Closeout services resell returned items, a $644 billion business

Inside Liquidity Services’ 130,000 square foot warehouse in Garland, Texas, the aisles aren’t lined with typical merchandise. Instead, they’re stacked with returns from Amazon, Target, Sony, Home Depot, Wayfair and more, all being cleared out.

“The liquidators come in and they buy all of this product in bulk. They then package it, palletize it and resell it, either to resell it on a site like eBay or Poshmark, or even to individual consumers. So it became a much larger share of the industry than we’ve ever seen before,” said Sonia Lapinsky of consultancy group AlixPartners.

The liquidation market has more than doubled since 2008, reaching $644 billion in 2020, according to data from Colorado State University.

“A lot of that was controlled by the mafia,” said Zac Rogers, assistant professor of supply chain management at Colorado State University. “It’s a good way to hide money, honestly, because nobody looks at returns. Especially 40 years ago, nobody looked at returns.”

But in 2021, a record 16.6% of all merchandise sold was returned, up from 10.6% in 2020, according to the National Retail Federation. For online purchases, the average return rate was even higher, at 20.8%, up from 18% in 2020. Processing a return can cost retailers up to 66% of the original price of an article, according to return solutions company Optoro.

“Everyone is very worried about price increases right now. I would say it’s possible that some of the inflation is due to these huge yields, which have to be sold at a loss, hurt the profitability that a company normally has, and they have to raise their prices,” said Tony Sciarrotta, executive director of the Reverse Logistics Association.

There is also a big environmental cost. Returns that are not liquidated are often destroyed by being incinerated or sent to landfills. Optoro estimates that returns in the United States generate approximately 16 million metric tons of carbon emissions and create up to 5.8 billion pounds of landfill waste each year.

This pain point for traditional retailers is now a big deal for liquidators. There are now thousands of businesses in this burgeoning space. One of them is GoodBuy Gear, which specializes in the safe clearance of items for babies and toddlers.

“Buying a second-hand item saves 82% of your carbon footprint and consumers are really starting to make smart choices. And so I think the clearance boom is really fueled by consumerism and the way he went from nine to occasion,” Kristin said. Langenfeld, CEO and co-founder of GoodBuy Gear.

Sustainable purchasing options are a growing priority for young buyers.

“The circular economy exists to ensure these items find a home, connect them to a family or young consumer, and keep them out of the landfill,” said Bill Angrick, CEO of Liquidity Services. He co-founded the company in 1999 as, with $100,000 of his savings.

“My dad and I used to collect used books and recyclable bottles. Fast forward to the start of eBay. My dad and I started playing with that. We realized that a market model can create value for virtually any type of used item,” Anrick said.

Liquidity Services CEO Bill Angrick and CNBC Senior Producer Katie Schoolov tour a returns warehouse in Garland, Texas on January 31, 2022.

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Bulletin boards, kayaks and knives

In 2000, a year after its launch, made its first major sale: a $200,000 ship for the state of Georgia. In 2006, it went public under its new name Liquidity Services. Its stock peaked in 2012, trended lower for the next seven years, then saw a resurgence during the Covid pandemic.

Liquidity Services remains the only major listed liquidator. Another big player is B-Stock Solutions, which runs branded clearance markets for huge clients like Amazon, Walmart, Home Depot, and Costco. Howard Rosenberg founded B-Stock after six years at eBay, where he saw the benefits of specializing in liquidation for others, on a large scale.

“Companies generally don’t want to spend a lot of time and effort on that small slice of the pie. They want to focus on the 99% slice of the pie,” Rosenberg explained.

Liquidity Services sells returned items on a variety of marketplaces. There’s where palettes of returns and some individual items are auctioned off to the highest bidder, Secondipity for the direct sale of individual items, and GovDeals for some particularly unusual items.

“We’ve sold road paving equipment, entire gymnasium floors, scoreboards. All the colleges and universities that are publicly funded, all that equipment and uniforms come through our market. We sell construction. We sell bucket trucks to electrical and utility companies,” Angrick said.

Liquidity Services also handles unclaimed mail and packages for the US Postal Service, disabled military vehicles, and items left at TSA checkpoints, such as 14 pounds of assorted knives.

When it comes to electronics, many returns arrive damaged and cannot be resold immediately. Liquidity Services refurbishes hundreds of TVs every day that it says are selling for between 60% and 70% of the original price. Refurbished electronics have grown in popularity as the backlog in the supply chain has caused a shortage of new products. Refurbished headphones and noise-canceling TVs are in high demand, along with multimillion-dollar refurbished items like machines used to make microchips.

A Liquidity Services employee refurbishes a television at a warehouse in Garland, Texas on January 31, 2022.

Katie Schoolov

“We’ve seen Fortune 500 companies access used equipment in our market because shipping time is shorter in the circular economy than creating a newly manufactured product, putting it on a ship, transport it across the ocean, to a port that’s probably overdue for six to eight months,” Angrick said.

Many retailers are now selling refurbished items directly as demand for used items increases. Amazon has entire sections of its site devoted to this. There are warehouse deals for used goods, Amazon Renewed for refurbished items, Amazon Outlet for excess inventory, and a tongue-in-cheek daily deals site on the fringes of the Amazon community called Woot that sells a “ poop bag” for $10.

Best Buy now has an online outlet where it sells open-box appliances and TVs, and HP has an outlet with refurbished computers and more.

“When it’s refurbished, we get very good recoveries from it: probably 80% to 100% recoveries depending on market seasonality. But right now the market is very strong due to supply shortages up front,” said Julie Ryan, HP North America Returns Manager.

The liquidation boom has also spawned another trend. Hundreds of bargain shops are popping up all over the country, with names like Dirt Cheap and Treasure Hunt Liquidators. Dozens of customers are lining up – sometimes even camping overnight – to get the top pick after the weekly clearance pallet drops. They rummage through large bins of returns looking for trending items they can return for a profit.

Shoppers line up to rummage through boxes of liquidation pallets at Treasure Hunt Liquidators in Raleigh, North Carolina on Feb. 11, 2022.

treasure hunt liquidators

“Stores like Big Lots, Bargain Hunt, Ollie’s Bargain Outlet: all of these stores, then eBay, and even Amazon got into it. So they resell returns to consumers because 90% of the time there’s nothing wrong,” said Sciarrotta of the Reverse Logistics Association.

Liquidity Services has its own take on the direct-to-consumer trend. At the company’s new AllSurplus Deals warehouse that opened in Phoenix in October, customers pick up items they’ve won in online auctions that typically start at $5. This is especially useful for liquidating large items, like kayaks, which would be prohibitively expensive to ship. Angrick says Liquidity Services will open a second AllSurplus Deals warehouse in Dallas later this year.

Watch the video for an exclusive tour inside a Liquidity Services warehouse, to see the booming business of processing and reselling excess and unwanted goods on the secondary market.

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