What Happens to Merchandise When Stores Go Out of Business?

2020 and its global pandemic have wreaked havoc on businesses around the world. Stores have been shuttered, restaurants sit empty, and workers find themselves out of jobs. At times, it seems the list of businesses filing for bankruptcy is growing by the day, and more are undoubtedly yet to come. We’ve all seen the “going out of business” and “bankruptcy” sales from big brands of the past. When a store goes out of business, what happens to the rest of their merchandise? The stuff that’s sitting in warehouses and the products that don’t sell, even at clearance prices?

In this post, we’ll break down the types of bankruptcy and tell you the best ways to get your hands on merchandise when a company is going out of business.

Types of Bankruptcy

The first thing to remember is that there are several types of bankruptcy and not all of them involve going out of business. If you’ve just heard your favorite brand is filing, it’s important to know and understand what type of bankruptcy they’re in.

Chapter 11: Reorganization

In 2020, brands like JCPenney, Modell’s, J. Crew, and Pier 1 Imports have filed for Chapter 11 bankruptcy. The good news for their loyal shoppers is that this doesn’t mean the brands are going away. To file for this type of bankruptcy protection, the brand must first prove that they can realistically turn things around. They must file a plan for reorganization that details steps to be taken to bring their books back into the black. The company is then given the opportunity to work through their plan under the guidance of a court-appointed trustee. They are also permitted to terminate any contracts and leases, and discharge some or all related debts.

Chapter 7: Liquidation

Chapter 7 bankruptcy is far more serious than Chapter 11. A brand that doesn’t have a viable plan for reorganization and has no foreseeable future must file Chapter 7, and then liquidate all of their assets in order to pay off creditors. Under bankruptcy rules, the court-appointed trustee oversees the liquidation process and handles all payments to creditors, ensuring an equitable distribution of the funds raised in liquidation. Generally, the first step is to hold “everything must go” sales in all store locations. Next, the store will auction or sell off its remaining assets, including any leftover inventory, fixtures, equipment, and warehouse and administrative assets.

Liquidations

When a chapter 7 bankruptcy occurs, there is often a great deal of product and other assets to be liquidated. Even in chapter 11, some assets may be liquidated in order to satisfy the brand’s reorganization plan. Finally, some brands may choose to liquidate some of their assets privately in order to settle their debts without a bankruptcy filing. But how do you get your hands on the merchandise, fixtures, and other assets available when a brand is forced to liquidate?

Going Out of Business Sales

First, most brands start by clearing out inventory in their stores. This often means an ongoing clearance sale, with prices dropping further and further as time goes on. The best selection in such a sale is to be found at the start, as soon as the brand announces its bankruptcy. The best prices, on the other hand, can be found at the end, when the clearance sale is wrapping up and the goods are often picked over. If a store is going out of business, many shoppers find the sweet spot to buy merchandise somewhere in the middle, between the best price and the best selection.

Liquidation Auctions

On websites such as B-Stock, liquidation auctions happen routinely, even from healthy brands. Some businesses choose to liquidate customer returns rather than spend the time and money to process them. Others liquidate end-of-season merchandise or scratch-and-dent and floor models. Finally, some businesses may choose to use liquidation auctions as a means of raising money to pay off creditors. To bid on these auction lots, you’ll need to have a registered reseller business and an account with the auction site. Then you can acquire large quantities of inventory for resale for relatively little expense by successfully winning an auction and arranging for the products to be shipped to your location.

Foreclosure Sales

In some cases, businesses may own real estate that must be foreclosed in the bankruptcy process. These foreclosed properties are often auctioned off with the proceeds going to the mortgage holder or sometimes to the state in the case of tax foreclosure. If you’re in the market for a commercial property, this may be a good way to acquire one at a fraction of its value. At times, they may even include fixtures and other equipment that was not cleared out before the business went under.

It’s never good news when you learn one of your favorite retailers is going out of business. But with a little know-how, you can take advantage of merchandise liquidations to acquire a good deal of inventory for comparably little capital. Looking for more ways to get liquidation merchandise for resale? Be sure to check out our marketplace auctions to score great deals on large inventory lots.