Hardware Store Liquidation Sale vs Auction
A good deal of hardware store owners cannot sell their retail business need to decide whether to have an auction or to liquidate their inventory and fixtures. There are pros and cons to each.
For an auction, it can be done quicker and you do not have to pay for employees’ salaries to conduct a sale. Also, the fee paid to the auctioneer is less than paying a liquidation company and you don’t pay for advertising.
That sounds good, and I am ready to do an auction. Not so fast. There are some big pluses to a liquidation sale. Your total revenue will be far greater in a liquidation sale, and the total cost may not be that far behind an auction.
For example, Hillman Nut & Bolt Bins are one of the best draws in an auction. Often a 6 tray open face bin with loose merchandise and boxes goes for $20-$40. When I do a sale several weeks in after selling the boxes and loosed merchandise with a discount of 13-50% off and selling hundreds or sometimes thousands of dollars of Hillman. I take all the boxes out and sell most of the bins with the remaining loose merchandise for the $25-$50 most times and some even more. This is huge dollars on many store’s highest inventory department. Even selling remaining Hillman Boxes at 50-80% off, this is thousands of dollars difference.
Many departments will sell at auction at 80-90% off retail. A good deal of hardware stores make between 40-50% gross margin. If you have a department that has a retail of $1,000 with a cost of $550 and the buyer premium of $80, the most someone would pay is $470. However,in most cases you would be lucky to get half of that which would be $235 which is almost 80% off.
Let’s use some numbers to make this clearer. We will use $200,000 as the cost of your inventory. Many times in a liquidation sale this will generate $175,000-$225,000 on this amount of inventory, but depends on many factors. The cost for the liquidation firm, advertising and employee payroll for such a sale would be about $40,000- $60,000 leaving you a net of $115,000-$175,000. These costs could be more or less depending on your situation.
In an auction, you would get 20-50% of cost. This would mean $40,000-$100,000 before expenses of $2500-$10,000.
In an auction, you would pay a fee 6-10% of the revenue generated by the auction. The buyer pays a premium fee often about 15%. That’s great, the buyer is paying for my sale. Well, the buyer will pay less for your merchandise to make up for the fee.
One last thing before choosing what to decide. Many of the customers that have bought in bulk at the end of the sale told me it is far better for them to buy in an auction. Several owners I have done sales for have told me they have either purchased merchandise very cheap in an auction or they witnessed it to see the return from the merchandise. It was not even close and made doing a liquidation sale an easy choice.
Having an auction is easier for a hardware store owner. However, if making more money is the objective after we factor all expenses in a liquidation sale is the easy choice. These revenue figures and costs could be lower or higher depending on your situation. I would suggest going to a hardware store auction to see for yourself.
Doing a liquidation sale yourself would lower some of your costs such as paying the liquidation company, but increase payroll and a lower rate of return. If you have $150,000 or more having a professional liquidation company managed your hardware store, store liquidation is the way to go if you will follow their advice.