Liquidation inventory: Motherlode or big mistake?
Liquidation inventory. it’s enticing, cheap and a sure-fire sourcing dream for third-party Amazon sellers. Or is it?
The supply chain issues of 2021 and 2022 resulted in a glut of late-arriving seasonal and other goods piling up at the nation’s wholesalers and retailers. At the same time, consumer demand has softened thanks to a challenging economy.
These forces have contributed to a boom in liquidations. The liquidation market has more than doubled since 2008, reaching a whopping $644 billion, according to a 2020 Colorado State University report.
Amazon sellers are attracted to the low costs of liquidation inventory. Many experts in the space excitedly tell their social media audiences about the killing they made on auction inventory or lots of overstocks. “After all,” they point out with dollar signs dancing in their eyes, “Amazon doesn’t say anything in terms of service about liquidation inventory. It’s totally OK!”
It’s true. Amazon does not specifically address liquidation inventory in its terms of service (ToS), nor anywhere in the help section. But that doesn’t make it an acceptable source of inventory.
Liquidation inventory is extremely dangerous for third-party sellers. There is so much that can go wrong. In fact, things could go so wrong that you lose your Amazon seller account permanently.
Taking a common-sense approach
A little common sense will tell you that liquidation carries elevated levels of risk. Consider these:
- In almost all cases, it’s impossible to prove the chain of custody for the products. In other words, you cannot show it is authentic if asked for invoices, or if you field an intellectual property complaint.
- The products might be counterfeit. Some of the most popular sources of liquidation inventory are Amazon fulfillment centers. But much of this inventory comes from third-party sellers, and some of it is outright fake.
- The items are often returns. They’ve been opened, used, or refused because they don’t work. Even if you have a great inspection process in place, these pieces are only fit for resale as used, or at best, open-box.
- Shelf-wear has taken a toll. Inventory on the secondary market has been through the wars. It’s traveled to multiple warehouses, stores and customers. Boxes are worn, torn, faded, discolored and dirty. It often just doesn’t look new.
Here are some real-world realities from sellers we’ve helped.
- Wow, it’s from Woot! A large private-label seller decided to expand his Amazon catalog. He purchased a large lot of Amazon FC liquidation inventory via Woot! Almost immediately, he was hit with a slew of IP complaints – more than 100! The vast majority of the brand owners refused to remove the complaints, and his account was deactivated. You know Woot! is owned by Amazon, right?
- PayPal and invoices? We worked with a relatively new seller who found a load of near-new, name-brand phone cases and accessories. They were from a chain of convenience stores that was closing. When Amazon demanded invoices, he could only show PayPal confirmations. Amazon deactivated his account. Amazon says they accept PayPal, but no invoices is typically a death sentence.
- Wrecked by returns? An experienced, long-time seller bought closeout housewares from an auction company, which sourced the items from big-box retailers. The seller inspected the boxes and saw they were sealed, so he sent the inventory to FBA. When the coffee makers he had purchased were sold to Amazon customers, they reported finding moldy coffee inside. Clearly, these were returns that had been re-sealed at the warehouse of the big-box retailer. The seller’s account was suspended.
The good news? The Riverbend Consulting team helped all three sellers get their ASINs and accounts reinstated. But it wasn’t an easy process and it required approaches that involved a great deal of research, implementation and complex written appeals.
Should I ever purchase liquidation inventory?
Is there a time and place for liquidation inventory? Here’s the seemingly contrary answer: Maybe.
It all depends on your personal risk profile – and the risk profile of your business. Many sellers move liquidation inventory quite successfully. If you’re determined to sell liquidation, it’s important to know the risks. In addition, take the steps to mitigate that risk whenever possible:
- Be reasonable in your sourcing. Ask yourself – how trustworthy is the chain of custody for these items? For example, a recent client purchased liquidation inventory from a large liquidator that buys directly from big box chains and has the invoices to prove it. Clearly, this carries less risk than buying from a no-name liquidator on eBay.
- Perform serious quality inspections. Liquidation inventory cannot simply be stickered and shipped to FBA. Plus, your team must research to ensure you understand what the items were supposed to look like, what pieces and parts are included, whether the original box had seals, etc.
- Adjust your ideas about condition. Conservative is the way to go. If it is even possible that an item was opened, don’t grade it as “new.”
- Put serious thought into brand choices. Intellectual property complaints abound on the Amazon platform. Certain brands carry much higher risk than others. It makes sense to stay away from liquidation inventory for premium brands and high-dollar items. In addition, many consumer electronics items would make more sense in the Renewed (certified refurbished) program.
Ultimately, you must choose if liquidation is worth the risk of super sales or an account suspension. If you find yourself at the wrong end of a suspension that involves liquidation inventory, don’t hesitate to contact us at Riverbend Consulting.
Lesley is co-founder and co-owner of Riverbend Consulting, where she oversees the firm’s client services team. She has personally helped hundreds of third-party sellers get their accounts and ASINs back up and running. Lesley leverages two decades as a small business consultant to advise clients on profitability and operational performance. She has been an Amazon seller for almost a decade, thanks to her boys (21 and 15) who do most of the heavy lifting.
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