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Liquidation sales not always the best deals

A worker holds a sign promoting the store-closing sale at the Circuit City store in Mayfield Heights, Ohio. Going-out-of-business sales are in progress or planned for major retailers including Linens ’N Things, Circuit City, Steve & Barry’s and KB Toys.

Associated Press

A worker holds a sign promoting the store-closing sale at the Circuit City store in Mayfield Heights, Ohio. Going-out-of-business sales are in progress or planned for major retailers including Linens ’N Things, Circuit City, Steve & Barry’s and KB Toys.

Going-out-of-business sales for major retailers Linens 'N Things, Circuit City, Steve & Barry's, KB Toys and others have flooded liquidators with goods to sell. Experts advise shoppers to approach these liquidation sales warily, since there's no guarantee they'll have the lowest prices.

"Go in and look around, and you may want to do it more than once," said Anthony Giorgianni, associate finance editor at Consumer Reports Money Adviser. "You may find the first time that the deals are no better than competitors and online. We've seen some good deals and some poor deals.

"The important thing people need to understand is that the retailer is not going to be there tomorrow," he said.

When a store is closing, there is a sense of desperation in the air, giving consumers the feeling that they have the upper hand.

"The biggest mistake people make is assuming if stores are closing forever, that it's automatically a good deal," Giorgianni said. "Going out of business is a big business itself."

Sandy Feldman, senior vice president of liquidation company Great American Group, said that consumers should still comparison shop but that liquidation sales give you better odds of finding a good deal.

"I guess it's kind of like anything," he said. "You're having a sale, but could you find it somewhere else cheaper after a lot of research? It is very rare that you will find cheaper prices than a going-out-of-business sale."

Feldman said liquidators set their prices based on a price history that the retail outlet gives them. For instance, a retailer might give liquidators a list of prices from the past six weeks. Those prices help determine how much the liquidator pays for the goods, and subsequently how much a shopper would pay at the liquidation sale.

Sometimes, liquidators mark the price back up to the manufacturer's retail price before they give the advertised discount of, say, 10 percent, but Feldman rejects that tactic.

While marking up the price may be unethical in the eyes of some, liquidators can do it in certain cases without technically breaking the law.

"We have way too much at stake and too much credibility to mark something up from $99 to $100," he said. "That practice is … completely not even considered on any of our liquidations — ever.

"We go off the lowest selling point we've been given," he said.

A Great American competitor, Hilco Organization of Northbrook, Ill., defended the industry against allegations of deceptive price markups.

"Contrary to what some consumers, consumer-advocacy groups and representatives of the media have said or written, liquidators are the consumer's best friend," Richard Kay, executive vice president of the Hilco Organization, wrote in an e-mail. "We are financially motivated to deliver great bargains to consumers throughout the duration of a sale event."

In "relatively normal economic times" liquidators offer the best deals, but the tough retail environment has created more price competition, which may have skewed that, he said.

In fact, retailers are giving such deep discounts this season that they are competing directly with the going-out-of-business sales.

Liquidators have not "competed against that level of discounting before," said Michael McGrail, managing director at Tiger Capital Group LLC.

The competition is expected to get even worse in January, after retailers tally their holiday shopping sales.

"I think January is going to be a time of reckoning for a lot of retailers," said Steven Victor, a turnaround specialist at Development Specialists Inc. in Chicago.

Liquidation sales not always the best deals 12/27/08 [Last modified: Monday, December 29, 2008 11:49am]
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