Liquidation Sale Risks: Often Not the Deal They Appear to Be

One side effect of a down economy is that many retailers end up going bankrupt or closing unprofitable locations. They are then forced to liquidate their assets and have sales in order to clean out the stores. Very often, even the fixtures end up for sale. With more and more retailers going out of business, this is your chance to pick up some real bargains, right? Not necessarily.

Liquidation sales are touted with such lines as “Huge Savings!”, “Blowout Prices!”, “Lowest Prices Ever!” and other messages designed to make you think that no matter what you buy you’re getting a great deal. The problem is that liquidation sales are not always the best deal going. Here’s why:

The liquidators run the show, not the retailer: When a company goes into bankruptcy, the retailer is no longer in charge. The liquidation companies operate the business, not the retailer. That means that they are not required to honor the policies of the retailer. They do not have to price match, price adjust, accept returns (even on merchandise that was purchased before the bankruptcy), or honor service agreements. In other words, everything you loved about your favorite retailer is gone, replaced by a liquidation company that is intent on wringing every dollar possible out of the sale.

Prices are often higher than or, at best, the same as other stores: When the liquidators take over, they often raise prices before marking the items down in order to make a little extra money. They know that people think liquidation sales offer bargains and will often buy without comparing prices. They take advantage of the consumer’s gullibility and there’s nothing illegal about it. So that toaster that was $15 before the liquidation sale now carries a “before sale” price of $20. Then the liquidator marks it down 25% which puts it back at $15. Many people think it’s a deal, not realizing that if they’d bought that same toaster before the “sale,” it would have been the same price.

You can’t use coupons, gift cards, store credits, or even store credit cards: If you’ve been holding on to a coupon, store credit, or gift card and think that a liquidation sale is a fine time to use it, forget it. These payment methods are not likely to be accepted at the sale because the liquidator didn’t issue them and doesn’t want to deal with them. Many won’t even honor the store’s credit cards because the credit department went out of business along with the retailer.

Warranties may not be honored and you certainly can’t purchase extra protection: If you purchase something at a liquidation sale and need warranty assistance, you will have to deal with the manufacturer directly. You will receive no assistance from the retailer. If you purchased an extended protection policy through the retailer before the liquidation, you are likely to find that it won’t be honored once the liquidation starts. And if you’re buying something at the sale and would like extra coverage, like a screen breakage policy on a laptop, you won’t be able to purchase that coverage from a liquidator.

Limited or non-existent return policies If you buy something at a liquidation sale, get it home and it’s broken, you probably can’t return it. Many liquidation sales are final with no returns. If there is a return policy it is likely to be very restrictive and may require return within 24-48 hours with all kinds of exclusions, fees, and hassles. If you really want to dispute the item, you may have to do it with your credit card company, but watch out for number 6 below.

Payment methods may be limited: In addition to not accepting gift cards or coupons, some liquidators won’t take checks. Some even won’t take credit cards so they can avoid the fees. If they won’t take credit cards, you lose any after sale protection your credit card might offer.

So what is the consumer to do? Should you always avoid liquidation sales? The answer is no, but you have to act wisely and not just blindly assume that a going out of business sale is the best deal.

First, as with any sort of shopping, know your prices before you hit the liquidation sale. That way you’ll know if the liquidator is tinkering with the markdown numbers or if you can get a better deal with a coupon elsewhere. (Some competing retailers may take coupons or gift cards issued by the bankrupt store just to get your business.) Often the best deals are found late in the sale after the liquidator has moved all the merchandise he thinks he can at the higher prices. When that happens, the markdowns are likely to get better. Your best bet is to watch and wait for the prices to come to you.

Second, understand the policies and terms of the sale before you buy. Can you return the item? Will the manufacturer honor the warranty? What payment methods are accepted? Will they price match or price adjust during the sale? If the answer to any of these is no or in any way makes you uncomfortable, make sure you can live with it before you buy.

Third, protect yourself because you’ll get no protection from the retailer. Avoid problems by making certain the merchandise is in good shape before you buy. Plug things in and make sure they work. Take items out of boxes and account for all the parts and make sure they’re free from damage. Check clothing closely for stains or tears. Check with the manufacturer of big ticket items and make certain they’ll honor the warranty. Pay with a credit card if possible (but make sure you can pay it off before the due date) to get their consumer protection policy.

Finally, unless you’re getting a stellar deal at the sale that you know you can’t beat elsewhere (and you know the merchandise is in good working order and you won’t have any problems with it), consider buying from a retailer that is still in business. You’ll be protecting yourself from potential problems and helping another retailer to stay in business. There’s nothing wrong with liquidation sales and it is possible to score some deals. Just don’t fall for the hype surrounding these sales. The liquidators think you’re gullible. Show them you’re not.