Liquidation is often the final step in the life of a business. If that business is struggling to survive, it may sell off all its inventory and other assets at discounted prices in order to generate cash that will be used to pay off secured and unsecured creditors, and possibly to provide some return for investors.
Less drastic forms of liquidation may involve selling off particular items from the inventory and may be undertaken for various reasons:
- A company may be experiencing cash flow problems and may need to generate cash quickly.
- A branch may be closing, relocating, or undergoing refurbishment, so that existing inventory needs to be cleared.
- The end of a particular season may require the disposal of seasonal items.
- Some products may be selling slowly or not at all, so they are taking up space that could be better utilized.
- A particular product may be discontinued and replaced by a newer version, creating a need to dispose of obsolete items.
Considerations and Benefits for Inventory Liquidation
There are many reasons for inventory liquidations, but done properly, they can provide numerous benefits for a company:
- Cash flow is quickly improved as stock is sold off.
- Unnecessary storage costs are avoided.
- Space is created for inventory that will sell quicker and at a better profit margin.
- Overall, profitability should be improved.
However, regularly selling off inventory at discounted prices can damage your brand image, harm your relationship with suppliers, and annoy customers who have bought at full price. So, before embarking on inventory liquidation, you should consider carefully the best course of action:
- Look at the sales performance for particular items to identify those that are not selling well.
- Assess market trends and seasonal demand to determine products that are becoming obsolete.
- Consider returning stock to suppliers for a refund, depending on the terms of your contract.
- Look at different pricing and discounting strategies, plus additional sales and marketing campaigns, to try and boost demand levels.
The overall aim is to improve the profitability of the business, but you need to do this in a way that will not harm it
How to Benefit from Inventory Liquidation
Although inventory liquidation is often forced on companies, it can provide a great opportunity for any business. Not only will it generate cash and create extra space, but it will also give new marketing options and offer potential benefits to customers. You can, therefore, use the process to build your relationship with existing customers and potentially gain new ones.
If inventory liquidation is the best choice, there are several ways this can be achieved. Often, a mix of methods will provide the best results:
- Offer discounts and limited-time sales promotions to customers. Special offers are a proven method of increasing sales and can be combined with flash sales, bundle deals, and tiered discounts to attract bargain hunters and introduce a sense of urgency.
Clear signage that alerts customers is essential, and employees also need to be aware of the deals on offer. Email campaigns and social media platforms are also necessary to ensure new and existing customers are fully informed and can take advantage of the bargains on offer. - Use online sites such as eBay and Amazon to reach a wider customer base. You can employ an auction format to generate extra sales, possibly at higher prices, but you need to be very clear in your approach. High-quality images and compelling product descriptions are crucial, as are competitive pricing and excellent customer service. These will not only achieve higher sales levels but should also establish long-term customer relationships.
- Selling in bulk to wholesalers and other businesses will move stock quickly and in large quantities.
- Partnering with professional liquidators can be a quick and efficient method of moving large quantities of stock. Ensure you use an experienced liquidator who operates efficiently and at the right prices through various sales channels.
Achieving the Best Inventory Liquidation Results
Whilst inventory liquidation can be a useful means of engaging with customers and improving cash flow, it does mean selling at prices that are lower than normal. This will adversely affect profit margins, and so is something you may not want to engage in more than necessary. To avoid carrying excess and unsaleable inventory, always:
- Use inventory management systems to track sales orders and inventory levels, identifying those items that sell quickly or slowly, so you can concentrate replenishment on the former
- Review sales channels to identify those that are the most effective, and constantly look for new opportunities
- Avoid over-ordering; although this may gain discount prices, it can result in excess stock
- Monitor returns from customers, as these can indicate unpopular items which may result in excess stock.
If inventory liquidation is managed correctly, it can be an effective marketing and management tool. And by partnering with specialists such as Quicklotz, you can achieve the very best results. Get in touch for help and advice.
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