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January 2013

GameStop Liquidations: Another new B-Stock marketplace

Gamestop logo

Wow...this is a great looking marketplace!  iPhones, iPads, gaming systems, accessories and more all directly from GameStop.  As you probably know, they operate 6,000 or so retail stores and they run a trade-in program through which you can sell them your Apple devices.  Where does all of that inventory go?  http://wholesale.gamestop.com.

Check it out, but you probably only want to bid on these lots if you have the ability to refurbish the devices.

Common liquidation scam that can cost the novice buyer

One of the most common tricks in liquidation is cherry-picking.  This is the practice of some unscrupulous liquidators who pick through lots they buy and remove the best, most valuable inventory items in an effort to boost their own profit at the expense of their unsuspecting buyers.

The way this works is quite straight forward.  The liquidator buys a lot of 'raw returns' from a retailer. The retailer doesn't sift through the returns to pick out the good stuff because, generally speaking, they don't want to deal with even the high value returned items.  They just want to get the most they can for it and move the inventory out of their warehouse as quickly as possible.  They are already losing money on these products, and every additional minute they invest in it just increases that loss.

So, the liquidator gets the load with everything...the good, the bad and the ugly.  Let's just say he paid 25% of retail for the returns and the lot includes TV's, furniture and apparel.  Well, on their own, TV's might sell for 45% of retail, while apparel might sell for 8%.  So, the liquidator takes out half of the TV's and sells them to someone else for 45%.  Then, he takes what is left and markets that as 'retail returns from xyz retailer' comparing it to untouched lots and charging 30% of retail.  Of course, the buyer receives inventory worth far less than 30% since the highest recovery items have already been sold.

This is just one example of why it is best to always buy directly from the source, NOT from a liquidator who handles the inventory before you get it.  There are some exceptions to this, as there are some retailers who do their own cherry-picking.  They don't do this as a scam, as they are totally upfront about what you are actually buying, but it does result in a lower overall lot quality that needs to be reflected in the price you agree to pay.  I'll address this further in a future post.