Going Out of Business Sales Aren’t Always a Great Deal

“Everything must go!” “Nothing held back!” “Our loss is your gain!” Don’t those words just get your bargain-hunting juices flowing?

Well, hold on a minute, and let Billshark give you a little background and a few cautions before you head out to the sales.

When the big chains such as Toys R Us go under, they have to unload the merchandise they’re holding. But it’s not Toys R Us or other big chains that will be holding the going-out-of-business sale.

In the case of Toys R Us, for example, the two private equity firms and the real estate investment trust that acquired the chain in 2005 in a leveraged buyout (and loaded it up with $5 billion in debt, making it nearly impossible for the 70-year-old company to survive), will turn over all its existing merchandise to one or more independent liquidation companies.

These companies expect to make a profit from the venture, as well as pay off as much of the outstanding debt as possible. Therefore, they typically cancel any existing sale prices and raise all the store’s merchandise to their original prices, or even above. THEN they discount from there.

The NASA Federal Credit Union (NASA FCU) warns, “The first thing [liquidation companies] will do is mark up the prices of every item in the store by 20-30 percent. Because of that, when you see ‘10 percent off everything in the store,’ you really should be reading ‘5 percent increase on everything in the store.’ ”

If you’ve ever been to one of these liquidation sales, you know that they usually begin with 10 percent markdowns, then lower them over the weeks until there is almost no inventory left. Those are the items (the things almost no one else wants) that you can pick up for “up to 70 percent off.” Until then, you may or may not be getting a great deal. They can—and often do—also bring in merchandise not original to the store and sell it for whatever they can get for it.

Again, these liquidation groups have nothing to do with the original company. They will frequently institute an entirely new set of store policies unrelated to those of the popular store they’re liquidating. In one particularly egregious example, the company that liquidated Borders bookstore in 2011 sealed off the restrooms to customers because they didn’t want to pay maintenance crews to keep them clean. They’re out to make a profit any way they can.

“[Customers] think that the store is desperate and is willing to let things go for whatever it can, because it’s got to close its doors,” Anthony Giorgianni, associate finance editor at subscription newsletter Consumer Reports Money Advisor, told the Philadelphia Inquirer. “The reverse is really true.”

“The going-out-of-business sign, the psychology is so strong that the liquidators know that they’re probably going to command a pretty good price for those items,” he said.

CBS News, in a similar report, cautioned, “Often, liquidators do the job for a percentage of profits from the sales, giving them an incentive to get the highest prices possible.”

This doesn’t mean you can’t find bargains at going-out-of-business sales. It does mean you have to do your homework before you enter the store.

CBS, for example, sampled some sale prices during the Circuit City liquidation, then checked prices at similar retailers. One item, a Samsung 52-in. LCD TV, was priced at $2,159.99. They found the same TV at Best Buy for $1,599. Another example: An Acer 19-in. LCD monitor cost $161 “on sale” at the Circuit City close-out, but just $139.99 at Office Depot.

So what’s the way to get the best price at these sales? Here’s what the experts recommend.

Get out your smartphone before you add a single item to your cart and check its price with competitors. If you don’t have a smartphone, leave. Go home and check pricing there. Part of the psychology of these sales is to create a sense of urgency, a “grab it now” mentality. This is not Black Friday, and chances are the item will still be available later if you find it’s a genuine bargain.

Examine the price tag and try to see whether it has another price underneath which may have been lower prior to the sale. If other stores in the chain are still in business, you may be able to find the item there for a lower price. Toys R Us, for example, has told its employees that it will close its 800 U.S. stores gradually, rather than all at once.

Be aware that in nearly all cases, all sales are final. If you make a mistake or change your mind, too bad. Thoroughly check over an item before you buy. Open the box to ensure all parts and accessories are there. Look for scratches or dents or anything that might make the item unusable. And pay with a credit card. If the product is defective, many cards will refund your purchase price.

Also, if you have gift cards to the store, use them or lose them. Chances are slim-to-none that they’ll be honored by any other competitor.

It’s fine to shop liquidation sales if you have your eyes open going in. Just be aware of the psychological gimmicks the companies use to create a sense of urgency and scarcity.

And, as always, let our sharks look out for the many hidden ways Billshark can save you money on your bills.