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 Show Date: 2/11/2008
 Segment 1 – How to Source Surplus Without Getting Burned – Chad Maslak

Colette: Thanks for joining us today. I’m Colette Marshall, Worldwide Brands Marketing Director. Unfortunately, Chris is out today, he has caught a case of the flu. Seems to be a lot going around this time of year. Liquidation presents a great opportunity for online sellers looking to see some serious profit margins, but you really have to know what you’re doing or you can really get burned. So today we’re talking with Chad Maslak of Surplus2Profits.com about what his own extensive was placed with liquidation sourcing has taught him and about what to do and what not to do when buying surplus goods.

Colette: Chad, welcome to the show.

Chad: Thank you for having me.

Colette: It’s wonderful to have you on. We’ve often talked about surplus and liquidation, but why don’t you give us your perspective, since you’ve been working with it quite a bit.

Chad: Well, surplus and liquidation items are a very excellent source of products for people looking to make some extra money and a lot of people want to sell on eBay or sell at flea markets or their local retail stores. Surplus and liquidation items are an excellent source as well as wholesale products, but a lot of times what happens is people look for a source of products to sell on eBay and they have a difficult time finding products to sell cheaper than what people are selling them for on eBay. So a lot of times surplus and liquidated items are a very excellent source to make money on.

Colette: Definitely. Now, surplus and liquidation most of the time come from reclamation and distribution centers. Can you give us your take on what the difference is between the surplus and liquidation items?

Chad: Sure. Surplus and liquidation items are merchandise sent to reclamation and distribution centers from various types of store chains. These are products that are going to shelf pulls, closeouts, customer returns, recalled items, or discontinued products. They could be overstocks. They’re usually categorized in various categories such as clothing, electronics, household, hard goods, soft goods, and various other categories. But what happens is the retail stores will sell these to reclamation or distribution centers.

Colette: For pennies usually, right?

Chad: Right, right, for a percentage on the wholesale dollar. And what they do is in turn resell these products to the end consumer for a percentage on the wholesale dollar. So this is where you can find great merchandise and awesome deals to resell. Now, the reason is a lot of these can be new items. Often they can be damaged and the stores need to clear them from their inventory to make room for other products because they only have a limited amount of shelf space. Now, there are several reasons these products are removed from the store, but these products can come in all types of conditions and they’re usually available in different categories. Now, surplus and liquidation items, even with that, they’re an excellent source of products to resell. You can purchase them for literally pennies on the dollar and there are a lot of great items and products that you can pick up to resell for profit, which is a little bit different than wholesale and drop ship items. Wholesale and drop ship items will have a little bit of a higher cost associated with them.

Colette: Right.

Chad: Yeah. They’re going to include warranties and they could be new products.

Colette: You make a good point Chad. The biggest difference with surplus and liquidation is that you’re buying items in a bulk and, like you said, they’re damaged items or not necessarily new items. But it’s a part of the supplier chain. Sometimes I get feedback from our customers that they’re confused from the liquidation and surplus, they think it’s a middleman situation when they go talk to these liquidation and distribution centers. That’s not the case. This is a necessary part of the supply chain for suppliers for merchants. They’ve got to get rid of these materials because they’ve got to make way for the new stuff.

Chad: Absolutely.

Colette: So a lot of the time we’re saying to our customers this is necessary and you can find some fabulous deals. But there are things you have to watch out for.

Chad: Absolutely, absolutely. One of the things I think, one very important point that you mentioned was it is a necessary part of the supply chain. A lot of times I think the stores, whether they’re major department stores, retail stores, whether they’re national store chains or whether they’re just a local mom-and-pop shop, they need a place to liquidated their returned items or their closeout items and they’re in the business of selling things and moving the new products off of their shelves and they have to have a place to sell to remove those items.

Colette: There’s only so long you can have clearance boxes in your retail store.

Chad: Right.

Colette: Now, what are the most important aspects of buying and selling surplus and liquidated items, the things that you need to know before you start buying and selling these types of products?

Chad: That’s a great question. If you’re new to buying pallets of bulk merchandise I would certainly suggest not to start off buying a whole truckload to begin with. I suggest to start off with a few pallets, sell them, roll any and all profits into the next load, and try to grow the profits into your next purchase. Now, I think that there have been a lot of people getting burnt because they don’t know, a lot of people don’t understand how to buy the products up front. And with a smaller liquidation purchase what you can do is you can test the market, you have less risk and you can gain the experience with a lot less pressure than trying to figure out what to do with an entire truckload and thousands of dollars of stuff that you realize you can’t sell.

Colette: Right, and that’s what you mean by burnt. The horror stories I’ve heard are where people have bought this huge, three different pallet loads of electronic goods, they get all electronic goods and find that none of them work.

Chad: Exactly, absolutely, right.

Colette: Yeah. So what is the key to selling surplus items?

Chad: The key to selling surplus items is to sell them as soon as you get a load in as quickly as possible. You want to have a quick turnaround time. I typically like to try to within thirty days, or actually faster. Usually most people’s bills come due within thirty days so you like to get them in and move them out quickly. So you always want to have a revolving door of product flow.

Colette: You made a great point. Starting small is always the way to go. Test that market out. Purchase just a little bit of quantity and that way you also learn what kind of quality that liquidator tends to have in their pallets. Inevitably with liquidation you’re going to have damaged product.

Chad: Right, absolutely.

Colette: You can expect that.

Chad: Absolutely.

Colette: So you’re saying the key is to turn everything around in thirty days, right?

Chad: As quickly as possible.

Colette: Right.

Chad: Thirty days would be ideal I would say. When I first started out it would take me quite a bit longer than that. But once you get a system, I would suggest people have a streamline system, they get their product in and they can get it out, and just as quickly as you possibly can. Now, I understand that everyone’s situation is a little bit different. Maybe someone is selling items that they have a higher profit margin on and may not need to turn it as quick as thirty days. But depending on their situation it’s just a good timeframe that I like to operate off of.

Colette: Now, how would you compare the profits from surplus and liquidation with those from other wholesale methods?

Chad: Surplus and liquidation products can be attained usually at a cheaper price than drop ship and regular wholesale products. So this means that the profit margins are going to usually be higher with surplus and liquidation merchandise. I know you made a great point of a lot of times there will be damaged products, so you always have to take into account for the damaged merchandise, but you’re still going to be able to make the percentage of price that you can purchase them for, you’ll be able to have the opportunity to make higher profits. Now, drop ship and wholesale merchandise are usually purchased at a higher cost than surplus, so there’s not going to be, there may not be, as high of a profit margin regarding if you’re selling on eBay. That’s why I always say it’s important to have a backend selling process which is where you can sell the additional products to your customers after initial sell. So a key to maybe moving your slow moving surplus and liquidation items are what’s called backend selling. Backend selling is where you’re selling to your customer a product or your service after they’ve bought or at the point of sale you can do what’s called an upsell where you can offer your customer another product at the point of sale. It’s kind of like when you go to McDonald’s and you place your order and they say, would you like fries with that?

Colette: I always get trapped by that (laughter).

Chad: Is that right? Those are two ways that you can actually move your surplus and liquidation items quicker.

Colette: Right. Now, the other thing about surplus and liquidation products is they’re not always repeatable. Sometimes you get a great pallet load that sells really well, but there’s no guarantee that you’re going to get another pallet load. And that’s another big difference between drop shipping and wholesale, because those are new products that you’re constantly getting from the supplier, so it’s very repeatable. But you can find some great upsells, and as you said, backend selling products that you can sell to your customer base.

Chad: Right, that is a great point.

Colette: What do you think a common misconception is among the average person looking to buy surplus items or bulk products to resell?

Chad: I think many people are purchasing bulk products with sort of a garage sale mentality. They kind of browse around and think they’re going to find a great deal purchasing in a bulk product and purchasing pallets maybe at their local outlet store and that’s great, and they go for it and they find themselves eventually at times with a room full of junk products. Now, that’s not to scare anyone off, if someone wants to make money and do that stuff, fine. But I think the key point is having a plan, to know what someone is doing and what types of products they’re getting into, how to buy them, and knowing what the market is that they’re going to sell to. And I think that the biggest, most often common mistake and idea is that people see or hear other people buying this product and that product for such a low price, they automatically want to go out and do the same.

Colette: Right.

Chad: So I think it’s important to understand how to buy products and know what products to look for and know how to sell them and have a plan to buy and a plan to sell.

Colette: And that’s especially the case with liquidation and surplus, but it’s a common trait with any sourcing that you do.

Chad: Right.

Colette: We’re approaching the break. Subscribe to our free product sourcing newsletter at ProductSourcingNews.com to stay up to date with the latest product sourcing news, check for upcoming tradeshows in your area, and find spotlighted suppliers you can use in your ebusiness. We’ll continue learning more with Chad Maslak when we return. I’m Colette Marshall.

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