Many online auctions sellers specialize in selling distressed merchandise that they have purchased from liquidators.

Liquidators buy truck loads of distressed merchandise from direct sources such as large retailers, manufacturers, wholesalers and catalog companies.

A typical 48-foot semi tractor-trailer load of merchandise usually contains between 22 to 24 pallets of merchandise. 53-foot tractor-trailers will usually hold 26 pallets of merchandise single stacked.

Distressed merchandise can include unwanted, overstocks, shelf-pulls, buy backs, customer returns, vendor returns, irregulars, seconds, less than perfects and insurance salvage.

They then turn around and resell the merchandise to wholesale buyers such as retailers, wholesalers, jobbers, auctioneers, flea marketers, pawn shops, outlet centers and retailers.

Types of Distressed Merchandise

Customer Returns:

Most national retailers, catalog companies and wholesale clubs send items that have been returned by their customers to their back warehouse, where they are packed up with hundreds of other items into pallets. The pallets are then sent to the retailer's customer returns center.

Shelf-Pulls:

Products that are not selling well just take up shelf space in a retail operation and can cost them a fortune in lost profits. It is far more profitable for the retailer to pull these products off the shelf and replace them with better selling products that do turn a profit. These are called shelf-pulls. They are sent to the retailer's customer returns center along with other distressed merchandise.

Overstocks:

Retailers may overstock a particular item or may have inventory that has become obsolete. These items are often just written off and sent for the customer returns center to be liquidated.

Closeouts:

Retailers buy in massive quantities. The merchandise usually sells well at first, then sales taper off, leaving small quantities that are not profitable enough to advertise. Sometimes the merchandise is replaced with a newer line or different brand of merchandise. These are closeouts, which are no longer profitable for the retailer to stock.

Seconds and Irregulars:

Seconds and irregular merchandise are sold at pennies on the dollar, usually by the manufacturer. This merchandise has failed the manufacturer's quality control process, yet it is still salvageable.

Insurance Salvage:

Merchandise can be damaged during shipping or because of accidents or fires in warehouses or retail stores. As an example, a cargo ship may encounter rough seas, causing the cargo to shift in the ship's hold and damaging the the merchandise that is in the containers. Some of the merchandise may be in salvageable condition and may be re-packaged or sold as-is.

Real liquidators will usually purchase the merchandise from the direct source and ship it to their own warehouse for inspection and distribution. They will either purchase on contract or they prepay for the merchandise. They key here is that they have their own warehouse and they purchase directly from the manufacturer, retail chain or catalog retailer.

A broker will typically obtain their merchandise from from liquidators or other suppliers. Brokers do not purchase the merchandise. They simply locate merchandise and sell it to their customers without ever directly seeing or handling it.

A broker finds and sells the merchandise, collects payment and turns around and pays the liquidator a lesser amount. The brokers commission comes off the top of the deal. The liquidator ships the merchandise directly to the buyer.

You must take great care when working with brokers. There are brokers that are honest and reputable but there are also many who have no compunctions about misrepresenting the quality or content of a load of merchandise. Since they never have control over the merchandise, the broker is usually unable to correct merchandise problems.

A good liquidator will usually try to correct a legitimate problem and will work with you to investigate and sort things out, often by going back to direct source of the merchandise to resolve the issue.

Getting Started With Distressed Merchandise

You will need money to get started, enough to buy at at least a pallet of merchandise. If you can't afford to lose that money, then you should consider finding a different way of earning income.

You will need a good liquidation company to purchase your merchandise from. Do your homework. Thoroughly check the company's references.

Try to find a liquidator in your local area so you can actually go and see the warehouse and the merchandise.

Find out what type of distressed merchandise the liquidator is handling. Retail store customer returns, catalog returns, seconds and irregulars are bound to be better selling products than overstocks and closeouts. Keep in mind that the reason why overstocks and closeouts are available is because the retailer could not sell them. You might have trouble selling them too unless you can sell them at very deeply discounted prices.

Find out if the liquidator operates their own retail or auction operation. This could mean problems. An unethical liquidator might be picking over the merchandise, pulling the best of the lots out for their own operations and selling the poorer items to you.

READ your contracts. Make sure you really understand what you are agreeing to. Don't let the dollar signs in your eyes make you blind. Keep your eyes open, ask lots of questions and proceed cautiously.

Article by Sharlee Plett.   Used by Permission.   Sharlee Plett is a published author, web designer/developer and is the webmaster of: Make Money with Internet Auctions. Many more online auction-related articles and resources are available at: Make Money With Online Auctions: Articles.