In some ways, we’re living in a treacherous time to start a small business. A full fifth of all small businesses fail within a year of setting up shop, experts say. It’s not hard to see why: With behemoths like Amazon and Walmart competing in the market with smaller mom-and-pop operations, it’s hard for smaller businesses to meet increasingly impossible customer expectations regarding pricing. The liquidations and returns industry, however, is thriving the our Amazon-dominated era;
Why liquidations and returns businesses are made for our moment
Giants like Amazon are able to effectively outmaneuver small businesses because they are agile in the market.. Large companies are able to take advantage of things called economies of scale: Things that get cheaper the more you scale up.
Take shipping, for instance: If you ship one product across the country, you’ll spend a certain amount of money. Shipping two or three products, though, won’t necessarily cost you twice or three times that amount. Maybe you can fit multiple products in one box or lots of products on one truck. Maybe you can save money as you ship more by getting bigger trucks, which will be cheaper than running two or three smaller trucks at once. Or, maybe you can turn to the shipping company, or to the US Postal Service as Amazon famously did.
Economies of scale are, of course, why Amazon can price things so low. Amazon can afford to make only tiny profits on each item it sells because it’s selling so many customers. Amazon doesn’t care too much about individual products that are returned or otherwise relegated to “B-stock.” In fact, Amazon doesn’t even bother to restock these items much of the time. Economies of scale are cost-efficient, but they’re not necessarily efficient in every way. Exploiting the inefficiency is how liquidations and returns businesses succeed, after all..
Amazon’s liquidation and returns products aren’t sold directly to customers. Amazon unloads them to B2B auction sites that resell them in bulk to small businesses. In turn, those small businesses take the time to inventory their products and do the work that Amazon wouldn’t. Then, those small businesses sell products on sites like eBay, or even back on Amazon itself.
How to get started
Liquidations and returns businesses have found a way to use Amazon’s economies of scale to the advantage of the very small businesses that Amazon is supposed to be killing. To enter the market you’ll need to do some math and come up with a business plan. Even if you’re planning to start small and use your liquidations and returns business as a “side hustle” (even if you don’t think you need a business loan), it’s a good exercise to create a business plan and make sure that you’re ready to tackle this project.
Also, you’ll need a reliable auction site to get your products on, and you’ll need somewhere to store the pallets you get. You’ll need a place to sell your products, and you’ll need to be prepared to ship those products to the customers who buy them. As you get started, be careful about scaling up slowly and buying products that you know the most about.
The more mysterious the pallets you buy, the more risk there is and the less you know about the types of products you’re hawking. The less knowledge you have about the products; the more likely you are to make pricing mistakes and suffer from inefficiency. If you learn your stuff and find your niche, though, you will find out why liquidations and returns businesses are thriving in the Amazon era.