Why liquidation inventory can be 3P kryptonite

As major retailers clean out their warehouses post-Q4, the secondary markets are filled to bursting with liquidation inventory. Third-party sellers can find a treasure trove of hot deals across every category – all for pennies on the dollar. What could go wrong?

Everything. In fact, things could go so wrong that you lose your Amazon seller account permanently. Liquidation inventory has been a hotly debated topic in the Amazon 3P world for a decade. Many experts in the space excitedly tell their social media audiences about the killing they made on auction inventory or lots of overstocks. “After all,” they point out with dollar signs dancing in their eyes, “Amazon doesn’t say anything in terms of service about liquidation inventory. It’s totally OK!”

True, Amazon does not specifically address liquidation inventory in the ToS, nor anywhere in the help section. But a little common sense will tell you that liquidation carries elevated levels of risk. Consider the shortcomings of liquidation products:

• In almost all cases, it’s impossible to prove the chain of custody for the products. In other words, you cannot show it is authentic if asked for invoices, or if you field an intellectual property complaint.
• The products might be counterfeit. Some of the most popular sources of liquidation inventory are Amazon fulfillment centers. But much of this inventory comes from third-party sellers, and some of it is outright fake.
• The items are often returns. They’ve been opened, used, or refused because they don’t work. Even if you have a great inspection process in place, these pieces are only fit for resale as used, or at best, open-box.
• Shelf-wear has taken a toll. Inventory on the secondary market has been through the wars. It’s traveled to multiple warehouses, stores and customers. Boxes are worn, torn, faded, discolored and dirty. It often just doesn’t look new.

Consider a few tales of woe from fellow Amazon sellers who became Riverbend Consulting clients:

• A large private-label seller decided to expand his Amazon catalog. He purchased a large lot of Amazon FC liquidation inventory via Woot! Almost immediately, he was hit with a slew of IP complaints – more than 100! The vast majority of the brand owners refused to remove the complaints, and his account was deactivated.
• A relatively new seller ran across an opportunity to buy name-brand phone cases and accessories from a chain of convenience stores that was closing. When Amazon demanded invoices, he could only show PayPal confirmations. Amazon deactivated his account.
• An experienced, long-time seller bought closeout housewares from an auction company, which sourced the items from big-box retailers. The seller inspected the boxes and saw they were sealed, so he sent the inventory to FBA. When the coffee makers he had purchased were sold to Amazon customers, they reported finding moldy coffee inside. Clearly, these were returns that had been re-sealed at the warehouse of the big-box retailer. The seller’s account was suspended.

Happily, all three sellers above became Riverbend clients and were reinstated. But it wasn’t an easy process, and there are costs associated with any account suspension. Their Amazon appeal letters were complex and required a great deal of research, work and implementation.

Is there a time and place for liquidation inventory? Here’s the unpleasant answer to that question: Maybe.

It all depends on your personal risk profile – and the risk profile of your business. Many sellers move liquidation inventory quite successfully. If you’re determined to sell liquidation, it’s important to know the risks. In addition, take the steps to mitigate that risk whenever possible:

1. Be reasonable in your sourcing. Ask yourself – how trustworthy is the chain of custody for these items? For example, a recent client purchased liquidation inventory from a large liquidator that buys directly from big box chains and has the invoices to prove it. Clearly, this carries less risk than buying from a no-name liquidator on eBay.
2. Perform serious quality inspections. Liquidation inventory cannot simply be stickered and shipped to FBA. Plus, your team must research to ensure you understand what the items were supposed to look like, what pieces and parts are included, whether the original box had seals, etc.
3. Adjust your ideas about condition. Conservative is the way to go. If it is even possible that an item was opened, don’t grade it as “new.”
4. Put serious thought into brand choices. Intellectual property complaints abound on the Amazon platform. Certain brands carry much higher risk than others. It makes sense to stay away from liquidation inventory for premium brands and high-dollar items. In addition, many consumer electronics items would make more sense in the Renewed (certified refurbished) program.