How Do Liquidation Sales Work?

So your favorite business is closing down a store in your town. You drive by your nearest location and see a large banner that says: “Store closing! Everything must go!”

Liquidation Sales

These types of sales are known as liquidation sales, and maybe you’ve seen this term posted outside of businesses or listed on websites. However, you may not be aware of how a liquidation sale works, or the specific processes which prompt a business to host one. If you’re trying to learn more about these sales, either because you run a business yourself or because you want to benefit from the potential deals, here’s a guide on how liquidation sales work.

What is liquidation?

In this context, the term “liquidation” is a process in which a company sells off its inventory to generate money for the owners, usually before a business comes to an end. Typically, everything for sale is discounted, and includes not only the items sold on a regular basis, but any other physical items used to keep the business running. Some businesses may choose to liquidate assets themselves within their store, and others may sell their goods to liquidation companies which then resell the liquidated assets to other retailers or directly to consumers.

Why does liquidation happen?

A liquidation sale may happen for a number of reasons. One of the most common reasons is because the business is filing for bankruptcy. In order to help pay off any debts the business owes to creditors and stakeholders, the business will quickly sell off its inventory so they can use the cash for these purposes.

Besides that, a business may also decide to liquidate its assets if it’s shutting down a specific location (as opposed to shutting down the company entirely). In many cases, the business finds it easier to sell everything at that location rather than spend the resources to move it all to another location. A business may also partially liquidate some assets if it’s having new inventory coming in to take its place, and the old assets need to be promptly disposed of.

How does the process of liquidation work?

Once a company’s owners decide to liquidate their assets and go through all of the legal prerequisites, they typically hosts a sale which lasts anywhere from eight to ten weeks (although that’s only the average, and sales may stop short of this timeframe or go over by a little). When the sale first starts, discounts will be fair on the most popular items, and relatively steep on the items that aren’t likely to sell as fast otherwise.

As time goes on and the business starts approaching its liquidation sale deadline, discounts will continue to go higher and higher, reaching sales as high as 80 to 90 percent in some cases. Only when everything has been sold will the liquidation sale end. However, this process is only applicable when liquidation sales are provided to the public. Companies may also decide to rapidly sell goods to other businesses who specialize in purchasing and reselling liquidated products.

Liquidation sales are great ways to save on some of your favorite products from some of your favorite businesses. Regardless of whether your local business is closing its doors permanently or simply trying to make room for new products, it helps to fully understand the liquidation process while you’re taking advantage of these discounted opportunities.

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