Buying Surplus and Closeout Merchandise

Some of eBay's most successful sellers specialize in surplus, overstocked or closeout merchandise. You can earn large profits if you buy carefully, but, it is important to buy only desirable merchandise.

Surplus, or closeout merchandise, is merchandise sold at a large discount because it did not sell at full retail for some reason.

Usually retail merchandise shows up at closeout dealers because it wouldn't sell in a store. This could be for many reasons:

• Seasonal goods

• Store closing or bankruptcy

• Obsolete goods replaced by newer products

• Customer returns after the holidays
(not warranty or defect returns)

Another category of merchandise sold by many closeout and surplus dealers are "returns." This is a category of merchandise you should be very careful with. It may be nothing more than a sweater that was returned because it was the wrong color or size, but this category also includes defective merchandise and warranty returns.

In general, unless you are buying direct from a dealer or a wholesale auction where you can physically inspect the merchandise, you should avoid "return" category merchandise. You may also occasionally see the term "seconds." This is merchandise that did not pass the quality tests. On clothing it could be something where the color is a little off or a seam that didn't match. On hard goods it could be a little dent or paint chip. These can sometimes be great bargains, but here again, you want to be really sure you know what you are getting.

One of the best places to find great deals on merchandise is through what are called "closeout" dealers. Closeout dealers go by many names: liquidators, Surplus dealers, Overstock Distributors and so on. Basically they are all the same. They work with large retail firms to take their excess inventory off of their hands. There are dozens of closeout dealers and liquidators listed on goWholesale.

Here is how the process works. A store such as Sears brings in the Fall collection of Ralph Lauren shirts and sweaters in mid-August. By mid-October anything that is left is put on the sale table at 30%-50% off. By late October, Sears needs the shelf space for the Christmas season arrivals. They call in a liquidation company (closeout dealer) who buys the goods at five or ten cents on the retail dollar. These companies turn around and sell you the goods anywhere from fifteen to twenty cents on the dollar. If you can get fifty cents on eBay or at a flea market, then you can easily double your money.

Closeout Merchandise: Advantages and Disadvantages

There are two primary advantages to buying closeout merchandise. First, closeout merchandise is inexpensive. Closeout merchandise has the advantage that you can generally obtain product for cheaper than if you went through a traditional wholesaler. Generally, the merchandise tends to be first quality, but the price is cut or marked way down for clearance.

The second advantage is that you can often find brand names that people are searching for. You can easily sell these items on eBay or at flea-markets. A lot of dollar stores also carry this type of merchandise.

There can be two basic drawbacks in buying closeout merchandise:

The first is the limited stock. The very nature of closeout merchandise means that once it is sold it is gone. I was able to buy Ralph Lauren Polo tennis shoes for several months from a local closeout dealer. I was getting a 200% markup on eBay and still giving my customers a great deal. My customers kept coming back for more, but pretty soon there weren't any more and I had to shop for new types of merchandise.
The second problem can be the uncertain quality of closeout merchandise and/or how the merchandise is treated by the closeout dealer. As long as you deal with the larger respected companies, although they will not guarantee the quality, they will usually give you an honest description. Also, the better companies will package and treat the merchandise properly so it arrives in good order.

Most importantly, a buyer of closeout wares needs to be on guard about the possibility of buying merchandise that is irregular, damaged or somehow has low resale value. This can occur especially, but not necessarily, with goods that have been returned.

As we stated above, you can circumvent these problems by dealing only with reputable closeout dealers. How to find them will be discussed in the next section.

Geographical Location

When buying from online sources, look for sources that are near you. If you buy a pallet load of goods from an East Coast company for $400 and you live in L.A., it might cost another $400 to ship them. Also it may be worth your time to drive to inspect the merchandise; and thus geographical locale may be an important deciding factor when you are looking to buy closeout merchandise.

What To Buy

You want your first experience buying closeout merchandise to be positive. How do you know what to buy and from whom?

First is to do some research. If you see some merchandise you are thinking of buying, go to eBay and use the advanced search feature to see what it is selling for. When you type in the item, be sure to check the box that searches completed auctions only. Another great resource is the Research service at Andale. Once at the site, choose the "research" tab. Put your item in the search box, and you will generate a listing, which tells you what others have gotten for comparable merchandise in the recent past. The Andale research tool is FREE for your first month and costs $2.95 each month thereafter.

After you research what sells, you want to find out where to buy the merchandise. It is fairly easy to locate closeout and distribution companies. One of the largest and more reputable firms is Liquidation.com, and there are many others listed on goWholesale.

Once you find a company that has merchandise you want, stop and take a deep breath before bidding on it or placing an order. First read the description of the merchandise very carefully. Next read the terms of sale and shipping information. If there is anything that is unclear in the description, call or send them an email with your questions. If this will be a large quantity purchase, ask them to send you some photographs of the merchandise. The bottom line is that you are responsible for what you buy. Take the necessary steps to make sure you pay for what you get and get what you paid for.

Skip McGrath, has been an eBay power seller since 1998. He has written several books about selling on eBay and writes a monthly newsletter for professional eBay sellers. You can subscribe to Skip's newsletter and read about his best selling manuals at auction-sellers-resource.com .