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What Is Inventory Liquidation?

Inventory liquidation is the process of selling off some or all of a company’s inventory, usually at a deep discount, to turn it into cash. Often, inventory is liquidated as part of the process of liquidating an entire business, turning all of its assets, including store fixtures, office furniture, business equipment, furniture, company-owned vehicles, tools, and so on into cash. Keep reading to find out what do inventory liquidators do.

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Reasons for Liquidating Inventory

There are many reasons for liquidating inventory. Often, inventory is liquidated because a company is going out of business, either voluntarily—typically because of the owner’s retirement—or as a part of bankruptcy proceedings. In such cases, it’s common for all of a company’s assets to be liquidated, not only the inventory. The goal is to raise as much cash as possible by selling off the inventory, either to help fund the business owner’s retirement or to pay off creditors in accordance with the orders of the bankruptcy court. Inventory liquidation may also be a step in the disaster recovery process following a fire, flood, or other catastrophe.

Bulk vs. Single Item Inventory Liquidation

Bulk inventory liquidation occurs when a business owner wants or needs to sell off their entire inventory. This typically includes damaged goods and returns. Liquidating items previously purchased by customers and subsequently returned for a refund or exchange makes good financial sense. In the United States, returns treated as waste account for an estimated 16 million tons of carbon emissions and up to 5.8 billion pounds of landfill waste each year.

Partial or single item inventory liquidation is a way for business owners to rid themselves of specific products that aren’t selling well, are overstocked, or have been discontinued by the manufacturer. They then can use the money recovered through liquidation to purchase other items that may be more popular with customers or fill a gap in the company’s product line-up. Having a lot of surplus, slow-moving inventory ties up capital that could be put to better use. Freeing up that cash is the primary objective of most partial inventory liquidations. Partial liquidation also is a common strategy for businesses that are about to relocate and don’t want the hassle of moving all their existing inventory.

Do It Yourself Inventory Liquidation

Retailers may attempt their own partial or complete inventory liquidation. You’ve surely seen people twirling signs outside of businesses holding liquidation sales or distributing flyers proclaiming, “Everything Must Go!” Some of these ads are misleading, as the retailer’s intent is not to go out of business but rather to clear out old inventory to make room for new merchandise.

More often, though, retailers who keep a close eye on their inventory turns will target certain slow-moving products for liquidation and offer them as two-for-one deals or for a substantial discount on their original prices. The truth is, they probably could have done as well, if not better, selling those specific inventory items all at once to an inventory liquidator.