Closeouts are available in many product categories, including clothing, home decor, footwear, accessories, toys and more. They are essentially divided into two categories – salvage items and job-outs. The first category we look at is salvage product. Salvage merchandise consists of customer returns, floor damages and samples. Due to this mixed assortment, some items may be damaged – however damageable does not always mean unsellable. This will depend on the product and the damage. That said – the majority will not be damaged.

The second category of closeout merchandise is job-outs. This category identifies items that were already on a retail floor somewhere and did not sell. As a result, their cost has been reduced for a quick sell to another retailer and ultimately, to a new consumer audience. Like salvaged products, there is a chance for damaged goods. But the percentage is much less – often less than 5%, though as high as 10% has been reported from retailers we’ve spoke with.

One thing to understand among most closeout purchases is that you typically buy in bulk. For example, you may buy 100 total units versus four 6-packs of a specific item. The bulk buy you make is almost always assorted with a variety of items. For example, you could buy a 100 assorted buy of t-shirts from at least ten different total vendors. Or you could buy 100 total units of mixed accessories such as headbands, barrettes, bracelets, rings and more. A closeout dealer will be able to identify a lot of what each bulk, assorted buy has to offer – but there will always be a bit of a surprise when buying closeouts. For many, that is part of the fun! For others, this may be where they get stuck in the buying process. Luckily, there are great resources for this that alleviate a lot of the questions about buying closeouts. One site to look at is Merchandize Liquidators, who do a good job at delivering quality closeout products.

Many indie and small retailers shy away from closeouts simply due to their lack of understanding or even the “bad rap” that closeouts sometimes have. Our advice? Consider what is best for you. Closeout liquidators exist because it has proven to be successful for many retailers to buy from.  Among these include a lot of small, independent retailers that blend closeout buys into their total store inventory – without customers or even staff knowing any different. It’s very possible you shop a boutique that sells closeouts and you don’t know any different, as well.

Have we made you think twice about your buys or where you shop? Let us know!

How Much?

There are a variety of ways to secure orders. Choose what is best for your business.

1. Set your opening order according to total value of wholesale cost. For example, you may say that opening orders starts at a minimum of $500.

2. Set your opening order according to total case packs. Case packs refer to a certain number of specific goods sold at one price for all the units within the case. If you sell apparel t-shirts, for example, you may have a case pack of one extra-small, two smalls, one medium and two large shirts. This totals six units which equals one case pack. Make sure you are very clear as to what each of your case packs consist of. Try and keep the quantities within your case packs consistent to avoid confusion with your clients.

3. Set your opening order according to total quantity of units, such as four pieces. This is a good strategy for products with higher price points, such as art or furniture.

4. Set your opening order according to nothing. That’s right – nothing! By setting no terms, you are allowing complete flexibility in the ordering process. However, for most companies this is not an effective way to manage their time, inventory or investments. This typically only works for custom work or higher priced items and should be carefully considered before setting into place.

Who Is Qualified?

While the below points are all something to consider for your business, you should also consider which are valid for your business to put into effect.

1. Check company credit prior to producing orders for them. It is legal to check for secure credit by processing a business credit check as a vendor. Speak with your preferred credit company to secure more details on this process.

2. Confirm there is no immediate competition with your other clients that sell your product for new accounts.You may want to set in place a 1 mile rule or something of sort to keep your retail clients happy by not over-saturating their neighborhood with your product in different retailers. Depending on your product, this will vary.

3. Set trial periods for retailers who sell your product according to sell through success. If your product is in demand and you want to only be in the best retailers, it’s fair to tell your retailers that there is an expected re-order rate based on sales for them to continue selling your product if they are exclusive to that specific area. Retailers may have the best intentions to sell your product, but if they aren’t, it’s fair for you to stop shipping to them, also. Make sure you make them aware of this in advance, of course!

What About Re-Orders?

Re-orders are what keep businesses alive. It’s important for you to gain re-orders, so as a result you want to give your retailers the opportunity to get more of your product more comfortably than the first time around.

1. One out, one in. You can set your clients up with the opportunity to automatically have new product sent to them once one of their current product in their inventory is sold. Typically this works well for hard goods, such as picture frames, rugs, high chairs and other products that are not based on a specific size (such as apparel or footwear).

2. Set in place a quantity of total units or total case packs allowed for re-orders. For example, you may say you need at least two products in order to place a re-order or two case packs.

3. Set in place a monetary number for re-orders to be placed. Maybe $200 is your magic number. Whatever your number is, make sure it is less than opening orders so that retailers are more inclined to make this purchase.

4. No minimums at all! This is great if you can afford to process single unit orders (and expect this if you set this in place) and invest the time it will take just to deal with the re-order communication. Remember that it does take time, so consider this when setting up all your terms.

Extra, Extra

If you plan to charge for shipping, let your retailers know – and tell them how much as well as who is shipping your product (UPS, Fed Ex, etc). If certian colors are off limits for production reasons or re-order purposes, let them know. Anything that adds to the order terms, LET THEM KNOW! Nothing is worse than surprising your retailer with additional information that may result in lack of trust or respect and possibly severed business. Be clear on all your terms with a clean, professional document that is included in your Buyer’s Packet. Make sure to have your retailers sign a partnership contract, as well.

Finally, be open to your own unique needs. Each wholesaler is different and deserves to respect their brand and product respectively. Learn about what your competition is doing and try and be flexible with the economy, as well. One way of doing this is offering show specials to your clients (if they attend a trade show, they may get a discount, for example) or offer other incentives that can help make the sale for you. Free shipping on opening orders is always a good one.

Need help defining your unique order terms? We can help. Email nicole@retailminded.com for more details.

Cost of Goods + Retail Markup = Retail Price

Retail Price – Cost of Goods = Markup

Retail Price – Markup = Cost of Goods

Beginning Inventory (in $ or Sku Count) + Purchases – Endoing Inventory = Goods Sold (in $ or Sku Count)

Total Sales – Cost of Goods = Gross Margin

Gross Margin $ / Average Inventory Cost = Gross Margin Return On Investment

Net Sales / Average Retail Inventory (Sku Count) = Inventory Turnover

Gross Sales – Returns & Allowances = Net Sales

Projected Sales + Projected Markdowns + Planned End of Month Inventory – Planned Beginning of Month Inventory = Open to Buy (OTB)

Units Sold / Units Received = Sell Through %

Beginning of Month Stock / Total Month Sales = Stock to Sales Ratio

Cost of Supplies

The first thing you need to consider is how much the actual cost is to make your product. This includes every raw material used from start to finish to produce your goods. If you are not buying straight from the manufacturers themselves but still buying retail prices to produce your products, this should be something on your immediate to do list so that you can help control your overall costs.

Packaging

How you present your product will make a big influence on both the retailers you pitch your product to as well as consumers who may or may not purchase your product. It can be tempting to spend a lot of money on packaging since there are so many exciting options, however you want to be realistic with who your target market is, what your competition is doing for their packaging, and how much you can afford to invest in this. You should, however, not skimp out on these details since it is a valuable selling tool. Once your packaging costs are determined, make sure to consider this in your overall price decision for your product.

Your Time

If you ask me how much I’m worth an hour, I’m going to tell you way more than you would probably be willing to pay me. However, if you ask me how much I charge an hour, I’m going to give you a number based on my skill-set, my competition, and what the market rate is for my services. That said, you need to determine how much your time is worth and consider the realistic demand for what you are providing when determining your cost of time. This influences how much you can really add to the value of your product when considering final purchase price.  Be realistic with yourself, with the competition, and with the marketplace. This is not the place to get greedy.

Marketing Tools

Whether you hire someone to create your Buyer’s Packet or plan to advertise, you need to consider all costs that are involved in your marketing strategy when determining your price point. While it’s true that it takes money to make money, it’s fair to consider all of your costs upfront. This may also be an opportunity for you to review how you can cut costs to help improve your overall budget.

Location, Location, Location

In a perfect world, it would cost us nothing to find the space we need to produce our products. Rent should be free, right? Wrong, unfortunately. For some you, you are fortunate to be able to produce your products in your own home, however many of you need to rent space for the production of your goods. Take the cost involved in this, if necessary, and consider this in your final price point.

Labor Intense

If you are paying someone to help create your product or for any other reason, you need to consider these costs in your pricing. Make sure to be realistic both with how much you are paying someone as well as how much of this you can put back into the cost of the product at retail. Remember, as your business grows and changes, so will your cost strategies and pricing strategies.

Competition

Like it or not, our competition does have some control over us. Unless your product is so unique or one of a kind that competition does not matter, you will have to consider it when pricing your product. The fact is that consumers have a choice in what they buy, so you need to make sure your product’s price point can compete with what is already in the marketplace. There are thousands of other reasons that consumers make their purchasing decisions besides just price, however it is certainly among one of the top decisions. Make sure your price competes in the marketplace.

Wholesale vs. Retail

Now that you have multiple factors to consider when determing the price of your product, make sure to remember that if you plan to sell your product to retailers, you need to offer them a wholesale cost that will then typically double for the retail cost. This mean that if you determine something to cost $10, then at retail it will cost about $20. So if your wholesale cost does not reflect the cost your product should be at retail, you need to re-evaluate your pricing. I find that many small based wholesalers are not pricing their products according to retail, but rather according to wholesale since this is what they take home once they sell it to the retailer. You need to understand that once it’s sold to the retailers, you will only get reorders if your product sells from them. In addition, you don’t want your retailers to be forced to sell your product on sale if it doesn’t sell on it’s own, so pricing smart upfront will make a big difference down the line.

Final Cost

While the above factors are suggested to consider when pricing your product, make sure to include any details that may be specific to your product, production, product launch, and more. Ultimately the cost at retail should reflect the quality, the construction, the demand, and the desire of your product in addition to the necessary details such as cost of supplies, labor, and all other factors that went into creating your product. It takes time to establish a true product comfort level in many ways, including pricing, so be patient and realistic with yourself if you need to reconsider the different attributes to pricing on more than one or even a hundred occasions. As your business grows and changes, so will your pricing considerations. It will always be another check to do on your never ending to do list.