Tips for the Surplus and Salvage Industry
One of the challenges for new businesses, as well as for those who have made it past the startup stage is consistent and reliable product supply. There are several ways a business can purchase products: Auctions, Wholesalers, Wholesale Lots, Wholesale Distributors, Importers, Sales Representatives, Buying Groups, and Surplus & Salvage dealers.
In recent years, retail surplus products have been one of the more "sought after sources" of product supply by online Entrepreneurs and offline "Brick & Mortar" store owners. While it is possible to find bargains in the Surplus, Salvage, & Liquidation industry-it's important to understand the nature of the business, if you are uninitiated to it's principles and practices. I will give you a basic overview of what S&S dealers do, and what they sell.
A Surplus Dealer, or Broker, is any individual, or company, who purchases surplus, overstock, liquidated, shelf-pulled, reclaimed, customer returned, salvage retail, or manufactured products. They then resell those products to individuals and businesses for resale.
S&S dealers purchase these types of products from manufacturers, retailers, distributors, reclamation centers, and just about any business that has secondary, slow-moving, outdated, liquidated, closeout, or salvage merchandise available. Most of the various product lines that are sold to dealers vary in their stages of quality.
The problem, however, is that some in the industry misrepresent the quality and the value of the merchandise they are selling. They can offer what seems like "flea market" prices for brand items-only to sell unsuspecting buyers "ready for the dumpster merchandise!"
Also check out any seller, free of charge, at Ripoffreport.com . You can also check to see if anyone has complained about a company online, by going to Google and typing into your browser: "CompanyName + scam." "CompanyName + fraud."
You can also use any of the agency listings in "The Ultimate Guide to Products For Resale," to do a more extensive background search of the company or individual in question. If you plan to purchase from Surplus Dealers on your own, without preparation, I would start by purchasing product from those companies who sell by the piece, case, or pallet.
A good S&S dealer will take time to cultivate a new customer, and will work with that person any way he or she can. When it's possible, ask for, and pay for samples. Also, a reputable S&S dealer will represent his inventory in an honest and forthright manner.
You should be assured that the merchandise that reaches your door is exactly as advertised. In addition to this advice, I developed my own "Top Ten" list of procedures and practices that you can use as a guideline before you dive into any surplus purchase. Read and heed:
1) Salvage is just a fancy name for junk. You can get "junk" in all product categories, but those with high resale value (such as electronics and computer hardware) seem to make up a good portion of "junk" products being sold to people who are looking for products for resale. Unless you are an electronics technician, or small appliance repairman, electronics recycler, stay away from "salvage electronics".
Whether you are buying a pallet, or a case, always ask about the condition of the stock. Are they first quality? Second quality? Irregulars? Is it overstock, liquidated, reclaimed, shelf-pulled or salvage goods? Stay away from Customer Returns if possible. Depending on the product, and unless you actually see the merchandise, some customer returns can be as bad as salvage goods. You want to purchase first quality overstock, overrun, and liquidated items.
If it's clothing, what is the condition of the items? Ripped, stained, without buttons? Are they bundled, baled, retail ready, pre-packed in plastic? If you are buying a mixed load of clothing, how much is brand name, and how much is off-brand? Some dealers will sell what is called a "Macy's Mixed Lot." That will include some designer items-like Nicole Miller, or some other designer brand.
But, the rest of the "lot" will include Charter Club, or other lower end Macy's items. You most likely will end up with more Charter Club than Nicole Miller! That is why most of these mixed lots are cheap. Make sure that any mixed clothing lot that you are thinking about purchasing, are brand name items, "threw and threw." Remember, there is no such thing as free lunch, and that applies double to "designer duds." If it's cheap, it's cheap for a reason.
Stay away from used clothing, and clothing that is in bales, unless you visit the company or person selling the items. You can hide a lot of "sins" in a bale. Example: A dealer tells you that he has Levi Jeans, baled, ready to go at a great price. You go and visit the warehouse to confirm his claim. The bales, and the jeans, look good on the outside. You purchase a few of the bales, and then start to dig into what you think is a few hundred pairs of brand name jeans at a "steal of deal!"
When you get to the center of the bale, and find that it not only contains Levi's, but strips of denim, off brand jeans, used, ripped, or torn clothing items, and a host of other "stuff" that you can't readily identify! Good dealers will have their clothing packed in boxes that can be inspected-and not bales that wind up presenting you with more a few surprises!
2) Ask what percentage of the items you are purchasing will be throw-away. This would be more of a question for someone who is buying a truckload, but small purchasers, as well as pallet buyers should be concerned as well. When you purchase items from an S&S dealer, in most cases, a certain amount of product will be useless and have to be thrown away. That is just the nature of the business. Customer returns and unsaleable product will always be a part of the product "mix."
You can expect to toss about 10 to 20% of your investment in the dumpster unless you are told otherwise. Some might argue with me, and say that is an unrealistically low number. I would say that if you have to throw away more than that--then you should not do business with that particular dealer again. When you have to physically throw away any portion of your purchase, the impact of tossing money in the dumpster will give you a hefty case of buyer's remorse
3) It's worth repeating: Start out small.If you are a beginner, start out buying by the case, or, at the most, a pallet. You want to make sure that the person you are dealing with is trustworthy and can supply you with good product in "small doses" first. Don't let anyone talk you into buying a truckload right away. There are some dealers that will tell you: "You are nobody unless you buy a truckload". Everybody is somebody, but you would be nowhere and broke if you listen to pressure tactics like that.
Even if the person on the other end of the phone wants to be your best friend, do not get talked into truckload or multiple truckload purchases. You would be surprised how many people have been taken for thousands, just because the person on the phone " was very nice, and seemed honest about what they were selling". If you insist on buying truckload quantities, (which I do not suggest, especially if you are a beginner).
5) "Fly Before You Buy, So You Don't Purchase And Die!". If the person or company that you are dealing with is not within your immediate geographic area, buy a plane ticket and visit the facility. Personally inspect every piece, case, bundle, or pallet. Then, either watch the truck being loaded yourself, or hire an inspection company to supervise the load.
It would be easy for any company to switch the product when you are not there. You might say: "Well, Bob, I think that is a little extreme and I really don't have the time to do that. Also, the company I am dealing with won't let me inspect the merchandise. Do I really have to go through all that for just a truckload of polo shirts?"
My answer is yes! You won't be in the Surplus & Salvage business long if you decide to make blind truckload purchases. I would rather lose a few hundred dollars on a plane ticket, than spend $25,000 dollars on a few truckloads of junk! This is how people have "purchased and died" in this business.
Some have spent their entire life savings on just one truckload of junk, and completely lost their business momentum. I would not deal with any S&S dealer, or company, who would not let me visit and inspect the merchandise before I buy it. That goes for future purchases as well. Even if you've been doing business together for twenty plus years, inspect, inspect, inspect!
6) S&S dealers will sell or broker product from other dealers, reclamation centers, and distributors. Let's say that you want to buy a product from a dealer that you found on the web, or talked to on the phone.
The dealer will tell you, or you will notice from their website description, that the shipment has a FOB (origination) point in Ohio , even though the company is based in New Jersey . Buy only from those S&S dealers who own what they sell. The dealer has to "inquire about acquiring" the merchandise from another company, and that is just a hassle
7) Another S&S favorite is the wire transfer. While some legitimate S&S dealers do this as a normal course of business, I would not wire transfer one thin dime into any individual surplus dealers account. The only exception to this rule is if you are dealing with a major reclamation center like Genco. If your purchase is $10,000 or better, these institutions will require you to wire money into their account.
When dealing with individual S&S dealers, seek out companies that will accept credit cards if you are a beginner or intermediate buyer of surplus. Or use an escrow service or payment vehicle that will give you buyer's protection. An escrow company that has a decent reputation is http://www.escrow.com
Don't let anyone tell you that they had a bad experience with escrow companies. Also, do not let any S&S dealer tell you that they have a problem with taking credit cards, or that they only accept wire transfers. Both declarations are "red flag" excuses. They either don't have the product that they are advertising, or they are not very confident in the quality of the merchandise that they are selling you. Worse case scenario is that they are engaging in wire fraud.
You wire the money, they take the money, you get no product! Hence the wire fraud! What a credit card will do is buy you time. You will have about 30 days till you get your bill. Most credit card companies these days offer you buyer protection. You also have about 60 days to protest a charge, should you be unhappy with your purchase. If someone sells you junk you can petition your credit card company to do a charge back.
Remember--you can cancel a check. You can "charge back" on a credit card, but it is hard to pull a wire. The only way to get your money back is if the company you sent the money too sends you the money back, using the same method. Believe me, I learned this lesson the hard way.
I wired $10,000 dollars to a textile manufacturer in India . I tried to get a collection agency, the bank, the New Delhi Police, even my Congressman to help me get my money back. All failed. The money went into the abyss, never to be seen again. The company, and the owner of the company skipped town.
8) Become familiar with the art of "cherry picking". This why I suggest that you visit the location, and see what you are buying. For instance, a few years ago I went to visit a dealer that was not to far from me. I was told that I would find some great buys, and good quality merchandise. When I visited the warehouse, I found that these great pallet buys were nothing but salvage and damaged merchandise. Some dealers will "cherry pick" a load of merchandise coming into their warehouse.
They will go through each pallet and pick out the good items, while throwing the salvage merchandise back on another pallet. In turn, they sell these junk pallets as "quality surplus" merchandise to unsuspecting buyers. They wind up with the cherry, you get nothing but the pits!
9) Some other red flags about bad S&S dealers. No phone number, and only accessible by e-mail. Their address is a private mail drop, not a P.O. Box or street address. There is no physical address where you can go and visit the facility. You call different days of the week, different times of the day, and no one ever answers the phone.
Your e-mails are never answered. Beware of outrageous minimum purchase prices. Example: A dealer wants you to purchase, up front, $2500.00 dollars worth of merchandise based on only a description and no option to physically inspect the items.
Over hyped or unrealistic promises of great deals on brand name products. Example: Brand new Levi 501 jeans for eight dollars a pair. Louis Vuitton handbags for twenty dollars a bag. Seven Jeans at below wholesale costs. You have to be realistic. Louis Vuitton bags have very little overstock.
Most high end boutiques, and off-price apparel jobbers will have access to what surplus is available, and they will not be selling them to a S&S dealer or broker. In addition Handbags, Jeans, and all manner of designer goods are susceptible to being "knocked" off.
Most American companies that have their products produced in China are subject to knockoff. Even items that are not manufactured in China wind up being copied. A recent 60 Minutes story featured Calloway, Big Bertha, Titanium Drivers and clubs being sold on the streets for about 275 for a set. The real clubs are sold for about 3000.00 dollars! The club heads, instead of being Titanium, were two pieces of steel welded together!
The 60 Minutes crew visited one small shop where there were stacks of Nike, Reebok, and Adidas sneakers that were ready for the "knock-off" assembly line. The Chinese Government is not going to stop this activity anytime soon. Enforcement is literally a "Paper Tiger!"
It provides employment for the general population, and anything that keeps people employed and happy, will get little interference from the "powers that be!" Red flags should be raised at attention whenever a Surplus dealer mentions that they have a popular, high end retail item at a low wholesale price.
Other "signs and symptoms" of questionable S&S dealers. They mention that their computer crashed and lost your information. They have multiple "illnesses" in the family. While some people do have a string of bad luck and personal crises--this is usually not a good sign. These excuses are usually an effort on the sellers part to avoid returning your money, or sending you the products that they probably never had in the first place.
10) Don't let anyone in the S&S business charge you for the right to view their product. While most S&S companies do not have catalogs, some do, and they will try to extract payment for it. I know of one company that wanted $49.95 for the right to view and order their product
While some prices for promotional materials can be justified from wholesale and large distribution companies, rarely, if at all, are they justified in the S&S business. Inventory moves constantly so it is not cost effective, or timely, to send out printed material to customers.
You can protect yourself by making well informed purchasing decisions based on the Ten Tenets. By employing these common sense techniques, you will be ahead of most people who think that S&S dealers will supply them with brand name items at flea market prices.
If you are uncomfortable with the level of risk that can be associated with buying surplus, then I would suggest that you stick with the wholesalers listed in The Ultimate Guide To Products For Resale. The Surplus & Salvage business does require research and "due diligence." It is not for the financially "faint of heart!"