Closeouts Jump Start Retail Profits

There’s one product segment that’s offering store owners hope in a sluggish retail environment, and it’s a segment that independent retailers are uniquely positioned to put to good use: closeouts. While big box retailers can’t fit small quantities of extremely discounted items into a multi-store strategy, single unit sellers have the flexibility and responsiveness to make closeout products an effective part of their retail strategy.

Just ask Danny Kole, owner of Kole Imports. He used this recession to add closeouts to his traditional wholesale import line. “Up until three years ago, we were primarily imports. But as the economy tightened, we realized that there was more of a calling than ever to have closeouts as part of our product mix,” Kole says. “So we made a really aggressive push into the closeouts arena. Now over 30 percent of our total product line is closeouts. From what used to be two percent, that’s a major shift.”

What prompted the shift? Kole realized that consumer attitudes had changed. “Ten years ago, customers were walking into the store and freely spending money just to buy things,” he says. “Now they are walking into the store and saying, ‘If I don’t find a great deal, I’m not going to buy anything. I’ll go to another store.’” Giving customers great deals requires giving retailers great deals, and that was the driving force behind the move to closeouts for Kole Imports. Converting a browser to a buyer is a retailer’s top priority, Kole says. “Beyond the clear profit in what they sell, there’s the added profit in that if customers find one great deal, it changes their whole mentality from, ‘Should I buy something in here today,’ into, ‘What else can I buy?’ I think that’s the real silver lining for the retailer.”

The biggest advantage the independent retailer has over big box retailers and the large chain stores is that independent retailers can react quickly and change displays, decor, and product mixes, so that every time a shopper comes into the store, there is something new to discover. “Our customers can put merchandise into their stores that offers truly unique buys, to create more of a treasure hunt mentality for the consumer,” says Kole. Responsive retailers can create a mindset that each trip to the store is a chance to find a bargain, so each time customers come to the store, they are eager to walk the entire store, rather than just head to a particular department, pick up the thing they are looking for, and then leave. According to Kole, “If a customer comes in and walks only to my party section and then leaves the store, then I have not created an environment where the shopper wants to shop my store out of curiosity of, ‘What else will I find?’.”

“The independent retailer makes a quick decision, then buys the item and puts it front and center, so that when someone walks into the store, they’re able to buy it,” Kole notes. Closeouts are a great way to foster that treasure hunting attitude, because shoppers are looking for bargains, and a rotating stock of wow-priced closeout items becomes a great incentive. “The key is the customers keep coming in, and they never know what they are going to find. That keeps them coming back. It’s fun to walk out of a store with a deal,” says Kole. “And retailers probably end up making more margin on the closeouts. We make it really clear to our customers that they are going to make good money on what they buy from us.”

Offering incredible prices to customers is so important to Keith Peterson that he named his company, Crazy Deals Wholesale. “I want people to think they are getting a crazy deal. It’s crazy how cheap this stuff is. That’s why I came up with that name. And I’ve got some pretty big clients who thought the name was catchy.” He understands the importance of price. “I don’t care how great you are; if you are double the price of the next guy, you’re probably not going to get the sale.” He has made that his business. “I supply truckloads of closeouts or discontinued or returned merchandise to independent retailers all over the country.”

With 20 years of experience in wholesale, Peterson knows what customers these days want to buy. “Closeouts in general are still very strong, because people are still looking for value. That’s more important right now. They are looking for the necessity products: paper products, toiletries, food, some clothing. If it is a necessity, it is selling, no matter what. They have to have it.” And that holds true for necessity items that carry a big ticket price, such as beds. “With mattresses, I sell quite a few, and my customer is selling them like crazy. They are cheaper because they come straight from the manufacturer, and they’ve been scuffed on the floor of the truck, or they were a floor sample, but the guy is selling them for half of what it would cost new. There’s definitely value there.”

But price is not everything. Peterson’s secret weapons? Reputation and relationships. “My mattresses are from Sealy. I deal with them directly. I have partnerships with other people who have been in the business for 20 or 30 years,” he says. “People buy from people.”

John Olivarez, president and CEO of Mid-America Liquidators, has also done well selling discount beds to independent retailers. “Some of our customers buy a load of mattresses every two weeks,” he reports. “Our mattresses offer a tremendous savings from prices at mainstream bedding stores. Where they sell something for $2,000 to $3,000 for a set, our customers can sell them for $599 to $699 and still make a 50 percent markup.”

But big ticket items like the furniture and bedding which Mid-America specializes in, is not enough. Extraordinary bargains for common household items are essential for retailers. “They make their profit off the big ticket items like the furniture and the mattress,” says Olivarez. “But it takes that small priced item to get them into the store. Those seem to bring in customers, and then they see the furniture and big ticket items, and they see that those are good bargain items compared with other furniture dealers.”

Those, “small priced items,” are growing in importance for Olivarez. “We have a dollar store category. It’s not our largest department, but it seems to be the most active in this type of economy. We carry top of the line health and beauty products, like laundry detergent and dishwasher detergent, that are all high quality at closeout prices,” he says. “In this economy, people are looking for the lower price bargains. They’re buying the laundry detergent because they have to have it. When they usually pay $15 for a big box, and they can pay $6.99 at one of the stores we supply, it’s a savings on a product that they have to buy anyway.” Olivarez’ bottom line is driven by this philosophy. “Retailers need to carry a variety,” he says. “They’ve got to have something at a low price point to get customers in the door.”

Howard Grodnick, president and CEO of Jacob’s Trading Co., has taken the idea of variety and made it his modus operandi. His shipments are so varied, he can’t even tell customers what’s in them. “We’re kind of a unique, different niche of the business,” he explains. “We deal mostly in as-is customer returns merchandise. And what’s unique about it is that the customers we sell to, recognize that there will be a mix in the variety of different merchandise in every single load.” Grodnick even repeats himself to get the idea across. “Every load is different. It might have anything from housewares to giftwares to toys to sporting goods, all mixed together in trailer loads. There’s really no detail as to how much you’re getting of anything. It’s just really a matter of getting a full truckload of merchandise.”

While large items, like furniture or grills, can be picked out in the loads when warehouse staff look at them, many items just can’t be identified. “That’s the true beauty of it,” says Godnick. “A lot of the goods are just put into sealed boxes and then stacked up on the pallet. Since we don’t know what’s in those boxes, that ‘gold’ that could be in there is passed right through to our customers.” According to Grodnick, “The way our customers put it, every time a load pulls up to their dock doors and they unload it, it’s like Christmas. They have no idea what to expect, what will be in there, and it’s exciting when they are pulling the pallets off and get to see.”

And just as retailers are excited about finding the bargains they have purchased from Jacob’s Trading, so too are shoppers excited about finding bargains in stores. “The nature of the business that I’m in is looking for bargains,” says Grodnick. “Most consumers out there today enjoy finding bargains, even if they don’t have to. But in these times, it’s not an option. People need to be better shoppers. Now shoppers are more disciplined, and they are realizing that they can get by with a whole lot less.”

The net result is that shoppers are focused on what they need. “Today all retailers are trying to buy more of the basics,” says Grodnick. “If they are not basics, then it is all price. It has to be a tremendous value. That’s an opportunity for the closeout business, offering value that shoppers can’t ignore. That’s the key element. Everyone is watching their budget.” And with good reason. The economy has not recovered, and that’s had a significant effect on the availability of closeout merchandise, says Grodnick. “We’re finding that there’s not a whole lot of overproduction out there in the marketplace worldwide. We’ve really had to expand our business. We’ve got branch offices set up around the world, and we’re finding our own deals.”

“We realized that we needed to diversify our business,” he says. “If you are a retailer selling closeouts, you can’t stand still. You have to take your chance and try to get through these difficult times. I think these difficult times are still here. People are working harder than they ever have, though I think it will pay off in the long run.” Grodnick remains upbeat in the face of a tough economy. “Those that you talk to in the closeouts business, you probably will recognize the excitement that they’ve got for the business. People are struggling, but the customers I talk to are optimistic. They are excited about the opportunities.”

Mitchell Weissman of Overseas Trading agrees with Grodnick about the challenges in the industry these days. “The returns business has gotten harder for the average buyer, such as the flea market buyer or the one-unit guy. The department stores are doing less business, they are manufacturing less goods, so there are fewer goods to go around. Many department stores now have their own eBay division, so there is less and less merchandise.”

Like Peterson, Weissman has a solution that depends heavily on relationships. “Overseas Trading has been doing this for the last 15 years, and we’ve developed good relationships, so these goods continue to come to us,” says Weissman. “We get called on a daily basis by manufacturers who want to clear their floors; factories overseas that want to sell manufacturer overruns. We source goods from all over the world.” And like Kole, Weissman has changed his company’s business in response to the economy. “Although the bulk of the company is wholesale closeouts,” he says, “we’ve also added a new branded apparel division, and now we specialize in branded apparel. The denim market is very strong, and we continue to source denim on a daily basis. As the market changes, so does the company,” Weissman explains. He has found a growth niche in overseas trading, as his company name implies. “We ship containers of clothing all over the world,” he says, mentioning Russia, Trinidad, and the Middle East. “We get containers in on a regular basis from all over the world.”

Overseas Trading has been flexible on its sourcing, willing to alter its product mix and responsive to customers’ needs. “We will sell anything from one pallet to multiple truckloads,” Weissman says. “We sell a lot to resellers, and for that we blind ship for them.” This flexibility has paid off for the company. “We have a sales staff that keeps growing,” says Weissman, and, “We’re up every month. Nothing but positive growth.” But a final key to success remains price, he adds. “We only carry items that we can sell at a big discount to our customers. There’s nothing that we carry at regular wholesale prices. Everybody wants to make their dollar worth as much as possible. They want to stretch their buying power. This is part of everyday merchandising, and everybody is looking for a bargain.”

That’s especially true for shoppers looking for deals in online auctions. Wayne Peckham owns A & W Surplus, an online auction house where participants bid on closeout items every Wednesday. He’s optimistic about closeouts too, with good reason. “I’ve been in this business for about 20 years,” he says. “When the economy really started to get worse, a year, year and a half ago, we started growing, because everybody wants to make something extra now. People have had hours cut, lost their job, whatever. They are looking for ways to make money, and this is one of the best ways.”

Peckham reports there is a lot of demand for discount merchandise. “You get a lot of people who want to supplement their income by selling on eBay or at a flea market. Some are trying to start a business. There are a lot of people right now trying to make extra money. So this market is a very good market for us. This last year, we’ve doubled what we sell, doubled our size, because of everybody buying. We sell a lot of electronics, general merchandise, and closeouts,” he says of his business. “We sell a little bit of everything, every Wednesday. We sell anything from one item at a time to pallets at a time.”

About 25 percent of Peckham’s customers are independent retailers, he says, and those customers need to change it up. “Anybody in this type of business has got to get new inventory, every week. You’ve got to build up your customer base. Try to sell for half of what big retailers do. If it is the right stuff, it sells itself, at half price.” Some products are hotter than others, he reports. “We’ve always done well with electronics, and they continue to perform. Paper goods and consumer goods are doing well; toilet paper, paper towels, that kind of stuff. Things that are used every day. Because people have to have it, have to use it.”

That’s the key to closeout success: offering customers good deals on necessities and other products. Deals so great, the shopper just can’t say no.

For following were interviewed for this article:

Wayne Peckham, Owner
A & W Surplus
3330 North Duke Ave.
Fresno, CA 93727
Tel.: 559-348-9428
Fax: 559-346-0751

Keith Peterson, Owner
Crazy Deals Wholesale
2181 U.S. Rt. 36 West
Greenville, OH 45331
Tel.: 800-558-0811
Fax: 937-548-7705

Howard Grodnick, President and CEO
Jacob’s Trading Co.
8090 Excelsior Blvd
Hopkins, MN 55343
Tel.: 763-843-2000
Fax: 763-843-2101

Danny Kole, Owner
Kole Imports
24600 Main Street
Carson, CA 90745
Tel.: 800-874-7766
Fax: 800-292-1818

John Olivarez, President and CEO
Mid-America Liquidators
799 Roosevelt Rd Ste 3-204 C
Glen Ellyn, IL 60137
Tel.: 630-790-9082
Fax: 630-790-9084

Mitchell Weissman, Sales Manager
Overseas Trading
4575 North US Highway 1
Vero Beach, FL 32967
Tel.: 772-539-7075