Educational Information Regarding the Closeout Industry (Clothing & Textiles)

Education Research Closeout Business

The information on this page has be graciously provided by Robert Cyr at RLC Trading.

One of the best sources for profitable inventory is the Closeout Industry, products can be purchased for a fraction of the original wholesale/retail value. There are plenty of companies out there ready to provide you with merchandise, but knowing which company to deal with can be very tedious. Most of the time sourcing reputable closeout Companies/Brokers comes at the expense of trial and error.

There are two types of closeout companies; the warehousing company that actually owns the merchandise and the merchandise brokerage company that acts as an outside sales rep for merchandise that is owned by another individual or company. Brokers represent merchandise, set up the sale and arrange for delivery of the actual product.

Many closeout companies on the internet are brokering merchandise. A broker offers a valuable service much like a stock broker. They research product sources, assist buyers in determining appropriate merchandise for their market and many times arrange shipment.

Brokers work for a percentage of total merchandise sold. Their fee is built into product price and is well justified for their knowledge and transaction assistance.

There is absolutely nothing wrong with purchasing merchandise through a reputable brokering company. It happens all over the world, everyday. It is best to establish whether or not the broker you are dealing with is actually representing the actual source of the merchandise. Let me explain it this way, there are many Brokers out there who are actually Brokering other Brokers merchandise. This is a problem simply because each Broker is marking up your merchandise by a fixed percent (His/Her actual profit). If your purchase is sourced through more than one Broker, you are paying too much. By the time your merchandise arrives at your door it will hardly be worth the price you have paid. Unfortunately, many times merchandise sold through more than one Broker also has a tendency to be misrepresented. Compare this scenario to that of a rumor floating around an office...The rumor begins with two people; after a day or so the details have been "Lost in the translation" because the information has been passed through many hands. Brokering works this way, as well; too many middlemen and the merchandise will not be honestly described. This happens all the time.

For example: I have a product that I want to sell at $2.00 per unit, without many contacts I might enlist a Broker to promote my $2 item and hopefully have Him/Her arrange all of the details of the sale. The Broker would market my product through various venues such as his companies website. He would then mark my $2 item up to $3; that doesn't sound like much, but if I have 4-5,000 of this item that would represent $4,000-$5,000 dollars in his pocket for moving my inventory.

Now, here is where trouble can begin. When this broker allows another Broker to sell my inventory now my $2 item will go up to $4.00
. Money is made by turning inventories quickly, so why would the Broker representing me turn down an "outside sales Rep" for help in moving the merchandise? They wouldn't. By the time my item is purchased and received by the end consumer it is not worth what they paid.

This happens over and over in this industry and it stems from both parties (Consumer & Broker) not doing their homework. It has happened so many times that there are many Business owners out there wondering if it is even possible to find merchandise that has been represented honestly and is actually being sold at below wholesale pricing.

There are great deals to be found everyday, but you must first take the time to protect your interest. Find everything out about the company you are going to deal with, ask for actual references from customers. Talk to everyone who has purchased from this company in question. If you cannot get references, walk away; period. When you do get contact information inquire and ask as many questions as possible. Hopefully the references will be of value with constructive, non-biased information.


Terminology

Accessories- Term used to reference personal items, such as handbags, purses, belts, hats, hosiery and other items. This term is fairly standard in the industry, but it would be wise to get clarification if interested in a load of merchandise.

Blind- Term used in conjunction with load or lot. Blind lots are not manifested. Usually, when buying "blind" lots/loads you will be given a general idea of contents, but it will not be a guarantee. It is common for many large retail stores to sell closeouts "blind" simply because a detailed inventory of contents takes time and ends up costing more per item when purchasing.

Broker- A person who buys or sells merchandise for other individuals and earns a commission or profit based upon a percent of product.

Close Dated- Refers to perishable merchandise such as food or over the counter drugs. If a product has been sitting around past its expiration date...it would be considered "Close Dated".

Closeout- Merchandise that is being sold below original wholesale cost. Can be Overstock, Shelf Pull or Discontinued merchandise.

Customer Return- Merchandise that has been purchased at a retail level and then returned to the original store for various reasons. Some returns are defective, broken or simply returned for no apparent reason at all. A consumer might return merchandise because it was bought in haste or by impulse. In this scenario if the original packaging is not intact or missing a component the retailer will deem it Salvaged. Defective or broken merchandise is a tricky area, often products can be repaired if you have the skill required.

Domestics- Term used to refer to bedding (sheets, comforters etc), towels, linens and other "soft goods". Term might have a different meaning company to company so always inquire definition before purchasing.

Federated- Refers to the Federated chain of department stores including Bloomingdales, Bon Marche, Burdines, Goldsmiths, Lazarus, Macy's East, Macy's West and Rich's. When merchandise is described as "Federated" it is from this chain of fine department stores. Generally considered in the industry and at a retail level...Mid to high end quality.

FOB- "Freight On Board" This refers to the location of the merchandise being represented and shipped from. This can be some indication that the merchandise is being "Brokered", obviously if the company you are dealing with is located in Texas and lists merchandise FOB Florida you can almost assume your broker has never seen the merchandise offered. Be careful as this is not the case in all situations. A company may have multiple warehouse locations. This is a grey area and very hard to determine. You will notice many companies stating, "We have many FOB or warehouse points all over the US". This should not be construed as company owned facilities.

Manifest- term used for a written inventory of goods in question. A manifest can list the following information; Item model numbers, quantity of items, wholesale value & retail value of individual items. A manifest usually does not list actual item conditions. Manifests can be emailed or faxed if they are available...ask when you call your dealer.

Pallet- Wood or plastic base for securing large quantities of merchandise during shipping.

Retail- Price set for items sold to the general public. The last mark-up in the cost to bring an item to a particular consumer store. Please note, many items will have a suggested retail price set by a manufacturer. This price does in no way constitute a products' value as "suggested retail prices" are often overlooked by retailers and priced according to market and/or trends.

Salvage- Salvaged merchandise refers to products that can no longer be sold "as new". There is a large percentage of merchandise that is damaged while in transit to retail stores. For instance, a pallet of toys may have packaging damage. The retailer cannot sell the toys as new because the individual boxes show wear or tear. This merchandise gets set to the side and labeled "Salvage". Salvage can also refer to merchandise that has been returned to the store for any number of reasons.

Stock Lot- Term used to describe multiples of the same item. Example: a Stock lot of apparel would be one garment in various sizes(Same style). Ask for clarification when inquiring.

Store Codes- Store codes are numbers, one or two digits, that represent actual retail stores. Most companies will refer to merchandise as being from Store Code (fill in the blank) to give you an idea of quality and contents of lot or pallet. Store codes are not usually posted on websites so you must request a listing breakdown. There are roughly 12-15 codes you will see all the time ,as they are the most popular. They are standard codes used in the industry, however some companies may have their own coding system. Ask for clarification when you call your company/agent.

Tracking- The information given to monitor progress of a particular shipment to its destination. UPS, FedEx and Most freight companies will assign a number to your shipment. This number will show various details of your delivery such as the date to expect arrival. Most of the time you will have the ability to insert the tracking number into the freight carriers website for detailed information.

Wire Transfer- An electronic form of funds transfer initiated from your financial institution. Usually your financial institution will charge a small fee for this service (average $5-20.00).

Wholesale- Cost for goods before retail markup.


 

Shipping Explained

Most smaller purchases can go common carrier, such as UPS Ground. If the company you are dealing with has a UPS or FedEx account they will send your shipment adhering to the individual carrier policies. Shipping policies are different for each company and are usually based upon overall package girth (length + width + height combined) and weight of box. Clothing for example will usually weigh in at 45-65 pounds per 100 pieces and can easily be sent through UPS or FedEx. It is possible to ship, domestically, up to 400-700 units of clothing through these carriers in multiple cartons. Remember, if the company you are dealing with has an account with UPS or FedEx, they are receiving discounted rates based upon the volume of packages they send on a regular basis.

There is a website called Iship.com that allows you to easily compare rates and services among multiple carriers, including UPS, DHL, FedEx Express, FedEx Ground, Airborne Express and the US Postal Service.

Zip+4 Lookup    City/State Zip Codes   Official USPS Abbreviations

Freight Shipments

Often larger purchases will need to be delivered by a freight company. Freight companies require merchandise to be secured to wooden or plastic pallets. Pallets are a secure way to ship merchandise and can easily hold merchandise stacked up to 6.5 feet tall. Pricing is based upon weight and destination.

There are hundreds of reliable freight carriers across the United States and most of the time you can arrange the pickup of your purchase yourself. When arranging delivery of merchandise be sure to have complete pallet details. The freight company will ask you for pallet dimensions, height and weight. You will also need the pickup address and destination drop off. Generally, it is cheaper and easier to have your merchandise delivered to the nearest freight terminal. Also note, delivery to a residential address will cost extra (usually about $40 -$60).

If you do not have a loading dock and/or fork lift you will need to specify delivery in a lift-gate truck. Most freight companies charge extra for this service.

General Pallet Characteristics

Item

 Dimensions (L x W x H)

 Empty Weights

 

 (Inches)

 (Centimeters)

(Pounds)

 (Kilograms)

 Wood Pallet

 45 x 48 x 5

 114 x 122 x 12

38 to 54

 17 to 24

 Standard Wood Pallet

 40 x 48 x 5

 102 x 122 x 12

 32 to 45

 15 to 21

 Plastic pallet

 40 x 48 x 5

 102 x 122 x 12

 20 to 30

 9 to 13

 


Investigate/Research a Company

There are many factors which will insure the profitability of your own business. Sourcing ethical and reliable suppliers takes a lot of research, but without merchandise to resell you have no business. So, with that your goal should be locating at least three to five distributors you can purchase from ongoing.

The internet offers the opportunity for millions of companies to transact with individuals across the world. Websites have become virtual storefronts allowing for immediate purchasing with the click of a mouse. Lets stop for a minute and look at the criteria for shopping at a traditional storefront versus a virtual store front. When you need a product for personal use (clothing, gift etc.)What do you? You get in your car and drive to a retail store, go in an and find the product you need. Once you find the product you need if it represents a good value based upon quality and cost...you buy it. This formula for acquiring merchandise is second nature to all of us, as we purchase merchandise almost daily.

Here is the formula for purchasing merchandise traditionally (Store front):
1- Product need 2- Locate Source 3- Evaluate quality versus Price (handle product) 5-Purchase.

What about a formula for purchasing over the internet? In your search engine you type in "Closeout Merchandise" and 10,000 or more websites/Pages are available. Remember a website/Storefront can be created for a few hundred dollars today and suddenly any individual can appear to be a large corporation. While a professionally Designed website is appealing and aids in determining a legitimate business, it is no indication of the companies ethics and practices.

When you cannot see a companies physical location or inspect merchandise by sight you must gather as much information as possible to aid in your decision to purchase.

Here is a sample formula for purchasing closeouts on the internet:
1-Find company through searching 2- Investigate company by gathering as much information as possible 3-Compare results between other companies you have found 4- Check References 5-Purchase.
This is all done from your computer.

Adopt your own criteria for purchasing from a closeout company; if a company does not meet your standards' scratch them off your list. Do not sacrifice your strategy for deals that seem Too good to be true because remember...your first instinct is usually accurate.

The information on this page has be graciously provided by Robert Cyr at RLC Trading.

Don't forget to search for additional information in our apparel closeout guide.

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