The selling of excess, returned, unsold, or discontinued clothing inventory at greatly diminished prices is known as apparel liquidation. Because of seasonal shifts, low demand, or design changes, retailers, brands, manufacturers, and distributors lose the ability to sell inventory at full price.
Instead of letting it lose more value, they liquidate it to recovery buyers, small retailers, and wholesalers. This is a win-win situation as buyers get quality inventory for a fraction of the price and brands sell their inventory and recover some of the initial capital.
When businesses identify slower-moving stock, they categorize the inventory in liquidation lots. These lots, ranging from a pallet to a full container, are purchased by buyers at a grade.
The buyers typically grade the stock as A grade (new/unused), refurbished, shelf pulls, returns (not in new condition), etc., and resell the inventory through their own online store, brick-and-mortar retail, flea or farmers market, or to businesses that sell the inventory as part of their own line.
The liquidation of unsold apparel in bulk is a lot more beneficial for businesses than simply letting the stock go to waste. Especially for new apparel retailers in the business, liquidation is the most efficient way of obtaining branded stock and setting the business for success through profitable retailing.
Definition of liquidation
Liquidation is when apparel companies sell their surplus inventory, which may be unsold, returned, or produced in surplus amounts, at lower price points to recover some cash. Fashion companies accumulate inventory that is unsold when they can no longer sell in their peak season, or if they miss a trendy style, or if they experience a forecasting error.
The inventory costs money to hold, whether it be from storing or holding onto working capital, so companies choose to liquidate stock in bulk. The inventory is sold to various companies that are then able to sell to consumers at a lower price.
Liquidation benefits companies by allowing them to obtain cash flow and avoid sunk operational losses. Buyers also obtain quality products, and so buyers and sellers benefit from liquidation when it is done in a clear and marketable way, which allows liquidated stock to benefit its users.
Why brands liquidate inventory
Due to several financial, marketing, and operational considerations, brands are liquidating their stocks. Continuation of inefficiency of selling activities is a major concern—products that do not sell remain in stock, taking up warehouse space and working capital.
A liquidation of stock allows a brand to rapidly recoup and reallocate working capital to the purchasing of new collections, marketing activities, reordering best-selling products, or expanding production capacity. In the fashion industry, where trends are seasonal and timing is everything, having a healthy cash flow is critical.
Shifting seasons is another reason. Fashion items are seasonal, and once a season is over, even increased* markdowns/slashes of prices are insufficient to profitably sell the remaining stock.
Rather than risk incurring long-term holding costs, brands prefer to liquidate to avoid losing their position in the market. Liquidation is also applicable to overproduction of stock; that is, overproduction in batch sizes when the demand is low.
In recent years, fashion industry liquidations have become more structured for sustainability reasons. Rather than destroying liquidated stock, a practice for which some global brands have been criticized, liquidating stock serves as an ethical and sustainability-positive practice.
It also serves as a solution for large volumes of stock that are rerouted due to the exponential growth of e-commerce retailing. New retailers face liquidation in an established industry.
Difference between brand & factory liquidation
However, brand liquidation no doubt comes from different sources; there are clearly differences in source, reason, and product types when exploring brand liquidation and factory liquidation.
For instance, brand liquidation is the liquidation of inventories that come from established retailers, fashion houses, and e-commerce brands. They often comprise and are considered finished retail-ready products.
They are tagged, packaged, and sorted with regard to quality by shelf pulls in new condition, customer returns, etc. Seasonal changes, line discontinuation, sales performance gaps, and unsold inventory are the motivations behind brand liquidation. From a retailer’s perspective, liquidation is a favored option as it streamlines storage, safeguards cash flow, and prevents waste.
Factory liquidation, however, comes directly from garment manufacturers and production facilities. These lots often include canceled orders, overproduction, preproduction sample QC rejects, and surplus end-of-line. Items in factory liquidation often mean goods without retail labels, goods that are intended for multiple brands, and items that need minor finishing, like ironing, resequencing, manual re-tagging, or re-packaging. Brand liquidation is often more expensive.
These brand liquidations often have clearer product information, such as style mix, season, brand, and estimated retail value, which offers significant reliability for factory liquidations.
Risks of unverified surplus traders
Regarding apparel liquidation, there are considerable profit opportunities. At the same time, sourcing from surplus traders that are unverified can present serious financial and legal troubles for resellers. The foremost example is the unverified sellers who can misrepresent the information.
They can overclaim, stating that they are selling branded, new, or premium goods, whereas they deliver only the counterfeits, factory rejections, items that are damaged way too much, and out-of-date stock with little value for resale. Without transparent manifests or rights for inspections, buyers can lose a lot of money and their business credibility.
Risk of documentation is there too, and it is also significant. The reputable liquidation platforms would cover that with the provision of invoices and stock documentation, as well as defining their origins, and covering taxes and compliance verifications.
Unverified traders can not operate with formality, which leaves buyers without legal recourse in case of fraud or misdelivery. The selling of unverified products can lead to legal issues like seizures, penalties from the brand, or disputes.
Risks in shipping and fulfillment are also present. In the informal liquidation market, there are surprise brokerage fees, wrong grade labeling, lot sizes that are inappropriately set, as well as scams that involve the users not getting their products. New entrepreneurs in the market run the added risks of traceability and terms not being in place, and this falls unilaterally on them.
The brand damage resulting from unreliable sourcing can also lead to more significant issues. Increasingly, customers demand transparency; selling questionable products is a sure way to lose customers.
Explore Liquidation Deals
Liquidation sourcing makes sense for all fashion-oriented entrepreneurs, whether you’re a retailer, online seller, thrift store owner, or reseller. It saves you thousands in stock manufacturing costs, since you can purchase premium clothes from famous brands at a fraction of the cost.
The only catch would be to have a vendor you can trust to give you the authentic clothes to sell, with the necessary documents to support your purchase, and have a steady supply to keep you going.
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