Buy Retail Surplus Products Without Getting Burned!
One of the challenges for new businesses, as well as for those who
have made it past the
startup stage is consistent and reliable product supply. There are several
ways a business
can purchase products: Auctions, Wholesalers, Wholesale Lots, Wholesale
Distributors, Importers, Sales Representatives, Buying Groups, and Surplus
& Salvage dealers. In recent years, retail surplus products have
been one of the more "sought after sources" of product supply
by online Entrepreneurs and offline "Brick & Mortar" store
While it is possible to find bargains in the Surplus, Salvage, &
Liquidation industry-it's important to understand the nature of the
business, if you are uninitiated to it's principles and practices. I
will give you a basic overview of what S&S dealers do, and what
they sell. A Surplus Dealer, or Broker, is any individual, or company,
who purchases surplus, overstock, liquidated, shelf-pulled, reclaimed,
customer returned, salvage retail, or manufactured products. They then
resell those products to individuals and businesses for resale.
S&S dealers purchase these types of products from manufacturers,
retailers, distributors, reclamation centers, and just about any business
that has secondary, slow-moving, outdated, liquidated, closeout, or
salvage merchandise available. Most of the various product lines that
are sold to dealers vary in their stages of quality. The problem however,
is that some in the industry misrepresent the quality and the value
of the merchandise they are selling. They
can offer what seems like "flea market" prices for brand items-only
to sell unsuspecting
buyers "ready for the dumpster merchandise!"
You can avoid "purchasing pitfalls" if you follow some simple
rules when dealing with those involved in the business. For instance,
I would suggest that before you buy from any S&S dealer, that you
first join the forum at <a href="http://www.wholesaleu.com">WholesaleU.com.</a>You
can check out any seller, free of charge, at <a href="http://www.ripoffreport.com">Rip
Off Report.</a> You can also check to see if anyone has complained
about a company online, by going to Google and typing into your browser:
"CompanyName + scam." "CompanyName + fraud."
WholesaleU.com is the "ombudsman" of the Surplus & Salvage
industry. You can find out about S&S suppliers of "dubious
distinction" in "The Good, The Bad, and The Ugly" section
of Buyer's online forum. It will save you time, and more importantly,
money. I would not suggest that you get involved with anyone in the
S&S business until you do join the forum. I would also suggest that
you refer to <a href="http://www.productsforresale.com"
>The Ultimate Guide To Products For Resale</a> for a list of
consumer agencies, and inexpensive background checks you can perform
on the company of your choice. If you plan to purchase from Surplus
Dealers on your own, without preparation, I would start by purchasing
product from those companies who sell by the piece, case, or pallet.
A good S&S dealer will take time to cultivate a new customer, and
will work with that person any way he or she can. When it's possible,
ask for, and pay for samples. Also, a reputable S&S dealer will
represent his inventory in an honest and forthright manner. You should
that the merchandise that reaches your door is exactly as advertised.
In addition to this advice, I developed my own "Top Ten" list
of procedures and practices that you can use as a guideline before you
dive into any surplus purchase. Read and heed:
"The Ten Tenets Of The Surplus & Salvage Industry."
1) Salvage is just a fancy name for junk. You can get "junk"
in all product categories, but those with high resale value (such as
electronics and computer hardware) seem to make up a good portion of
"junk" products being sold to people who are looking for products
for resale. Unless you are an electronics technician, or small appliance
repairman, electronics recycler, stay away from "salvage electronics".
Whether you are buying a pallet, or a case, always ask about the condition
of the stock. Are
they first quality? Second quality? Irregulars? Is it overstock, liquidated,
or salvage goods? Stay away from Customer Returns if possible. Depending
on the product,
and unless you actually see the merchandise, some customer returns can
be as bad as salvage goods. You want to purchase first quality overstock,
overrun, and liquidated items.
If it's clothing, what is the condition of the items? Ripped, stained,
without buttons? Are they bundled, baled, retail ready, pre-packed in
plastic? If you are buying a mixed load of clothing,
how much is brand name, and how much is off-brand? Some dealers will
sell what is called a "Macy's Mixed Lot." That will include
some designer items-like Nicole Miller, or some other designer brand.
But, the rest of the "lot" will include Charter Club, or
other lower end Macy's items. You most
likely will end up with more Charter Club than Nicole Miller! That is
why most of these mixed lots are cheap. Make sure that any mixed clothing
lot that you are thinking about purchasing, are brand name items, "threw
and threw." Remember, there is no such thing as free lunch, and
that applies double to "designer duds." If it's cheap, it's
cheap for a reason.
Stay away from used clothing, and clothing that is in bales, unless
you visit the company or person selling the items. You can hide a lot
of "sins" in a bale. Example: A dealer tells you
that he has Levi Jeans, baled, ready to go at a great price. You go
and visit the warehouse to confirm his claim. The bales, and the jeans,
look good on the outside. You purchase a few
of the bales, and then start to dig into what you think is a few hundred
pairs of brand name
jeans at a "steal of deal!"
When you get to the center of the bale, and find that it not only contains
Levi's, but strips of denim, off brand jeans, used, ripped, or torn
clothing items, and a host of other "stuff" that you can't
readily identify! Good dealers will have their clothing packed in boxes
that can be inspected-and not bales that wind up presenting you with
more than a few surprises!
2) Ask what percentage of the items you are purchasing will be throw-away.
This would be more of a question for someone who is buying a truckload,
but small purchasers, as well as pallet buyers should be concerned as
well. When you purchase items from an S&S dealer, in most cases,
a certain amount of product will be useless and have to be thrown away.
That is just the nature of the business. Customer returns and unsaleable
product will always be a part of the product "mix."
You can expect to toss about 10 to 20% of your investment in the dumpster
unless you are told otherwise. Some might argue with me, and say that
is an unrealistically low number. I would say that if you have to throw
away more than that--then you should not do business with that particular
dealer again. When you have to physically throw away any portion of
your purchase, the impact of tossing money in the dumpster will give
you a hefty case of buyer's remorse.
4) It's worth repeating: If you are a beginner, start out buying by
the case, or, at the most, a
pallet. You want to make sure that the person you are dealing with is
trustworthy and can supply you with good product in "small doses"
first. Don't let anyone talk you into buying a truckload right away.
There are some dealers that will tell you: "You are nobody unless
you buy a truckload". Everybody is somebody, but you would be nowhere
and broke if you listen to pressure tactics
Even if the person on the other end of the phone wants to be your best
friend, do not get talked into truckload or multiple truckload purchases.
You would be surprised how many people have been taken for thousands,
just because the person on the phone " was very nice, and seemed
honest about what they were selling". If you insist on buying truckload
quantities, (which I do not suggest, especially if you are a beginner)
number five is a must read:
5) "Fly Before You Buy, So You Don't Purchase And Die!" If
the person or company that you are dealing with is not within your immediate
geographic area, buy a plane ticket and visit the facility. Personally
inspect every piece, case, bundle, or pallet. Then, either watch the
truck being loaded yourself, or hire an inspection company to supervise
the load. It would be easy for any company to switch the product when
you are not there. You might say: "Well, Bob, I think that is a
little extreme and I really don't have the time to do that. Also, the
company I am dealing with won't let me inspect the merchandise. Do I
really have to go through all that for just a truckload of polo shirts?"
My answer is yes! You won't be in the Surplus & Salvage business
long if you decide to make blind truckload purchases. I would rather
lose a few hundred dollars on a plane ticket, than spend $25,000 dollars
on a few truckloads of junk! This is how people have "purchased
and died" in this business. Some have spent their entire life savings
on just one truckload of junk, and completely lost their business momentum.
I would not deal with any S&S dealer, or company, who would not
let me visit and inspect the merchandise before I buy it. That goes
for future purchases as well. Even if you've been doing business together
for twenty plus years, inspect, inspect, inspect!
6) S&S dealers will sell or broker product from other dealers,
reclamation centers, and distributors. Let's say that you want to buy
a product from a dealer that you found on the web,
or talked to on the phone. The dealer will tell you, or you will notice
from their website description, that the shipment has a FOB (origination)
point in Ohio, even though the company is based in New Jersey. Buy only
from those S&S dealers who own what they sell. The dealer has to
"inquire about acquiring" the merchandise from another company,
and that is just a hassle
7) Another S&S favorite is the wire transfer. While some legitimate
S&S dealers do this as a normal course of business, I would not
wire transfer one thin dime into any individual surplus dealers account.
The only exception to this rule is if you are dealing with a major reclamation
center like Genco. If your purchase is $10,000 or better, these institutions
will require you to wire money into their account. When dealing with
individual S&S dealers, seek out companies that will accept credit
cards if you are a beginner or intermediate buyer of surplus. Or use
an escrow service or payment vehicle that will give you buyer's protection.
An escrow company that has a decent reputation is http://www.escrow.com
Don't let anyone tell you that they had a bad experience with escrow
companies. Also, do not
let any S&S dealer tell you that they have a problem with taking
credit cards, or that they only accept wire transfers. Both declarations
are "red flag" excuses. They either don't have the product
that they are advertising, or they are not very confident in the quality
of the merchandise that they are selling you. Worse case scenario is
that they are engaging in wire fraud.
You wire the money, they take the money, you get no product! Hence
the wire fraud! What a credit card will do is buy you time. You will
have about 30 days till you get your bill. Most credit card companies
these days offer you buyer protection. You also have about 60 days to
protest a charge, should you be unhappy with your purchase. If someone
sells you junk you can petition your credit card company to do a charge
Remember--you can cancel a check. You can "charge back" on
a credit card, but it is hard to pull a wire. The only way to get your
money back is if the company you sent the money too sends you the money
back, using the same method. Believe me, I learned this lesson the hard
way. I wired $10,000 dollars to a textile manufacturer in India. I tried
to get a collection agency, the bank, the New Delhi Police, even my
Congressman to help me get my money back. All failed. The money went
into the abyss, never to be seen again. The company, and the owner of
8) Become familiar with the art of "cherry picking". This
why I suggest that you visit the location,
and see what you are buying. For instance, a few years ago I went to
visit a dealer that was not to far from me. I was told that I would
find some great buys, and good quality merchandise. When I visited the
warehouse, I found that these great pallet buys were nothing but salvage
and damaged merchandise. Some dealers will "cherry pick" a
load of merchandise coming into their warehouse. They will go through
each pallet and pick out the good items, while throwing the salvage
merchandise back on another pallet. In turn, they sell these junk pallets
as "quality surplus" merchandise to unsuspecting buyers. They
wind up with the cherry, you get nothing
but the pits!
9) Some other red flags about bad S&S dealers. No phone number,
and only accessible by
e-mail. Their address is a private mail drop, not a P.O. Box or street
address. There is no physical address where you can go and visit the
facility. You call different days of the week, different times of the
day, and no one ever answers the phone. Your e-mails are never answered.
Beware of outrageous minimum purchase prices. Example: A dealer wants
you to purchase, up front, $2500.00 dollars worth of merchandise based
on only a description and no option to physically inspect the items.
Over hyped or unrealistic promises of great deals on brand name products.
Example: Brand new Levi 501 jeans for eight dollars a pair. Louis Vuitton
handbags for twenty dollars a bag. Seven Jeans at below wholesale costs.
You have to be realistic. Louis Vuitton bags have very little overstock.
Most high end boutiques, and off-price apparel jobbers will have access
to what surplus is available, and they will not be selling them to a
S&S dealer or broker. In addition Handbags, Jeans, and all manner
of designer goods are susceptible to being "knocked" off.
Most American companies that have their products produced in China
are subject to knockoff. Even items that are not manufactured in China
wind up being copied. A recent 60 Minutes story featured Calloway, Big
Bertha, Titanium Drivers and clubs being sold on the streets for about
275 for a set. The real clubs are sold for about 3000.00 dollars! The
club heads, instead of being Titanium, were two pieces of steel welded
The 60 Minutes crew visited one small shop where there were stacks
of Nike, Reebok, and Adidas sneakers that were ready for the "knock-off"
assembly line. The Chinese Government is not going to stop this activity
anytime soon. Enforcement is literally a "Paper Tiger!" It
provides employment for the general population, and anything that keeps
people employed, and happy,
will get little interference from the "powers that be!" Red
flags should be raised at attention whenever a Surplus dealer mentions
that they have a popular, high end retail item at way
below wholesale prices.
Other "signs and symptoms" of questionable S&S dealers.
They mention that their computer crashed and lost your information.
They have multiple "illnesses" in the family. While some people
do have a string of bad luck and personal crises--this is usually not
a good sign. These excuses are usually an effort on the sellers part
to avoid returning your money, or sending you the products that they
probably never had in the first place.
10) Don't let anyone in the S&S business charge you for the right
to view their product. While most S&S companies do not have catalogs,
some do, and they will try to extract payment for it. I know of one
company that wanted $49.95 for the right to view and order their product.
While some prices for promotional materials can be justified from wholesale
and large distribution companies, rarely, if at all, are they justified
in the S&S business. Inventory moves constantly
so it is not cost effective, or timely, to send out printed material
You can protect yourself by making well informed purchasing decisions
based on the Ten
Tenets. By employing these common sense techniques, you will be ahead
of most people who think that S&S dealers will supply them with
brand name items at flea market prices. If you are uncomfortable with
the level of risk that can be associated with buying surplus, then I
would suggest that you stick with the wholesalers listed in "The
Ultimate Guide To Products For Resale." The Surplus & Salvage
business does require research and "due dilligence." It is
not for the financially "faint of heart!"
Robert C. Potter is a wholesale and retail surplus products specialist.
He is the author of "The Ultimate Guide To Products For Resale."
Over 300 Wholesale & Surplus Supply Sources For Ebay Auction Sellers,
E-Commerce Websites, Flea Market Vendors, and Retail Store Owners! His
160 page ebook can be downloaded at: http://www.productsforresale.com