases, the item may be sold at both types of sales.
Knowing what you’re getting into ahead of time will help you decide which type of sale to pursue in your particular situation. This post will address how liquidation and auction sales differ and what you need to know before pursuing one or the other for your situation.
Are you unsure whether to go with an Auction Sale or a Liquidation Sale? Here’s a step-by-step guide to walk you through both processes:
What is a Liquidation Sale?
A liquidation sale is another selling method used to sell products that have been discontinued or are considered damaged or obsolete. Items such as computers, electronics, furniture, and home goods are commonly sold at liquidation stores. It is usually organized by the manufacturer of the item so you might see one of these events advertised on television.
The big difference between a liquidation sale and an auction is that a liquidation sale will proceed only if the quantity available to be sold at the event exceeds the quantity available at the auction. This means that manufacturers may choose not to hold liquidation sales for items they no longer want in their warehouse because they don’t anticipate more than 50% of the items being sold at this type of event.
What is an Auction Sale?
An auction is a method of selling that involves the sale of products to the highest bidder. It is a public sale open to the general public and anyone who wants to bid on the product. Manufacturers often hold liquidation auctions in large venues like convention centers, airports, and exhibition halls.
Bidders use their smartphones or laptops to make bids during the event so they can see how other bidders are bidding on their items and whether they are inching up or down. After a designated period of time, which varies by competition, the number of bidders is reduced until there’s only one bidder left as opposed to 50 bidders at liquidation sales.
Liquidation Vs Auction:
The difference between liquidation sales and auction sales is the price of a product before selling.
Liquidation is the process of selling off the stock in an entity at reduced prices so that it can be bought by someone else, while an auction sale is a transaction that typically takes place over a relatively short period of time with an item’s current owner or owners putting the item up for bid or soliciting bids from potential buyers who wish to purchase it.
“A liquidation sale is typically used when an insolvent business or a corporation wants to sell off its assets.
“An auctioned item will have high bidder buy-in value as well as freight costs,”
Having described the differences, it’s important to remember that a liquidation sale is an event organized by a manufacturer in which the manufacturer does not expect to sell more than 50% of the available inventory. In other words, the manufacturer expects to take the remaining unsold inventory and ship it back to its warehouse.
The fate of surplus inventory following an auction is usually unknown until after the bidding has ended. An auctioneer will usually advertise that he or she doesn’t know where or how bidders will use surplus inventory. After the auction ends, however, auctioneers often have a buyer lined up for the items. This bidder will then unload the unwanted inventory at a discount so it can be used for another purpose by another party.
Tips for Successful Liquidation Sales:
- The price of items is set by the manufacturer when the item is discontinued regardless of the reserve price and surplus or damaged status- this means if an item has a pre-determined value set by the manufacturer (for example; you get a new computer with $50 worth of software and accessories…the factory sticker has it at $400), you know that even if the item isn’t in good condition, there’s no way they will change this value without charging more.
- If you want to be sure that the items are being sold, you should take pictures of each item- they will be listed in the order of your pictures and the item price is at the bottom of your invoice.
- Set up a specific time for the sale, especially if you have a large inventory to sell- this includes making up an estimate on each item and clearly marking out the prices…the seller does not have to store them for you as long as you provide clear instructions beforehand on when and where to pick them up after each auction has been conducted.
Tips for Successful Auction Sale:
- Know the manufacturer’s final price- this can be different than what you paid for the item. The better you are at estimating or knowing the value of an item, the more likely it will sell at auction.
- Take pictures of each item before the auction begins so that it can be listed in the order of your pictures- if a bidder doesn’t have something in mind, he or she won’t know if it’s on top or bottom in your list.
- If you don’t know what to do with all your items after the sale, you’ll need to decide how much to sell them for.
Benefits of Liquidation Sales
- Time is a major advantage, giving you more time to complete the sale and discover the best bidders.
- increased selling time, which gives sellers more time to identify the ideal buyer and frequently leads to higher pricing.
- Sellers have the option to consider a variety of offers and select the one that best suits their needs.
- The primary factor influencing how much an asset sells is a negotiation between the buyer and the seller.
- More specialized or unusual machinery, equipment, or other assets perform better in a liquidation. There are frequently few purchasers, thus a liquidation sale allows the seller time to find them.
Drawbacks of Liquidation Sales
- It will be necessary to keep machinery and equipment until the sale.
- It may be necessary to pay property taxes, electricity bills, security fees, and mortgage payments for the premises.
- Costs may be considered if the sale takes place over several months or years.
The fact that liquidation sales frequently evolve into auction sales is an intriguing feature. Smaller pieces of equipment and other items are frequently auctioned off after the larger, more valuable assets have been sold through a systematic liquidation. After the major goods have been purchased, this is a successful technique to sell off the assets of a commercial or industrial business.
Conclusion:
In conclusion, a liquidation sale is a straightforward method of selling excess inventory. The prices are set by the manufacturer and you’ll have to arrange to pick it up yourself. An auction, on the other hand, is more difficult as there are additional factors involved beyond setting prices and arranging for pick up.
These factors include building brand awareness for your products so bidders will want them in the first place and, if you don’t have a buyer lined up to take your items off your hands after the auction ends, knowing how much you can afford to sell the items for and where you will store them until they sell.
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