The Rise of Liquidation Industry: A $644 Billion Business
By CNBC · 2024-03-20
The liquidation industry has witnessed a remarkable transformation, evolving from the fringes of retail to a booming $644 billion business. With increasing returns and supply chain disruptions, liquidation companies have seized the opportunity to capitalize on excess and unwanted goods, reshaping the retail landscape.
The Evolution of the Liquidation Industry: From Fringes to Mainstream
- Inside this massive warehouse in Texas, the aisles aren't lined with your typical merchandise. This would be the antithesis of your traditional e-commerce fulfillment center. This is a bundle of snowflakes where every individual box might have a different set of accessories and might be slightly different in condition and quality. Every aisle is filled with returns from Amazon, Target, Sony, Home Depot, and more, in the process of being liquidated. These liquidators are coming in, buying up all of this product in bulk, packaging it again, palletizing it, and reselling it. Liquidation used to exist on the fringes of retail, with the marketplace being two people in a truck coming into the back of a warehouse store with cash on the barrel. However, companies like Liquidity Services have raised it to a new platform. Retail is amidst a transformation, fueled in part by the pandemic. Online shopping was up more than 11 percent this holiday season, with returns on average three times more likely for online purchases. A record $761 billion of merchandise was returned last year. With mounting pressure on retailers to do better and a supply chain backlog causing a shortage of new goods, there's a boom in the secondary market. Liquidation hasn't just gone mainstream; it's a $644 billion business. In 2008, it was $309 billion, and now it's $644 billion, more than doubling over the last decade. This warehouse, spanning 130,000 square feet, sees between 15 and 20 truckloads of product a day. The processing and reselling of excess and unwanted goods on the secondary market have become a wild and booming business, despite slim profit margins and unpredictable quality of secondhand inventory.
The Evolution of the Liquidation Industry: From Fringes to Mainstream
The Rise of Liquidation Companies: A Boon for Some, a Pain for Others
- In the past, much of the retail industry was influenced by the mafia as a means to conceal illicit funds. However, in today's market, the prevalence of product returns has become a significant issue. In 2021, over 16.5% of all goods sold were returned, marking a 56% increase from the previous year. Online purchases have an even higher return rate of 20.8%, up from 18% in 2020. The process of handling returns can cost retailers up to 66% of an item's original price. This surge in returns may be a contributing factor to inflation, as companies are forced to sell returned items at a loss, impacting their profitability. Moreover, the environmental consequences of returns are staggering, with U.S. returns generating millions of metric tons of carbon emissions and billions of pounds of landfill waste annually. Retailers like Amazon often incinerate returns as a last resort, adding to the ecological toll. As sustainability gains importance among consumers, there is a growing emphasis on purchasing second-hand items, which significantly reduces carbon footprints. The liquidation industry has expanded rapidly in response to the influx of returns. Major liquidation companies partner with retail giants to process and auction off returned goods in various formats. While this burgeoning sector poses challenges for retailers, it presents lucrative opportunities for liquidation companies and individual resellers. Platforms like eBay and Poshmark have become popular avenues for reselling these items, drawing in a diverse range of buyers. The allure of unboxing returns and discovering hidden treasures has captivated audiences, with some entrepreneurs finding success in this niche market. Bill Angrick's founding of Liquidity Services in 1999 symbolizes the growth potential of the liquidation industry, demonstrating how a modest venture can evolve into a thriving enterprise. The evolution from a small bookstore operation to a multi-million dollar liquidation platform showcases the transformative power of adaptability and innovation in the business world.
The Rise of Liquidation Companies: A Boon for Some, a Pain for Others
Revolutionizing the Circular Economy: A Look Inside Liquidity Services' Operations
- Liquidity Services, a pioneer in the circular economy, has transformed the way used items are handled and redistributed. From its humble beginnings in 2000 with the landmark sale of a 200,000 marine vessel for the state of Georgia, the company has grown exponentially. Achieving profitability by 2002 and being listed on the New York Stock Exchange in 2006 marked major milestones in its journey. Today, Liquidity Services plays a crucial role in managing returns for clients like Amazon and handling unclaimed mail items left at TSA checkpoints. This includes a diverse range of products, from assorted knives to out-of-service military vehicles. With seven distribution centers spread across a million square feet, the company has become a go-to solution for e-commerce retailers facing the challenge of managing returns effectively. What sets Liquidity Services apart is its commitment to sustainability. At their warehouse in Garland, Texas, every effort is made to recycle packaging materials. Styrofoam, cardboard, and electronics are all processed for recycling, reducing waste significantly. Each item that comes through the doors is meticulously inspected by dedicated workers like Carlotta Barnes, ensuring only quality products are put up for resale. The resale process is dynamic, with items being auctioned off on platforms like liquidation.com, secondpity, and gov deals. These marketplaces cater to a wide audience, ensuring that each item finds its new owner. While Liquidity Services leads the way in this industry, there are other players like Goodbye Gear, specializing in baby and kids gear. The concept of trusted third-party sellers in the resale market, especially for items related to children, highlights the importance of consumer trust and safety.
Revolutionizing the Circular Economy: A Look Inside Liquidity Services' Operations
The Rise of Secondhand Shopping: A Sustainable Retail Revolution
- Goodbye Gear was born out of a simple realization: when founder Langenfeld's youngest child outgrew an expensive, bulky item after only a few months of use, she saw the potential for a new business model. The market for secondhand items, especially those in good condition, is growing rapidly. Companies like B Stock are leading the way by running branded liquidation marketplaces for major clients such as Amazon, Walmart, Home Depot, and Costco. These companies sold millions of individual items last year alone. Howard Rosenberg, the founder of B Stock, recognized the value of specializing in liquidation services for large companies after his time at eBay. Liquidated returns find new life through individual sellers on platforms like Craigslist and eBay, as well as through pawn shops, flea markets, and thrift stores. This shift towards sustainability and reducing environmental impact has caught the attention of consumers, especially younger generations who are savvy about getting a good deal while also being environmentally conscious. Refurbishment services play a crucial role in the circular economy, salvaging items that may have minor damages or issues but are still of value. There is a growing demand for refurbished electronics, driven in part by shortages of new products. Gen Z shoppers, like Boykin's kids, are leading the charge for sustainable retail options, with secondhand shopping gaining popularity across all age groups. In a recent survey, 81% of baby boomers participated in resale in 2021, up from just 39% in 2019. The refurbished electronics market also offers high recoveries, with products often fetching 80 to 100 percent of their retail value.
The Rise of Secondhand Shopping: A Sustainable Retail Revolution
The Boom of Refurbished and Liquidated Goods in the Market
- The market is currently very robust due to supply shortages, particularly in the realm of refurbished consumer electronics. Items like noise-canceling headphones, HP laptops, and high-end refurbished equipment used in microchip production are experiencing high demand. Major companies are turning to the secondary market for used equipment to avoid the long lead times of manufacturing new goods and shipping them overseas. Retailers are embracing the trend, with Amazon offering dedicated sections for refurbished and overstock items, as well as a platform for third-party sellers. Liquidators and bargain bin stores are also on the rise, attracting thrifty shoppers looking for deals on returned merchandise that is often in perfectly good condition. The trend has even extended to online auction sites like eBay, showing the growing popularity of buying and selling liquidated goods.
The Boom of Refurbished and Liquidated Goods in the Market
Conclusion:
The surge in returns and sustainability concerns have propelled the liquidation industry to new heights, creating a vibrant market for secondhand goods. As companies like Liquidity Services lead the way in reshaping the circular economy, the future looks promising for this rapidly expanding sector.