Across the US, enterprising small business owners are making money off of the largest companies in the world. Giants like Amazon and Walmart are able to sell their products at prices that most small businesses can’t compete with. These entrepreneurs who start return and liquidation businesses are able to use the scale of these companies to find products for bottom dollar before flipping them for sale at a profit.
In a liquidation business, products are purchased (through intermediaries) from companies like Amazon and Walmart, and then sold at a profit. But how is this possible? Why aren’t these products being sold as part of other stock that companies like Amazon and Walmart offer, and how are these small business owners able to turn a profit while still getting consumers to buy their products? Here’s what you need to know:
Economies of scale and the largest retailers in the country
It’s hard to understate just how huge a company like Amazon or Walmart is, and they certainly use their size to their advantage in the marketplace. Amazon alone makes up 43% of online sales, and Walmart’s 2018 revenue was over 514 billion dollars.
When it comes to buying, selling, shipping, and stocking products, size matters. Economies of scale, or cost efficiencies that emerge and grow larger as the size of a company or operation increases, are what allow companies like Walmart and Amazon to so drastically undercut the mom and pop store prices.
However, the same size that makes Amazon and Walmart such cost-efficient operations also makes them a bit less efficient in other ways. Liquidations and returns stock are among the areas where size can cause huge companies to make rather interesting decisions.
When most businesses receive a customer return, they evaluate it and, if possible, put it back out for sale. The idea is to still make as much money as possible on that returned item. And when most companies have to liquidate stock to make room for new products, they will balance the priority of clearing space with the need to make profit.
With huge companies like Amazon, though, this stuff isn’t worth the effort or the time, because it’s simply not happening on a large enough scale. So companies like Amazon make short work of their returns and liquidations products. They sell them off wholesale, usually on big pallets, which is where returns and liquidations businesses can swoop in and make money.
How liquidation businesses operate
Small business owners who run liquidation businesses have seen the potential profit in the pallets that companies like Amazon and Walmart sell wholesale. These pallets end up on auction sites that sell them of to the highest bidders and the winning bids often leave plenty of room for profit.
Buying returns from Walmart wholesale like this (or getting returns or liquidations products from any of the big retail giants, from Amazon to Target) gives small business owners access to very affordable products. When they get their hands on their pallets and unpack them, these small business owners often find products that they can resell for significant money. They post those products to Ebay and other websites that are friendly towards reseller businesses, and then make money after paying marginal site fees.
With the proper start-up cash, storage space, and organization, a new returns and liquidations business can take off fast. It’s just one of the surprising ways in which small business owners are finding opportunities in a retail world that appears to be rules by companies valued in the billions and trillions of dollars.