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Deal or No Deal?

Liquidation Sales

Liquidation sales often lure shoppers with misleading promises of discounts that amount to no deal at all. But the next time that you stumble across a going-out-of-business sale, don’t necessarily dismiss the opportunity to save. If you’re willing to compare prices and find sales that are run by the actual stores, you have a better chance of finding a bargain.

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When Ritz Camera decided to close more than 300 of its approximately 700 stores in April, storm-chaser Rich Gudmunsen of Minnesota thought he could get some new photography gear on the cheap by shopping at one of the chain’s going-out-of-business sales. At the very least, he hoped that he could find a great deal on a new lens for his digital camera, so he could better capture images of tornadoes, lightning strikes or hail from the storms that he tracks across the Midwest as a hobby.

Gudmunsen checked out the selection on the first day of the sale—all items were marked down by at least 10 percent. But the least expensive lens that he found at the Ritz Camera liquidation sale topped $150, and he passed on making a purchase.

“There was nothing that said this is such a good value that I should get this,” Gudmunsen recalls.

We’re not surprised. The sour economy has sparked a series of liquidation sales across the country—but few sweet deals for consumers. Stores hype blowout discounts of as much as 50 percent on their storefront windows, which lures shoppers who all too often find nothing more than disappointment on the shelves or, worse yet, make purchases that they mistakenly believe are great deals. The reason is because the advertised discounts usually are based on the manufacturer’s suggested retail price, which is much higher than what stores typically charge. In the case of closed consumer electronics chain Circuit City this year, some flat-panel TVs actually cost less the week before the liquidation sale started.

SHOPPING SENSE. But at a time when liquidation sales are being exposed for giving you a raw deal, it’s important to know that you can find legitimate liquidation-sale deals. We interviewed 24 retail analysts, liquidation-sale experts and liquidation-firm executives. What’s the bottom line? If you hope to ever land a bargain at a liquidation sale, you should follow these two rules:

  • Shop locally. Legitimate deals can be spotted at the going-out-of-business sales of smaller, locally owned stores. Unlike the liquidation sales at major chain stores that often are run by outside firms, independent stores typically run their own sales. This makes them more likely to offer prices that provide legitimate discounts, experts say.

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  • Compare prices, not discounts. You should disregard the advertised discount at all liquidation sales. Instead, it’s critical for you to compare the sale price with what other stores charge for the same or a similar item. That’s the only way to tell whether a liquidator is manipulating prices.

It’s important to keep this advice in mind, because more liquidation sales are on the horizon, and major liquidation firms are unlikely to change their tactics, say analysts and liquidation-firm executives with whom we spoke. That’s despite the hostility that was generated by the lack of legitimate deals at recent liquidation sales, such as those at Circuit City. Liquidation firms “don’t care about negative press,” says George Whalin, who is the founder of Retail Management Consultants, which advises retailers.

In other words, the approach that you need to take toward liquidation sales should apply for some time to come. And there will be plenty more chances to browse liquidation sales. About 146,000 stores will close in 2009, according to projections by International Council of Shopping Centers. That is almost as many as in 2008. And if the trend from 2008 holds, more than a quarter of the announced closings will be clothing stores, followed by jewelry and home entertainment retailers. Exact projections aren’t available for 2010 or 2011 because of the uncertainty about how and when the economy will recover, but one liquidation-firm executive says liquidation sales won’t be disappearing anytime soon.

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