“Closeout” used to be a dirty word, conjuring images of outdated or generic products. Today’s closeouts are different, and retailers are realizing that giving closeouts a second chance can mean big things for their business.
Why are closeouts different today? Manufacturers’ SKU counts and units produced per SKU are higher than ever. This results from the increased demand needed to satisfy today’s retail environment. It is a demand created by years of increased consumer market segmentation, shorter product life cycles and the barrage of ad campaigns.
To keep up with the market, manufacturers need to produce more branded products for more diverse customer segments. This steady stream of new SKUs causes a significant increase in the amount of merchandise moved off the shelves to make way for the latest and hottest item.
Why should closeouts be part of your strategy? We all recognize that small and midsize merchants find themselves in an increasingly competitive and unstable sales environment. Any retailer seeking a strategy to combat shrinking profit margins should consider adding closeout merchandise as a way to fatten those margins. Many small and midsize retailers buy branded products from wholesalers. Because of the economics associated with this, the subsequent profit margins are squeezed, which is something the mass merchants, which buy directly from the manufacturer, revel in.
Closeout merchandise provides an alternative by letting small and midsize retailers buy products, albeit at the latter stages of the product’s life cycle, discounted from their original wholesale prices.
How to get started? The Internet has opened doors for small and midsize retailers. Many companies provide an online marketplace where thousands of registered and qualified buyers browse and purchase brand-name merchandise at great prices. These prices let the retailer make a significant profit margin while staying competitively priced.
Online closeout companies operate in various product categories targeted at all types of retailers. They often find supplying small and midsize outlets to be rewarding.
The ability of large retailers to deeply discount prices, as they did in December 2004 when holiday sales were slightly below normal, creates an omnipresent cloud of pressure on price levels, margins and the ability of the small and midsize retailer to compete. As the mass merchants continue to move their way through the Main Streets of America, the fate of small and midsize merchants that drive this country are in question. Closeouts represent one answer to this question that is not going away anytime soon.