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Inventory liquidation is when a company sells or gives away excess, leftover, or returned goods to free up space and recoup some of the initial investment. Companies use marketing tactics and behind-closed-door deals to maintain their corporate image. Donating merchandise can also provide tax deductions and move goods away from the store. Targeted sales campaigns can also be used to get rid of excess items.
An inventory liquidation is when a business sells or gives away items to get rid of them rather than making a profit. These items may be excess, leftover or returned goods. For whatever reason, society places more value on the space used by items than the items themselves. A company will often use marketing tactics and behind-closed-door deals to ensure that devaluation of stock does not affect its corporate image. Companies will also use this stock as leverage through tax deductions and for targeted sales.
What makes a stock liquidation different from a regular sale is the mentality of the company. In a normal sale, the goal is to attract customers and make a profit. With inventory liquidation, merchandise is typically sold at or below cost and rarely connects to any other sale.
Even selling below cost, a stock liquidation is normally a boon to the company. When a company owns a large amount of stock that it cannot sell, it has already invested in those stocks. When it’s just there, the company has lost both its initial investment and the space needed for new items. By selling the clearance items, the company will recoup some of its initial investment and have room for more merchandise.
Some companies try to run inventory clearance away from major stores. For example, some high-profile department stores find that carrying clearance items in-store looks tacky and implies a lack of quality. In these cases, a subsidiary company typically performs inventory liquidation. This company will purchase the entire stock from the original owner and resell it in another store. This will preserve your corporate image and quickly liquidate problematic items.
Another common tactic used during a stock liquidation is giving. By donating merchandise, a percentage of the original cost can be applied as a tax deduction to the company. This has the added benefit of moving goods away from the store, possibly even to another country. This prevents the local area from saturating the clearance items and preventing the full price items from being sold.
The other common use of a stock is dismissed as a targeted sales campaign. For example, an item that is selling well through TV and Internet sales may drop quickly. This will leave the original owner with a wealth of items that no one is buying. When the next big item arrives, the company will deliver the excess item along with it as a “free gift”. This tactic is very common in commercial sales.
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